The Hindu Business Line : Following fresh leads

IN THE article `Don't follow false leads' (Business Line, August 13), mention was made about the Sikkim High Court view that unsigned reports of the C&AG and newspaper reports cannot be the basis to order search operations under Section 132 of the Income-Tax Act, 1961 (Act).

However, on the same facts (parties being different), the Gauhati High Court has, in M. S. Associates vs UOI and in four other writ petitions (reported in 2005 196 CTR Gau 318), expressed the opposite view, saying that the C&AG's report, which has not been considered by the State Assembly and whose findings have been disapproved by the Public Accounts Committee of the Legislative Assembly, can form a basis for ordering search operations by the I-T Department.

In this decision, the court also decided that the High Court can entertain a writ petition even where only part of the cause of action arises in the jurisdiction of the High Court. As such, there are two differing decisions on the same issue.

C&AG report

The High Court (Division Bench) decided that a distinction has to be drawn between the power to make investigation and power to order search.

The power to issue warrant of authorisation for search and seizure in terms of Section 132(1)(c) can be invoked only when the conditions precedent are present; but this does not mean that the Director-General and other authorised officers cannot initiate any investigation if they receive any information, which may not be sufficient to issue a warrant of authorisation but which may be sufficient for the purpose of initiating investigation to ascertain if the power contained in Section 132(1)(c) needs to be invoked.

According to the High Court, this subtle but firm distinction between the power to issue a warrant of authorisation and the power to initiate investigation needs to be kept in mind while dealing with the question of whether the C&AG report could have been used by the I-T authorities and, if so, to what extent.

For attracting Section 132(1)(c), how the information has come to be in possession of the Directorate of Investigation (IT) is quite immaterial. For coming to this conclusion, the court has drawn support from the Supreme Court decision in the Pooran Mal vs Director of Inspection (Inv.) & Ors. (1974 CTR SC 25) case.

It is the duty of the Directorate of Investigation to ensure that no one evades tax. It logically follows that if the Directorate comes to know about tax evasion through either a draft or final report of the CAG, there can be no impediment on the part of the Directorate to act upon such information, for the source of information through which the Directorate comes to know about the contents of such a report is inconsequential and immaterial.

The Legislative Assembly of Nagaland could have claimed privilege in respect of the contents of the C&AG report, but neither the Speaker was made a party nor the State Assembly claimed any privilege in respect of the report.

In such a situation, the writ petitioners cannot contend that the information derived from the C&AG report could not have been legally acted upon for the purpose of Section 132.

Section 132 does not restrict the source from which the information has been received in order to enable the revenue authorities to act upon the same.

The legislative intendment is that if on receiving information from any sources, including the proceedings of the House, which have not been made public, that a person is involved in tax evasion and if the authorities concerned have reason to believe that the information so received to be true, the authorities concerned are duty bound to act upon the same.

Since the legislature has used the expression `in consequence of information in his possession', it means that it is the information which has to be in the possession and not the report or document from which it is received or derived. Thus, even if the C&AG's report remains the property of the House, Section 132(1) makes its use justified for the purpose of initiating action for search.

Use of the C&AG report, even if it has not been considered by the House, is valid for initiation of search proceedings.

Information derived from any source, as regards the contents of the report of the C&AG, which has not been laid or discussed by the Legislative Assembly can be acted upon for ordering search.

The notes of satisfaction reflect existence of requisite material on record before the warrants of authorisation were issued. These were not issued based solely on the contents of the CAG report; rather, the information derived therefrom was investigated into.

In the course of investigation, materials were collected and it was on these materials that the "belief" of the authorities concerned rested. This is, therefore, not one of those cases where one can say that the material was non-existent for the purpose of formation of belief.

It is this "belief" which can be challenged by the assessee, and not the sufficiency of the "reason" for the "belief". Apart from the fact that adequacy of material is not to be looked into by the court, the fact remains that the materials, which had been collected, could have made any prudent person believe that those against whom warrants of authorisation had been eventually issued, were in possession of money, bullion, jewellery or other valuable articles/things and that the same represented undisclosed income or property, which would not be disclosed.

Hence, the Division Bench of the Gauhati High Court decided that there was no reason to hold that the action taken by the authorities concerned was illegal, impermissible and/or unconstitutional.

Newspaper reports

On this, the Sikkim High Court had given a definite finding, but the Division Bench of the Gauhati High Court negatived this on technical grounds saying that there was nothing in the materials on record to indicate that there was any finding — that the magazine Roto Gham was a fake — from any court during, or before, the authorisation was issued.

In such a situation, the mere fact that subsequent to the issue of the authorisation any finding about the genuineness of Roto Gham cannot dissolve the other incriminating materials which were available on record.

(The author is a former Chief Commissioner of Income-Tax.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Telecom cross-talk

Back on the backburner

The guise of contingent payments

Conferences: Work or play?

Following fresh leads

Substitution confusion in notification

Human rights come from human wrongs