IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 3589 of 2010(W)
1. SRI.P.M.SATHYAN,
... Petitioner
Vs
1. THE COMMISSIONER OF INCOME TAX,
... Respondent
2. THE DIRECTOR OF INCOME TAX (INV),
3. THE DEPUTY DIRECTOR OF INCOME TAX
4. THE ADDL.DIRECTOR OF INCOME TAX
5. THE ASST.DIRECTOR OF INCOME TAX
6. THE DY.COMMISSIONER OF INCOME-TAX,
7. THE UNION OF INDIA, REPRESENTED
For Petitioner :SRI.P.BALAKRISHNAN (E)
For Respondent :SRI.JOSE JOSEPH, SC, FOR INCOME TAX
The Hon'ble MR. Justice P.R.RAMACHANDRA MENON
Dated :03/06/2010
O R D E R
P.R.RAMACHANDRA MENON, J
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WP(C) NO. 3589 OF 2010
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Dated this the 3rd day of June, 2010
JUDGMENT
The petitioner is running a jewelery business in the name and style
‘Aiswarya Jewel Crafts’, stated as engaged in purchasing old gold items,
remaking and distributing it to various parties, besides exporting the same.
The petitioner is having two residential buildings at Cherpu in Thrissur
District. Besides the business premises situated therein, there is also
another business premise in Chennai.
2. While so, a search was conducted under Section 132 of the
Income Tax Act, 1961 on 23.7.2009 at the two residential premises as well
as the business premises of the petitioner at Cherpu and similar search
was conducted on 31.7.2009 in the business premises in Chennai. There
was no seizure of any material from the business premises in Chennai, as
well as from the residential premises in Cherpu. However, in the course of
the search conducted in the other residential buildings situated in Cherpu,
5393.610 grams of gold was seized consisting of 449 long chains. The
proceedings in this regard are discernible from Exts.P1 to P4 mahazars,
among which, Ext.P3 relates to seizure of gold items from the above
residential premises.
3. In connection with the seizure of the articles, Exts.P5 to P7
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sworn statements were taken on the very same date of seizure, while
Exts.P8 to P10 sworn statements were taken on the subsequent dates.
Thereafter the petitioner filed Ext.P11 representation before the fourth
respondent seeking to release the gold articles seized. The petitioner filed
a petition under the 1st proviso to Section 132B(1)(i). The said
representation was followed by other representations, as borne by
Exts.P12 to P15. The case of the petitioner is that despite filing the said
petitions and reminders, the gold articles, which were seized from the
petitioner, which according to the petitioner is ‘stock-in-trade’, have not
been returned by the authorities concerned, in spite of the expiry of 120
days as contemplated under the ‘second proviso’ to Section 132B(1)(i),
which made the petitioner to approach this Court by filing this Writ Petition
for appropriate reliefs.
4. The respondents have filed a statement rebutting the
averments and allegations raised in the Writ Petition contending that, the
Writ Petition is devoid of any merit or bonafides and that the gold articles
seized are not liable to be reckoned as ‘stock-in-trade’ under any
circumstances. It is stated that, the seized materials clearly indicated that
neither the stock statement nor the sales figure disclosed by the assessee
was correct and that large scale of suppression of income received as
”making charges”, up to 4% of the price of the gold was quite evident. It is
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further stated that the making charges are fixed as a percentage of the
quantity and is not an ‘ad valorem rate’ on the price of gold, which
according to the Department constitutes taxable income of the assessee
from the business. It is also asserted that the seized articles were nothing
but personal assets of the assessee and very much distinguishable from
the ‘stock-in-trade’. Various other contentions have also been raised,
stating that the assessee has not been maintaining proper books of
accounts and that he is suppressing receipts and profits.
5. Sri.P.Balakrishnan, the learned counsel for the petitioner
submits that the seizure of the materials is not sustainable in the eye of
law, as the seized gold articles clearly amounted to the ‘stock-in-trade’,
which stands excluded from the purview of seizure, as stipulated in the
proviso to Section 132 (1)(A)(B) (iii). The second contention is that there is
violation of the statutory requirement, particularly for not having acted upon
in tune with the mandate as provided under the ‘first’ and ‘second’ proviso
to Section 132 (B) (1) (i) and the statutory period is already over. Besides
the above legal contentions, assertion is also made with regard to the
factual position that the items seized were actually kept apart, for the
purpose of export.
6. The basic question to be considered in this case is whether
the seized articles stand exempted from the purview of seizure and
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whether the contention raised by the petitioner that it is ‘stock in trade’ can
be accepted or not. The learned standing counsel for the respondents
submits that the entire capital asset of the petitioner is not liable to be
reckoned a ‘stock in trade’. The term ‘stock in trade’ is obviously not
defined under the Income Tax Act and applying the meaning in the
common parlance and the field of accounting, it is only be the stock which
is reflected in the books of account. There is no case for the
petitioner/assessee that the seized goods was accounted any where in the
books of accounts. That apart, the said material was seized not from the
business premises, but from the residential premises and this being the
position, even by the farthest stretch of imagination, it cannot be
considered as part of ‘stock in trade’, submits the learned standing
counsel. Reliance is also placed on the decision rendered by the Apex
Court reported in Commissioner of Income Tax, Patiala Vs. Groz-
Beckert Saboo Ltd. [116 ITR 125], wherein some specific observations
are there with regard to the item which could be treated as ‘stock in trade’.
In the said case, the raw materials and the semi finished needles which
originally were stated as obtained as gift items in April were subsequently
entered in the books of accounts only in September, as part of the ‘stock in
trade’, virtually making it clear that the item could not have been
considered as ‘stock in trade’ before entering the same in the books of
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accounts. The applicability of decision is seriously disputed from the side of
the petitioner, referring to the facts and circumstances in the said case and
the distinction sought to be made with regard to the factual position
available in the present case. The learned counsel further submits that the
residential building from where the articles were seized is situated in close
proximity with the business place of the petitioner and hence that there
was nothing wrong for having kept the said articles at the residence and
that, such course by itself will not take it outside the purview of the ‘stock in
trade’. Reference is also made to the deposition of the petitioner as well as
the witnesses produced before this Court as Exts.P5 to P10. The version
of the petitioner is sought to be controverted from the part of the
department, by referring to some incriminating answers elicited from the
witnesses, as contained in the very same Exhibits. Going by the materials
on record, this Court finds that this is a question which requires to be
considered and adjudicated on the basis of the evidence by the
appropriate authority in the due course.
7. Coming to the question of release of the gold articles to the
petitioner, it is brought to the notice of this Court by the learned counsel for
the petitioner that the liability, if at all any, can only be with regard to the
element of ‘tax’ in respect of the un-disclosed income, which is stated as
returned by the petitioner in the form of gold and that the entire gold seized
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from the petitioner is not liable to be detained at the hands of the
department in this regard. The scheme of the statute is also projected, with
reference to the course to be pursued, under the ‘first’ and ‘second’ proviso
to Section 132 (B) (1) (i), which shows that, it is not open to the department
or the state to have the custody of the seized articles for ever and that the
statute very much envisages the release of the materials, on satisfying the
requirements as prescribed; simultaneously adding that the petitioner has
filed a petition as contemplated in the ‘first proviso’ within 30 days which is
to be acted upon and finalised within 120 days as provided in the ‘2nd
proviso’. It is assured from the part of the petitioner that the petitioner will
co-operate with the finalisation of the proceedings as above, which
accordingly is recorded.
8. The learned counsel for the petitioner submits that, because of
the retention of the seized gold articles at the hands of the department, the
entire business operations of the petitioner have come to a stand still and
that the petitioner is not in a position to satisfy the demand and the liability
towards the customers. Taking note of the rival contentions, this Court
finds that an early adjudication of the proceedings is very much essential to
safeguard the interest of both the sides.
9. In the above particular facts and circumstances, this Court
directs the respondents to finalise the adjudication proceedings pursuant to
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Exts.P1 to P4 in accordance with law, as expeditiously as possible, at any
rate, within three months from the date of receipt of a copy of this
judgment. Release of the articles seized from the petitioner shall be
subject to the outcome of the decision to be rendered by the appropriate
authority concerned.
The Writ Petition is disposed of as above.
P.R.RAMACHANDRA MENON
JUDGE
dnc