MUTHUKOYA T vs. COMMISSIONER OF INCOME TAX

Petitioner alleges that as part of income tax survey operations, the premises of the petitioner was inspected on 17.02.2010, and on issuing summons to him to produce books of account and other original documents, petitioner produced various documents which were impounded under Section 131(3) of the Act. Subsequently, petitioner filed his returns and cleared the entire income tax dues in the year 2010 itself. However, petitioner complains that, respondents are not returning the original documents impounded by them. Petitioner further alleged that he was the Managing Partner of 'Agatti Island Beach Resort', Agatti, in the Union Territory of Lakshadweep and that after the documents were impounded, he filed his income tax returns for the financial years 2006-2007 to 2010-2011. It was pleaded that inspite of the request for return of the original document of title, and in particular, Sale Deed No.3561/2008 of Sub Registry Office, Ernakulam pertaining to his residential house, respondents have, under one pretext or the other delayed returning the document. Petitioner also asserted that respondents had informed that they misplaced the documents and that the same will be returned after tracing it out. According to the petitioner, the respondents cannot hold on to the documents indefinitely and that such an action is illegal and contrary to the principles of equality enshrined under Article 14 of the Constitution of India.

A statement was filed on behalf of the respondents pointing out that though the document was misplaced initially due to the repeated shifting of Assessing Officers, the document was traced out after strenuous efforts. Respondents further pleaded that while considering the request for return of the documents, they could identify an amount of Rs.20,00,000/- as outstanding against the firm in which the petitioner was a partner and that since he is liable to pay the tax arrears of the firm, the impounded documents can be released only after payment of the outstanding amount. Respondents further pleaded that the continued retention of the impounded document is due to the substantial tax arrears due from the firm in which the petitioner was a partner and is necessary to safeguard the interests of the revenue. It was also pleaded that the department had no objection to release the document of title, if the petitioner clears the tax arrears or provides a sufficient bank guarantee for the tax amount.

In the reply affidavit filed by the petitioner, it was pleaded that the entire tax liability of the petitioner had been cleared after paying astronomical amounts as fines and penalty. According to the petitioner, the firm 'Agatti Island Beach Resort' was wound up in the year 2012 and that no demand has been made against him for the last 10 years and had there been any amount due from him, he could have taken the benefit under the 'Vivad Se Vishwas Scheme' launched by the Central Government. It was further pointed out that there was no provision under law to retain documents of title of an assessee as security for amounts allegedly due.

I have heard Sri. P B. Subramaniam the learned Counsel for the petitioner and Sri. Jose Joseph, the learned Standing Counsel for the Income Tax Department and have also considered the rival contentions.

The document in question was seized on 17.02.2010. The respondent has no case that petitioner has any liability in respect of the assessment years prior to 2009-10. The learned Standing Counsel for the Income Tax Department fairly conceded that there is no provision under the Act to retain the documents of title as security for any tax liability that may arise in the future. In the absence of any such statutory provision, the respondents cannot retain documents of title impounded/seized by them under Section 131(3) of the Act.

Apart from the above, under Section 131(3) of the Act, the documents impounded can be retained in the custody of the respondents beyond 15 days only after obtaining approval of the Principal Chief Commissioner or other officers named in the said subsection. There is no case for the respondents that any such approval had been obtained by the department from any of the officers mentioned in Section 131(3) of the Act. Therefore the respondents cannot under any circumstances retain the documents of title of the petitioner.

In this context, it is apposite to refer to the decision rendered in Udaya Sounds v. The Principal Commissioner of Income Tax [2022 (2) KLT 717], wherein this Court had observed that apart from obtaining orders of approval from the officers to retain the documents, there is an added obligation upon the department to communicate the orders to the assessee to enable retention of documents beyond the period specified in the said subsection. Though the said decision related to the retention of documents under Section 132(8), the principle laid down therein applies in all its rigour to the documents impounded under Section 131(3) as well in view of the mandate under section 131(3)(b) of the Act. In view of the above, respondents have acted illegally and with material irregularity in retaining the documents of title belonging to the petitioner. Accordingly, the respondents are directed to return the original Sale Deed bearing No.3561/2008 executed before the Sub Registrar's office, Ernakulam to the petitioner within an outer period of 30 days from the date of receipt of a copy of this judgment. The Writ Petition is allowed as above. BECHU KURIAN THOMAS, JUDGE RKM