For relevant consideration as to who is the proper person with whom the amount can be entrusted since the revenue is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A , preference should have been given to Revenue.

UNION OF INDIA (INCOME TAX DEPARTMENT) VS STATE OF KERALA & ANR - (HC Cases)

Held Scope of Section 451 is with regard to the interim custody of the article or asset produced before the Magistrate during the course of investigation in a crime. It is a well settled position of law that while deciding the question of releasing the said article, proper course open to the Magistrate is to ensure that it is entrusted to a person who can preserve the same and title of the party over the same need not be decided. In Suresh Serve V vs. State of Kerala [2020(3)KHC 41], this Court considered the scope of Section 451 of Cr.PC and observed that, it is not necessary that the articles are to be released to the person from whom the same was seized. What is relevant is the security of the same and whenever it appears to the court that the security of the said article is at stake, the person with whom the aforesaid entrustment was made can be directed to return the said document. The question that arises here is to be considered in the light of the above legal principles. (para 6) Thus, the question that arises herein is as to the proper person who can be entrusted with the custody of the amount involved in this case. It is evident that even though the amount in question was seized from the possession of the Assessee, apparently, he could not explain the source of the same. Failure to explain the source warrants a proceeding under the Income Tax Act by the appropriate authorities under the said Act. In such circumstances, the Revenue herein is having all the authority to initiate proceedings against the Assessee by issuing a notice under Section 131 of the Income Tax Act. Since the amount was seized by the Sub Inspector of Police, a notice under Section 132A(1)(c)was also a remedy available to the Revenue herein which they have already invoked. However, further proceedings pursuant to Section 132-A could not be continued because of the fact that by that time, the amount was entrusted with the custody of the court. (para 7) Even though all the aforesaid statutory provisions were brought to the notice of the Magistrate, the application submitted by the Revenue was dismissed by holding that the interest of the Revenue can be secured by allowing retention of the 30% of the total amount involved therein. (para 8) Any person who has a claim over the aforesaid asset or money can submit an application before the Assessing Authority within 30 days from the end of the month in which the asset was seized. If a person who is claiming the said amount is able to convince the assessing authority as to the source of acquisition of the same, he can get the aforesaid amount back. Apart from the above, Section 153A of the Income Tax Act contemplates for a detailed procedure for assessing the tax payable on the amount. The said procedure contemplates for issuance of notice to the person from whose custody the amounts were seized and after hearing him, an assessment in this regard can be completed. Upon completion of such assessment and after deducting the tax or any other penalty payable by the assessee, the remaining amount can be released to the said person. (para 9) Even if the amount which is the subject matter of the dispute in this case is released to the Revenue herein, there is a specific procedure contemplated for getting the amount released in favour of the Assessee, from whose custody the amounts were seized. The only stipulation is that, for getting the aforesaid amount released in favour of the Assessee, he has to convince the authorities as to the source of income and to pay the amount of taxes which is assessed on the said income in accordance with the provisions of the Income Tax Act. (para 10) On the other hand, if the amount is released to the Assessee herein, it is likely to cause difficulties in initiating proceedings under Section 132-A and the further proceedings thereon. Therefore, the balance of convenience is in favour of the Revenue herein which was not taken into consideration by the Magistrate. The question of balance of convenience arises because, as far as the proceedings under Section 451 of the Cr.PC is concerned, it is relating to the interim custody of the asset alone and it is not intended for taking a decision on the question of the title/right of the parties over the articles. Therefore, the relevant consideration is as to who is the proper person with whom the amount can be entrusted. Since the Revenue herein is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A , preference should have been given to the Revenue in the facts and circumstances of the case. Thus the Magistrate committed a mistake in this regard. (para 11) It is true that even while dismissing the application submitted by the Revenue herein, the Magistrate ordered to retain 30% of the amount for securing the interest of the Income Tax Department. Apparently, an amount of 30% was fixed under the impression that the same would take care of the amount likely to be payable by the Assessee towards tax element. However, such an exercise is beyond the scope of the jurisdiction under Section 451 of the Cr.PC and was unwarranted. The liability of tax is to be determined by the authorities concerned under the Income Tax Act after completing the proceedings contemplated therein. If it is found that there was an attempt to evade the payment of tax, in addition to the tax liability at higher rates, there are provisions for imposing penalty as well. In such circumstances, the amount actually payable by the Assessee is likely to exceed far beyond 30% of the amount as fixed by the Magistrate. In such circumstances, the order to retain 30% of the amount cannot be treated as an order which takes care of the interest of the Revenue herein. It is evident from the facts that, the Revenue was having in his possession, huge amount of cash, which by itself is a violation of the provisions . Apart from the above, so far, he failed to explain the source of the said income to the satisfaction of the competent authorities viz. the income tax authorities. In such circumstances, the proper course which should have been adopted by the Magistrate is to order the release the said amount to the Revenue herein so as to enable the parties to undergo the procedure contemplated under Sections 132-A, 132-B or 153A as the case may be. It is true that the amount was seized from the Assessee, but by virtue of the provisions of the Income Tax Act, he was bound to disclose the source of the same before the authorities and to pay the tax, as per the rates applicable. Apparently no such exercise is done in this case, at the instance of the Assessee and hence proceedings under section 132-A or 153A are necessitated. Even if the said amount is released to the Revenue herein, it is possible for the Assessee to make a claim of the amount, by following the procedure prescribed in the Income Tax Act. But if the amount is released to the Assessee, it may cause difficulties in implementing the provisions of the Income Tax Act. Order passed by the Magistrate is to be set aside. Common order passed in Crl.M.P.No.384/2017 and Crl.M.P.No.704/2017 on 9.10.2017 by the Judicial First Class Magistrate Court-II, Mananthavady is hereby set aside. Revenue’s petition dismissed. (para 13)

This Crl.M.C. is filed by Union of India, Income Tax Department represented by the Deputy Director of Income Tax (Investigation), Income Tax Office, Kozhikod,being aggrieved by Annexure-C common order passed by the Judicial First Class Magistrate Court, Mananthavady in Crl.M.P.No.384/2017 and Crl.M.P.No.704/2017.

2. The facts leading to the said order are as follows:

On 12.03.2017, while conducting vehicle inspection at Tholpetty Check post, Excise Officials found that the 2nd respondent is carrying cash of Rs.50 lakhs without any proper supporting documents. Consequently, the 2nd respondent was produced before the Sub Inspector of Police, Thirunelly and F.I.R. was registered as Crime No.126/2017 of Thirunelly Police Station. The amount was also seized and the same was produced before the Judicial First Class Magistrate Court-II, Mananthavady. Upon getting information from the Inspector of Police, Thirunelly, Income Tax authorities has issued summons to the 2nd respondent under Section 131 of the Income Tax Act seeking to explain the source of the said amount. He stated that the seized cash was not his money and it was handed over to him by his friends for starting a super market at Banglore. The details of the said persons were also furnished. After conducting an inquiry, the income tax authorities found that the 2nd respondent failed to explain the source of the same properly and therefore it was decided to initiate proceedings against him. As part of the same, a notice of requisition was issued to the Sub Inspector of Police under Section 132A(1)(c) of Income Tax Act, directing him to deliver the same to the Requisitioning Officer. However, it was informed by the Sub Inspector of Police that the amount is already deposited before the Judicial First Class Magistrate Court, Mananthavady and the same is in the custody of the court.

3. In such circumstances, the petitioner herein submitted Crl.M.P. No.704/2017 before the learned Magistrate under Section 451 of the Code of Criminal Procedure (Cr.PC). At the same time, the 2nd respondent herein submitted Crl.M.P.No. 384/2017 seeking the very same relief. The petitioner herein submitted a detailed objection to Crl.M.P.No.384/2017. After hearing both sides, both the aforesaid claim petitions were disposed of by the learned Magistrate as per order dated 9.10.2017 which is produced in the Crl.M.C. as Annexure-C. As per the said order, Crl.M.P.No.704/2017 filed by the petitioner herein was dismissed. The petition submitted by the 2nd respondent was allowed in part and the release of 70% of the amount was ordered in favour of the 2nd respondent herein upon furnishing a bank guarantee or security of immovable property for the said amount. This Crl.M.C. is filed challenging the aforesaid common order and praying for allowing the Crl.M.P.No.704/2017 submitted by the petitioner herein.

4. Heard Sri. Navaneeth N. Nath, the learned Standing Counsel for the Income Tax Department, the petitioner herein, Sri. Aravind V. Mathew the learned Public Prosecutor for the 1st respondent and Smt.Vijayakumari, the learned counsel for the 2nd respondent.

5. The question arises in this case is as to the entitlement of the petitioner to have the amount released in their favour, under Section 451 of the Cr.PC. The claim was made by the petitioner by relying upon Section 132-A(i)(c) of the Income Tax Act which reads as follows:

“132-A. Powers to requisition books of account, etc.-(1) Where the [Principal Director General or Director General] or [Principal Director or Director] or the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner], in consequence of information in his possession, has reason to believe that-

(c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act,1922(11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force, then the [Principal Director General or Director General] or [Principal Director or Director] or the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner] may authorise any [Additional Director, Additional Commissioner,] [Joint Director],[Joint Commissioner],[Assistant Director or Deputy Director],[Assistant Commissioner or Deputy Commissioner] or Income-tax Officer (hereafter in this section and in sub-section(2) of section 278-D referred to as the requisitioning officer) to require the officer or authority referred to in clause(a) or clause(b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer.

Explanation.- For the removal of doubts, it is hereby declared that the reason to believe, as recorded by the income-tax authority under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal.]”

The aforesaid provision enables the authorized officer of the Department to make a requisition before any authority who is in possession and control of any assets of any person, which has not been disclosed to the Income Tax authorities for the purposes of Income Tax Act. In this case, by invoking the aforesaid powers, the petitioner had already sent a notice to the Sub Inspector of Police, Thirunelly in this regard, but by the time the notice was served upon the Sub Inspector of Police, who has seized the amount from the 2nd respondent, the amount was already deposited before the Judicial First Class Magistrate Court, Mananthavady. A petition under Section 451 of the Cr.PC was submitted in the above circumstance.

6. The scope of Section 451 is with regard to the interim custody of the article or asset produced before the learned Magistrate during the course of investigation in a crime. It is a well settled position of law that while deciding the question of releasing the said article, proper course open to the Magistrate is to ensure that it is entrusted to a person who can preserve the same and title of the party over the same need not be decided. In Suresh Serve V vs. State of Kerala [2020(3)KHC 41], this Court considered the scope of Section 451 of Cr.PC and observed in the manner as follows.

“18. On a plain reading of S.451 Cr.P.C., it can be seen that the power to order for custody and disposal of property pending trial has to be exercised by the Court by applying judicial discretion and the arrangement once made thereunder is not even final till the conclusion of inquiry or trial. The Court is having a right to terminate the entrustment, get back the property from the person to whom it was given and entrust it to somebody else whom the Court deems fit. In cases of rival claims for interim custody, preference of one person over the other does not settle any right to ownership or possession.”

The above observation was made by this Court after referring to large number of judicial precedents in this regard. From the above, it is evident that, it is not necessary that the articles are to be released to the person from whom the same was seized. What is relevant is the security of the same and whenever it appears to the court that the security of the said article is at stake, the person with whom the aforesaid entrustment was made can be directed to return the said document. The question that arises here is to be considered in the light of the above legal principles.

7. Thus, the question that arises herein is as to the proper person who can be entrusted with the custody of the amount involved in this case. It is evident that even though the amount in question was seized from the possession of the 2nd respondent, apparently, he could not explain the source of the same. Failure to explain the source warrants a proceeding under the Income Tax Act by the appropriate authorities under the said Act. In such circumstances, the petitioner herein is having all the authority to initiate proceedings against the 2nd respondent by issuing a notice under Section 131 of the Income Tax Act. Since the amount was seized by the Sub Inspector of Police, a notice under Section 132A(1)(c)was also a remedy available to the petitioner herein which they have already invoked. However, further proceedings pursuant to Section 132-A could not be continued because of the fact that by that time, the amount was entrusted with the custody of the court.

8. Even though all the aforesaid statutory provisions were brought to the notice of the learned Magistrate, the application submitted by the petitioner was dismissed by holding that the interest of the petitioner can be secured by allowing retention of the 30% of the total amount involved therein.

9. While considering this issue, the procedure to be followed by the Income Tax Authorities after initiating proceedings under Section 132A is very much relevant. Section 132-B of the Income Tax Act provides for the manner in which the assets seized under Section 132-A is to be dealt with. The said provision reads as follows:

“132-B. Application of seized or requisitioned assets.- (1)The assets seized under section 132 or requisitioned under section 132-A may be dealt with in the following manner, namely:-

(i)the amount of any existing liability under this Act, the Wealth-tax Act 1957 (27 of 1957), the Expenditure- tax Act,1987 (35 of 1987), the Gift-tax Act,1958 (18 of 1958) and the Interest-tax Act, 1974 (45 of 1974), and the amount of the liability determined on completion of the assessment [under section 153-A and the assessment of the year relevant to the previous year in which search is initiated or requisition is maid, or the amount of liability determined on completion of the assessment under Chapter XIV-B for the block period, as the case may be](including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is [deemed to be in default, or the amount of liability arising on an application made before the Settlement Commission under sub-section(1) of section 245-C, may be recovered out of such assets]:

[Provided that where the person concerned makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained] to the satisfaction of the Assessing Officer, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the [Principal Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner], to the person from whose custody the assets were seized:

Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132- A, as the case may be, was executed;

(ii) if the assets consist solely of money, or partly of money and partly of other assets, the Assessing Officer may apply such money in the discharge of the liability referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied;

(iii) the assets other than money may also be applied for the discharge of any such liability referred to in clause (i) as remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the Assessing Officer or, as the case may be, the Tax Recovery Officer under authorisation from the [Principal Chief Commissioner or chief Commissioner] or [Principal Commissioner or Commissioner] under sub-section(5) of section 226 and the Assessing Officer or, as the case may be, the Tax Recovery Officer may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule.”

Going by the aforesaid provisions, it can be seen that, any person who has a claim over the aforesaid asset or money can submit an application before the Assessing Authority within 30 days from the end of the month in which the asset was seized. If a person who is claiming the said amount is able to convince the assessing authority as to the source of acquisition of the same, he can get the aforesaid amount back. Apart from the above, Section 153A of the Income Tax Act contemplates for a detailed procedure for assessing the tax payable on the amount. The said procedure contemplates for issuance of notice to the person from whose custody the amounts were seized and after hearing him, an assessment in this regard can be completed. Upon completion of such assessment and after deducting the tax or any other penalty payable by the assessee, the remaining amount can be released to the said person.

10. Thus from all the above statutory provisions, it is evident that, even if the amount which is the subject matter of the dispute in this case is released to the petitioner herein, there is a specific procedure contemplated for getting the amount released in favour of the 2nd respondent, from whose custody the amounts were seized. The only stipulation is that, for getting the aforesaid amount released in favour of the 2nd respondent, he has to convince the authorities as to the source of income and to pay the amount of taxes which is assessed on the said income in accordance with the provisions of the Income Tax Act.

11. On the other hand, if the amount is released to the 2nd respondent herein, it is likely to cause difficulties in initiating proceedings under Section 132-A and the further proceedings thereon. Therefore, the balance of convenience is in favour of the petitioner herein which was not taken into consideration by the learned Magistrate. The question of balance of convenience arises because, as far as the proceedings under Section 451 of the Cr.PC is concerned, it is relating to the interim custody of the asset alone and it is not intended for taking a decision on the question of the title/right of the parties over the articles. Therefore, the relevant consideration is as to who is the proper person with whom the amount can be entrusted. Since the petitioner herein is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A of Income Tax Act, preference should have been given to the petitioner in the facts and circumstances of the case. Thus the learned Magistrate committed a mistake in this regard.

12. The aforesaid view is fortified by the decisions rendered by Gujarat High Court in Jinkal Dineshbhai Virvadiya v. Assistant Commissioner of Income Tax [2014]367 ITR 713(Guj)], Rajiv Agrawal or His successor in office v. State of Gujarat [2007]290 ITR 449 (Guj)] and the decision of Allahabad High Court in Union of India v. Judicial Magistrate (Eastern Railway), Mughalsarai and Another [(1983)140 ITR All 553]

13. It is true that even while dismissing the application submitted by the petitioner herein, the learned Magistrate ordered to retain 30% of the amount for securing the interest of the Income Tax Department. Apparently, an amount of 30% was fixed under the impression that the same would take care of the amount likely to be payable by the 2nd respondent towards tax element. However, such an exercise is beyond the scope of the jurisdiction under Section 451 of the Cr.PC and was unwarranted. The liability of tax is to be determined by the authorities concerned under the Income Tax Act after completing the proceedings contemplated therein. If it is found that there was an attempt to evade the payment of tax, in addition to the tax liability at higher rates, there are provisions for imposing penalty as well. In such circumstances, the amount actually payable by the 2nd respondent is likely to exceed far beyond 30% of the amount as fixed by the learned Magistrate. In such circumstances, the order to retain 30% of the amount cannot be treated as an order which takes care of the interest of the petitioner herein. It is evident from the facts that, the petitioner was having in his possession, huge amount of cash, which by itself is a violation of the provisions of Income Tax Act. Apart from the above, so far, he failed to explain the source of the said income to the satisfaction of the competent authorities viz. the income tax authorities. In such circumstances, the proper course which should have been adopted by the learned Magistrate is to order the release the said amount to the petitioner herein so as to enable the parties to undergo the procedure contemplated under Sections 132-A, 132-B or 153A of the Income Tax Act as the case may be. It is true that the amount was seized from the 2nd respondent, but by virtue of the provisions of the Income Tax Act, he was bound to disclose the source of the same before the authorities and to pay the tax, as per the rates applicable. Apparently no such exercise is done in this case, at the instance of the 2nd respondent and hence proceedings under section 132-A or 153A are necessitated. Even if the said amount is released to the petitioner herein, it is possible for the 2nd respondent to make a claim of the amount, by following the procedure prescribed in the Income Tax Act. But if the amount is released to the 2nd respondent, it may cause difficulties in implementing the provisions of the Income Tax Act.

In such circumstances, I am of the view that Annexure-B order passed by the learned Magistrate is to be set aside. Accordingly, the common order passed in Crl.M.P.No.384/2017 and Crl.M.P.No.704/2017 on 9.10.2017 by the Judicial First Class Magistrate Court-II, Mananthavady is hereby set aside. In the result;

i) Crl.M.P.No.384/2017 is dismissed.

ii) Crl.M.P.No.704/2017 is allowed and the amounts shall be released to the Income Tax Department for completing the proceedings under Sections 132-B or 153A or any other proceeding under the Income Tax Act, as the case may be, upon the competent officer of the petitioner executing a bond undertaking to complete such proceedings within a period of six months from the date of such release.

iii) In case of failure on the part of the petitioner in completing the proceedings as mentioned above, within the stipulated time, the amount shall be deposited by the petitioner, with the Judicial First Class Magistrate-II, Mananthavady, thereupon the 2nd respondent shall be entitled to move the Learned Magistrate for getting the same released in his favour, and the same can be released in his favour, subject to such conditions, which the Learned Magistrate may deem fit.

Sd/-

ZIYAD RAHMAN A.A.

JUDGE

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For relevant consideration as to who is the proper person with whom the amount can be entrusted since the revenue is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A , preference should have been given to Revenue.

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Held

Scope of Section 451 is with regard to the interim custody of the article or asset produced before the Magistrate during the course of investigation in a crime. It is a well settled position of law that while deciding the question of releasing the said article, proper course open to the Magistrate is to ensure that it is entrusted to a person who can preserve the same and title of the party over the same need not be decided. In Suresh Serve V vs. State of Kerala [2020(3)KHC 41], this Court considered the scope of Section 451 of Cr.PC and observed that, it is not necessary that the articles are to be released to the person from whom the same was seized. What is relevant is the security of the same and whenever it appears to the court that the security of the said article is at stake, the person with whom the aforesaid entrustment was made can be directed to return the said document. The question that arises here is to be considered in the light of the above legal principles.

(para 6)

Thus, the question that arises herein is as to the proper person who can be entrusted with the custody of the amount involved in this case. It is evident that even though the amount in question was seized
from the possession of the Assessee, apparently, he could not explain the source of the same. Failure to explain the source warrants a proceeding under the Income Tax Act by the appropriate authorities
under the said Act. In such circumstances, the Revenue herein is having all the authority to initiate proceedings against the Assessee by issuing a notice under Section 131 of the Income Tax Act. Since
the amount was seized by the Sub Inspector of Police, a notice under Section 132A(1)(c)was also a remedy available to the Revenue herein which they have already invoked. However, further proceedings pursuant to Section 132-A could not be continued because of the fact that by that time, the amount was entrusted with the custody of the court.

(para 7)

Even though all the aforesaid statutory provisions were brought to the notice of the Magistrate, the application submitted by the Revenue was dismissed by holding that the interest of the Revenue can be secured by allowing retention of the 30% of the total amount involved therein.

(para 8)

Any person who has a claim over the aforesaid asset or money can submit an application before the Assessing Authority within 30 days from the end of the month in which the asset was seized. If a person who is claiming the said amount is able to convince the assessing authority as to the source of acquisition of the same, he can get the aforesaid amount back. Apart from the above, Section 153A of the Income Tax Act contemplates for a detailed procedure for assessing the tax payable on the amount. The said procedure contemplates for issuance of notice to the person from whose custody the amounts were seized and after hearing him, an assessment in this regard can be completed. Upon completion of
such assessment and after deducting the tax or any other penalty payable by the assessee, the remaining amount can be released to the said person.

(para 9)

Even if the amount which is the subject matter of the dispute in this case is released to the Revenue herein, there is a specific procedure contemplated for getting the amount released in favour of the
Assessee, from whose custody the amounts were seized. The only stipulation is that, for getting the aforesaid amount released in favour of the Assessee, he has to convince the authorities as to the source of income and to pay the amount of taxes which is assessed on the said income in accordance with the provisions of the Income Tax Act.

(para 10)

On the other hand, if the amount is released to the Assessee herein, it is likely to cause difficulties in initiating proceedings under Section 132-A and the further proceedings thereon. Therefore, the balance of convenience is in favour of the Revenue herein which was not taken into consideration by the Magistrate. The question of balance of convenience arises because, as far as the proceedings under Section 451 of the Cr.PC is concerned, it is relating to the interim custody of the asset alone and it is not intended for taking a decision on the question of the title/right of the parties over the articles. Therefore, the relevant consideration is as to who is the proper person with whom the amount can be entrusted. Since the Revenue herein is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A , preference should have been given to the Revenue in the facts and circumstances of the case. Thus the Magistrate committed a mistake in this regard.

(para 11)

It is true that even while dismissing the application submitted by the Revenue herein, the Magistrate ordered to retain 30% of the amount for securing the interest of the Income Tax Department. Apparently, an amount of 30% was fixed under the impression that the same would take care of the amount likely to be payable by the Assessee towards tax element. However, such an exercise is beyond the scope of the jurisdiction under Section 451 of the Cr.PC and was unwarranted. The liability of tax is to be determined by the authorities concerned under the Income Tax Act after completing the proceedings contemplated therein. If it is found that there was an attempt to evade the payment of tax, in addition to the tax liability at higher rates, there are provisions for imposing penalty as well. In such circumstances, the amount actually payable by the Assessee is likely to exceed far beyond 30% of the amount as fixed by the Magistrate. In such circumstances, the order to retain 30% of the amount cannot be treated as an order which takes care of the interest of the Revenue herein. It is evident from the facts that, the Revenue was having in his possession, huge amount of cash, which by itself is a violation of the provisions . Apart from the above, so far, he failed to explain the source of the said income to the satisfaction of the competent authorities viz. the income tax authorities. In such circumstances, the proper course which should have been adopted by the Magistrate is to order the release the said amount to the Revenue herein so as to enable the parties to undergo the procedure contemplated under Sections 132-A, 132-B or 153A as the case may be. It is true that the amount was seized from the Assessee, but by virtue of the provisions of the Income Tax Act, he was bound to disclose the source of the same before the authorities and to pay the tax, as per the rates applicable. Apparently no such exercise is done in this case, at the instance of the Assessee and hence proceedings under section 132-A or 153A are necessitated. Even if the said amount is released to the Revenue herein, it is possible for the Assessee to make a claim of the amount, by following the procedure
prescribed in the Income Tax Act. But if the amount is released to the Assessee, it may cause difficulties in implementing the provisions of the Income Tax Act.

Order passed by the Magistrate is to be set aside. Common order passed in Crl.M.P.No.384/2017 and Crl.M.P.No.704/2017 on 9.10.2017 by the Judicial First Class Magistrate Court-II, Mananthavady is hereby set aside. Revenue’s petition dismissed.

(para 13)

This Crl.M.C. is filed by Union of India, Income
Tax Department represented by the Deputy Director of
Income Tax (Investigation), Income Tax Office,
Kozhikod,being aggrieved by Annexure-C common
order passed by the Judicial First Class Magistrate
Court, Mananthavady in Crl.M.P.No.384/2017 and
Crl.M.P.No.704/2017. 
2. The facts leading to the said order are as
follows: 
On 12.03.2017, while conducting vehicle
inspection at Tholpetty Check post, Excise Officials
found that the 2nd respondent is carrying cash of
Rs.50 lakhs without any proper supporting documents.
Consequently, the 2nd respondent was produced before
the Sub Inspector of Police, Thirunelly and F.I.R.
was registered as Crime No.126/2017 of Thirunelly
Police Station. The amount was also seized and the
same was produced before the Judicial First Class
Magistrate Court-II, Mananthavady. Upon getting
information from the Inspector of Police, Thirunelly,
Income Tax authorities has issued summons to the 2nd
respondent under Section 131 of the Income Tax Act
seeking to explain the source of the said amount. He
stated that the seized cash was not his money and it
was handed over to him by his friends for starting a
super market at Banglore. The details of the said
persons were also furnished. After conducting an
inquiry, the income tax authorities found that the 2nd
respondent failed to explain the source of the same
properly and therefore it was decided to initiate
proceedings against him. As part of the same, a
notice of requisition was issued to the Sub Inspector
of Police under Section 132A(1)(c) of Income Tax Act,
directing him to deliver the same to the
Requisitioning Officer. However, it was informed by
the Sub Inspector of Police that the amount is
already deposited before the Judicial First Class
Magistrate Court, Mananthavady and the same is in the
custody of the court. 
3. In such circumstances, the petitioner
herein submitted Crl.M.P. No.704/2017 before the
learned Magistrate under Section 451 of the Code of
Criminal Procedure (Cr.PC). At the same time,
the 2nd respondent herein submitted Crl.M.P.No.
384/2017 seeking the very same relief. The petitioner
herein submitted a detailed objection to
Crl.M.P.No.384/2017. After hearing both sides, both
the aforesaid claim petitions were disposed of by the
learned Magistrate as per order dated 9.10.2017 which
is produced in the Crl.M.C. as Annexure-C. As per the
said order, Crl.M.P.No.704/2017 filed by the
petitioner herein was dismissed. The petition
submitted by the 2nd respondent was allowed in part
and the release of 70% of the amount was ordered in
favour of the 2nd respondent herein upon furnishing a
bank guarantee or security of immovable property for
the said amount. This Crl.M.C. is filed challenging
the aforesaid common order and praying for allowing
the Crl.M.P.No.704/2017 submitted by the petitioner
herein. 
4. Heard Sri. Navaneeth N. Nath, the learned
Standing Counsel for the Income Tax Department, the
petitioner herein, Sri. Aravind V. Mathew the learned
Public Prosecutor for the 1st respondent and
Smt.Vijayakumari, the learned counsel for the 2nd
respondent. 
5. The question arises in this case is as to the
entitlement of the petitioner to have the amount
released in their favour, under Section 451 of the
Cr.PC. The claim was made by the petitioner by
relying upon Section 132-A(i)(c) of the Income Tax
Act which reads as follows: 
“132-A. Powers to requisition books of account, etc.-(1)
Where the [Principal Director General or Director
General] or [Principal Director or Director] or the
[Principal Chief Commissioner or Chief Commissioner] or
[Principal Commissioner or Commissioner], in consequence
of information in his possession, has reason to believe
that- 
(c) any assets represent either wholly or partly income
or property which has not been, or would not have been,
disclosed for the purposes of the Indian Income-tax
Act,1922(11 of 1922), or this Act by any person from
whose possession or control such assets have been taken
into custody by any officer or authority under any other
law for the time being in force,
then the [Principal Director General or Director
General] or [Principal Director or Director] or the
[Principal Chief Commissioner or Chief Commissioner] or
[Principal Commissioner or Commissioner] may authorise
any [Additional Director, Additional Commissioner,]
[Joint Director],[Joint Commissioner],[Assistant
Director or Deputy Director],[Assistant Commissioner or
Deputy Commissioner] or Income-tax Officer (hereafter in
this section and in sub-section(2) of section 278-D
referred to as the requisitioning officer) to require
the officer or authority referred to in clause(a) or
clause(b) or clause (c), as the case may be, to deliver
such books of account, other documents or assets to the
requisitioning officer. 
Explanation.- For the removal of doubts, it is hereby
declared that the reason to believe, as recorded by the
income-tax authority under this sub-section, shall not
be disclosed to any person or any authority or the
Appellate Tribunal.]” 
The aforesaid provision enables the authorized
officer of the Department to make a requisition
before any authority who is in possession and control
of any assets of any person, which has not been
disclosed to the Income Tax authorities for the
purposes of Income Tax Act. In this case, by invoking
the aforesaid powers, the petitioner had already sent
a notice to the Sub Inspector of Police, Thirunelly
in this regard, but by the time the notice was served
upon the Sub Inspector of Police, who has seized the
amount from the 2nd respondent, the amount was already
deposited before the Judicial First Class Magistrate
Court, Mananthavady. A petition under Section 451 of
the Cr.PC was submitted in the above circumstance. 
6. The scope of Section 451 is with regard to
the interim custody of the article or asset produced
before the learned Magistrate during the course of
investigation in a crime. It is a well settled
position of law that while deciding the question of
releasing the said article, proper course open to the
Magistrate is to ensure that it is entrusted to a
person who can preserve the same and title of the
party over the same need not be decided. In Suresh
Serve V vs. State of Kerala [2020(3)KHC 41], this
Court considered the scope of Section 451 of Cr.PC
and observed in the manner as follows. 
“18. On a plain reading of S.451 Cr.P.C., it can
be seen that the power to order for custody and
disposal of property pending trial has to be
exercised by the Court by applying judicial
discretion and the arrangement once made
thereunder is not even final till the conclusion
of inquiry or trial. The Court is having a right
to terminate the entrustment, get back the
property from the person to whom it was given and
entrust it to somebody else whom the Court deems
fit. In cases of rival claims for interim
custody, preference of one person over the other
does not settle any right to ownership or
possession.” 
The above observation was made by this Court after
referring to large number of judicial precedents in
this regard. From the above, it is evident that, it
is not necessary that the articles are to be released
to the person from whom the same was seized. What is
relevant is the security of the same and whenever it
appears to the court that the security of the said
article is at stake, the person with whom the
aforesaid entrustment was made can be directed to
return the said document. The question that arises
here is to be considered in the light of the above
legal principles. 
7. Thus, the question that arises herein is as
to the proper person who can be entrusted with the
custody of the amount involved in this case. It is
evident that even though the amount in question was
seized from the possession of the 2nd respondent,
apparently, he could not explain the source of the
same. Failure to explain the source warrants a
proceeding under the Income Tax Act by the
appropriate authorities under the said Act. In such
circumstances, the petitioner herein is having all
the authority to initiate proceedings against the 2nd
respondent by issuing a notice under Section 131 of
the Income Tax Act. Since the amount was seized by
the Sub Inspector of Police, a notice under Section
132A(1)(c)was also a remedy available to the
petitioner herein which they have already invoked.
However, further proceedings pursuant to Section
132-A could not be continued because of the fact that
by that time, the amount was entrusted with the
custody of the court. 
8. Even though all the aforesaid statutory
provisions were brought to the notice of the learned
Magistrate, the application submitted by the
petitioner was dismissed by holding that the interest
of the petitioner can be secured by allowing
retention of the 30% of the total amount involved
therein. 
9. While considering this issue, the procedure
to be followed by the Income Tax Authorities after
initiating proceedings under Section 132A is very
much relevant. Section 132-B of the Income Tax Act
provides for the manner in which the assets seized
under Section 132-A is to be dealt with. The said
provision reads as follows: 
“132-B. Application of seized or requisitioned assets.-
(1)The assets seized under section 132 or requisitioned
under section 132-A may be dealt with in the following
manner, namely:- 
(i)the amount of any existing liability under this Act,
the Wealth-tax Act 1957 (27 of 1957), the Expenditure-
tax Act,1987 (35 of 1987), the Gift-tax Act,1958 (18 of
1958) and the Interest-tax Act, 1974 (45 of 1974), and
the amount of the liability determined on completion of
the assessment [under section 153-A and the assessment
of the year relevant to the previous year in which
search is initiated or requisition is maid, or the
amount of liability determined on completion of the
assessment under Chapter XIV-B for the block period, as
the case may be](including any penalty levied or
interest payable in connection with such assessment) and
in respect of which such person is in default or is
[deemed to be in default, or the amount of liability
arising on an application made before the Settlement
Commission under sub-section(1) of section 245-C, may be
recovered out of such assets]: 
[Provided that where the person concerned makes an
application to the Assessing Officer within thirty days
from the end of the month in which the asset was seized,
for release of asset and the nature and source of
acquisition of any such asset is explained] to the
satisfaction of the Assessing Officer, the amount of any
existing liability referred to in this clause may be
recovered out of such asset and the remaining portion,
if any, of the asset may be released, with the prior
approval of the [Principal Chief Commissioner or Chief
Commissioner] or [Principal Commissioner or
Commissioner], to the person from whose custody the
assets were seized: 
Provided further that such asset or any portion thereof
as is referred to in the first proviso shall be released
within a period of one hundred and twenty days from the
date on which the last of the authorizations for search
under section 132 or for requisition under section 132-
A, as the case may be, was executed; 
(ii) if the assets consist solely of money, or partly of
money and partly of other assets, the Assessing Officer
may apply such money in the discharge of the liability
referred to in clause (i) and the assessee shall be
discharged of such liability to the extent of the money
so applied; 
(iii) the assets other than money may also be applied
for the discharge of any such liability referred to in
clause (i) as remains undischarged and for this purpose
such assets shall be deemed to be under distraint as if
such distraint was effected by the Assessing Officer or,
as the case may be, the Tax Recovery Officer under
authorisation from the [Principal Chief Commissioner or
chief Commissioner] or [Principal Commissioner or
Commissioner] under sub-section(5) of section 226 and
the Assessing Officer or, as the case may be, the Tax
Recovery Officer may recover the amount of such
liabilities by the sale of such assets and such sale
shall be effected in the manner laid down in the Third
Schedule.” 
Going by the aforesaid provisions, it can be seen
that, any person who has a claim over the aforesaid
asset or money can submit an application before the
Assessing Authority within 30 days from the end of
the month in which the asset was seized. If a person
who is claiming the said amount is able to convince
the assessing authority as to the source of
acquisition of the same, he can get the aforesaid
amount back. Apart from the above, Section 153A of
the Income Tax Act contemplates for a detailed
procedure for assessing the tax payable on the
amount. The said procedure contemplates for issuance
of notice to the person from whose custody the
amounts were seized and after hearing him, an
assessment in this regard can be completed. Upon
completion of such assessment and after deducting the
tax or any other penalty payable by the assessee, the
remaining amount can be released to the said person. 
10. Thus from all the above statutory provisions,
it is evident that, even if the amount which is the
subject matter of the dispute in this case is
released to the petitioner herein, there is a
specific procedure contemplated for getting the
amount released in favour of the 2nd respondent, from
whose custody the amounts were seized. The only
stipulation is that, for getting the aforesaid amount
released in favour of the 2nd respondent, he has to
convince the authorities as to the source of income
and to pay the amount of taxes which is assessed on
the said income in accordance with the provisions of
the Income Tax Act. 
11. On the other hand, if the amount is released
to the 2nd respondent herein, it is likely to cause
difficulties in initiating proceedings under Section
132-A and the further proceedings thereon. Therefore,
the balance of convenience is in favour of the
petitioner herein which was not taken into
consideration by the learned Magistrate. The question
of balance of convenience arises because, as far as
the proceedings under Section 451 of the Cr.PC is
concerned, it is relating to the interim custody of
the asset alone and it is not intended for taking a
decision on the question of the title/right of the
parties over the articles. Therefore, the relevant
consideration is as to who is the proper person with
whom the amount can be entrusted. Since the
petitioner herein is a statutory authority armed with
various powers including those under Sections 132-A,
132-B and 153A of Income Tax Act, preference should
have been given to the petitioner in the facts and
circumstances of the case. Thus the learned
Magistrate committed a mistake in this regard. 
12. The aforesaid view is fortified by the
decisions rendered by Gujarat High Court in Jinkal
Dineshbhai Virvadiya v. Assistant Commissioner of
Income Tax [2014]367 ITR 713(Guj)], Rajiv Agrawal or
His successor in office v. State of Gujarat
[2007]290 ITR 449 (Guj)] and the decision of
Allahabad High Court in Union of India v. Judicial
Magistrate (Eastern Railway), Mughalsarai and Another
[(1983)140 ITR All 553] 
13. It is true that even while dismissing the
application submitted by the petitioner herein, the
learned Magistrate ordered to retain 30% of the
amount for securing the interest of the Income Tax
Department. Apparently, an amount of 30% was fixed
under the impression that the same would take care of
the amount likely to be payable by the 2nd respondent
towards tax element. However, such an exercise is
beyond the scope of the jurisdiction under Section
451 of the Cr.PC and was unwarranted. The liability
of tax is to be determined by the authorities
concerned under the Income Tax Act after completing
the proceedings contemplated therein. If it is found
that there was an attempt to evade the payment of
tax, in addition to the tax liability at higher
rates, there are provisions for imposing penalty as
well. In such circumstances, the amount actually
payable by the 2nd respondent is likely to exceed far
beyond 30% of the amount as fixed by the learned
Magistrate. In such circumstances, the order to
retain 30% of the amount cannot be treated as an
order which takes care of the interest of the
petitioner herein. It is evident from the facts that,
the petitioner was having in his possession, huge
amount of cash, which by itself is a violation of the
provisions of Income Tax Act. Apart from the above,
so far, he failed to explain the source of the said
income to the satisfaction of the competent
authorities viz. the income tax authorities. In such
circumstances, the proper course which should have
been adopted by the learned Magistrate is to order
the release the said amount to the petitioner herein
so as to enable the parties to undergo the procedure
contemplated under Sections 132-A, 132-B or 153A of
the Income Tax Act as the case may be. It is true
that the amount was seized from the 2nd respondent,
but by virtue of the provisions of the Income Tax
Act, he was bound to disclose the source of the same
before the authorities and to pay the tax, as per the
rates applicable. Apparently no such exercise is done
in this case, at the instance of the 2nd respondent
and hence proceedings under section 132-A or 153A are
necessitated. Even if the said amount is released to
the petitioner herein, it is possible for the 2nd
respondent to make a claim of the amount, by
following the procedure prescribed in the Income Tax
Act. But if the amount is released to the 2nd
respondent, it may cause difficulties in implementing
the provisions of the Income Tax Act. 
In such circumstances, I am of the view that
Annexure-B order passed by the learned Magistrate is
to be set aside. Accordingly, the common order passed
in Crl.M.P.No.384/2017 and Crl.M.P.No.704/2017 on
9.10.2017 by the Judicial First Class Magistrate
Court-II, Mananthavady is hereby set aside.
In the result; 
i) Crl.M.P.No.384/2017 is dismissed. 
ii) Crl.M.P.No.704/2017 is allowed and the amounts
shall be released to the Income Tax Department for
completing the proceedings under Sections 132-B or
153A or any other proceeding under the Income Tax
Act, as the case may be, upon the competent officer
of the petitioner executing a bond undertaking to
complete such proceedings within a period of six
months from the date of such release. 
iii) In case of failure on the part of the
petitioner in completing the proceedings as mentioned
above, within the stipulated time, the amount shall
be deposited by the petitioner, with the Judicial
First Class Magistrate-II, Mananthavady, thereupon
the 2nd respondent shall be entitled to move the
Learned Magistrate for getting the same released in
his favour, and the same can be released in his
favour, subject to such conditions, which the Learned
Magistrate may deem fit.
 
Sd/-
 
ZIYAD RAHMAN A.A. 
JUDGE

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For relevant consideration as to who is the proper person with whom the amount can be entrusted since the revenue is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A , preference should have been given to Revenue.