The Kerala High Court has ruled that authorities under the Income Tax Act, 1961, are entitled to request interim custody of seized currency notes, which should be reported to the jurisdictional Magistrate in accordance with Section 102 of the Code of Criminal Procedure [Kasinath Ragonda Kanade v. State of Kerala].
A Division Bench comprising Justices PB Suresh Kumar and C Pratheep Kumar noted that the Act grants competent authorities the power to requisition and obtain assets from the assessee to address any outstanding liabilities. They asserted that these authorities could seek interim custody of seized assets if there are reasonable grounds to believe that such assets represent income or property that has not been disclosed as required by the Act.
The judges emphasized that when the Act empowers authorities to requisition and obtain assets, the appropriate custodian of seized currency notes—pending inquiry or trial—would be the competent authority if it is alleged that the asset partly or wholly represents undisclosed income or property.
The court reached this conclusion by examining Sections 132 (search and seizure), 132A (powers to requisition books of account, etc.), and 132B (application of seized or requisitioned assets) of the Act. The provisions aim to allow authorities to hold seized or requisitioned assets so they can be allocated to the assessee’s current and future liabilities, unless the assessee can adequately explain the nature and source of the asset.
This judgment was issued in response to a batch of four cases referred to the Division Bench by Justice Bechu Kurian Thomas. The cases arose from differing opinions among single judges: one ruling that authorities could seek interim custody, while another held that without a valid order of assessment and tax demand, the person from whom the amount was seized could seek its return.
In the current cases, various sums of money had been seized from petitioners, who challenged the Magistrate’s orders granting interim custody to the Income Tax authorities. The Division Bench agreed with the interpretation in the Union of India v. State of Kerala, affirming the competent authority’s entitlement to seek interim custody of seized assets.
However, the Bench diverged from the earlier ruling concerning a six-month deadline for completing proceedings; it deemed this directive unwarranted, clarifying that the issue at hand was solely about determining the appropriate custodian for the seized currency notes until the inquiry or trial concludes.
The petitioners were represented by Senior Advocate M Ramesh Chander and other advocates, while Additional Solicitor General ARL Sundaresan, along with advocate Navaneeth N Nath, appeared for the Income Tax Department.
