Can Income Tax Department Claim Interim Custody Of Currency Notes Seized By Police?: Kerala HC Refers To Division Bench

The Court was hearing a case where the individual from whom the currency notes are seized, claims interim custody based on ownership while the Income Tax Department claims custody for verification and assessment.

The bench of Justice Bechu Kurian Thomas observed, “Hence, I deem it appropriate to refer to a Division Bench for an authoritative pronouncement on the correctness of the decisions in Union of India v. State of Kerala and Another (2022) 443 ITR 117) and that of R.Ravirajan and Others v. State of Kerala (2023 SCC Online Ker. 8444).”

Advocate Bonny Benny appeared for the Appellant.

Brief Facts-

In the present case, the Court addressed instances where significant amounts of cash were seized by authorities. In one case Rs.140 lakhs were confiscated from two individuals travelling by train, and Rs.19.95 lakhs were seized by the Excise Department. Additionally, Rs.1.85 crores were discovered by the police at Valanchery, hidden under the carpet of a car being transported from Salem. These substantial sums of currency were seized from individuals and, under Section 102 of the Cr.P.C., were reported to and presented before the jurisdictional Magistrates in accordance with the law.

The issue that requires resolution, which is common in all these cases, is about the procedure to be adopted when currency notes, seized by the police are produced before or reported to the Magistrate and divergent claims arise for interim custody under section 451 or 457 of the Code of Criminal Procedure 1973.

The Court observed, “…in a proceeding under Section 451 or Section 457 Cr.P.C, the Court only examines the person who is best entitled to the possession of the property and at that stage, cannot settle any right to ownership. Thus in a petition for interim custody, what must weigh with the court is not just about the ownership but who should be the rightful claimant as a temporary measure. Factors like the safety of the property, and the possibility of retrieving it without damage are all obvious considerations and the arrangement is done only for the preservation of the property until the conclusion of the trial.”

The Court noted that there are two conflicting views on the topic as it was held in Union of India v. State of Kerala and Another (2022) 443 ITR 117) that the Magistrate has to order release of the currency notes to the Income Tax Department to enable the parties to undergo the procedure contemplated under Sections 132A, 132B or 153A of the Income Tax Act, 1960. However, in another decision in case of R.Ravirajan and Others v. State of Kerala (2023 SCC Online Ker. 8444), the Court took a contrary stance and held, after a detailed analysis, that, Section 132A of the Income Tax Act 1960 would not empower the department to requisition the Magistrate under Section 451 Cr.P.C, since the revenue can apply to the court in whose custody money remains, only for meeting the tax due from an assessee.

The Court said that when two coordinate Benches have taken differing views, it is not open for another co-ordinate Bench to pick one amongst the two as more appropriate.

The Court further suggested that the Division Bench may also consider the question regarding the authority of the income tax department to issue a requisitioning order under section 132A of the IT Act and thereafter to claim custody from the court either under section 451 Cr.P.C or 457 Cr.P.C.

The Court directed the Registry to place cases at the earliest.

Cause Title: Ankush v. Income Tax Department 

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