Allahabad High Court
Dr. Nand Lal Tahiliani vs Commissioner Of Income-Tax And Ors. on 22 December, 1987
Equivalent citations: [1988]170ITR592(ALL), [1988]39TAXMAN127(ALL)
Author: R.M. Sahai
Bench: R.M. Sahai
JUDGMENT R.M. Sahai, J.
1. The petitioner, Professor and Head of the Department of Surgery in Allahabad Medical College and an eminent surgeon, has approached this court for quashing the warrant of authorisation issued under Section 132 of the Income-tax Act and the follow up actions including the search held on May 26, 1987, and to withdraw the restraint order passed under Sub-section (3) of Section 132.
2. That May 26, 1987, must have been an ill-omen day in the life of the petitioner, cannot be doubted as, while being busy in preparations for the marriage of his daughter, which was to be solemnised on June 3, 1987, he, to his misfortune, must have found his house raided by as many as twenty-five officials of the Department who carried on the search from 8.30 a.m. to 8.15 p.m. followed by a restraint order sealing lockers and bank accounts and forcing the petitioner to the ignominy of borrowing for the marriage. Whether the proceedings were warranted by law is another matter, but the outcome of the search must have been disappointing to the Department even, as what was found was a mere Rs. 19,000 in cash from the premises of a person who, according to nothings of the Department in consequence of which authorisation was issued, was " known for his roaring practice in this field of medical profession and also for high rate of fee for operations ". Even the jewellery found were 21 pieces of gold ornaments consisting of chains, bangles, rings, a modest possession in a house with three female members. National Saving Certificates of Rs, 1,49,000 included purchases of Rs. 1,03,000 in 1983. Deposits in Unit Trust of India in the name of different members of the family amounted to Rs. 40,000. Two National Saving Certificates of Rs. 10,000 each in the name of two daughters were also found. And the household goods mentioned in the inventory can normally be found in any average family. All this in a family of four doctors, petitioner, his father, wife and son.
3. Search and seizure are a common feature of fiscal statutes. Its utility cannot be undermined in a civilised society. But it is capable of being abused as well. That is why the legislation always provides inbuilt safeguards. For instance, the condition precedent for action under Section 132 is the information in the possession of the authority in consequence of which he may have reason to believe that any person was in possession of any money, bullion or jewellery or other valuable articles which represented undisclosed income. How each of them should be understood and what they mean has been explained by courts from time to time, If either of these conditions is missing or have not been adhered to, then the authority is precluded from invoking the powers under this section (see Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043 (All)). Information in consequence of which the Director or the Commissioner has reason to believe is the foundation for action. It sets the machinery in motion. Therefore, it has not only to be authentic but capable of giving rise to the inference that the person was in possession of undisclosed income which has not been or would not be disclosed. Reason to believe has been explained in many decisions both under Sections 132 and 148 of the Income-tax Act (see Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 (SC), ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043 (All) and Vindhya Metal Corporation v. CIT [1985] 156 ITR 233 (All)). In order that the formation of opinion must be in good faith and not a mere pretence, it is necessary that the information in consequence of which it is formed must be valid and linked with the ingredients mentioned in the section. That is, there must be rational connection between the information or material and the belief about undisclosed income.
4. Unfortunately, the record produced by learned standing counsel left us not only dazed but shocked. Although the question of personal mala fides of the Assistant Director was initially raised but not pursued, yet the action by such high officials of the Department, the exercise of power by whom was considered as an inbuilt safeguard by the hon'ble Supreme Court in Pooran Mal v. Director of Inspection [1974] 93 ITR 505 has left much to be desired. An information of a very general nature was sent in November, 1985, followed by another in December, 1985, that the petitioner was charging rupees forty as consultation fee and rupees four to six thousand for one operation, thus earning rupees thirty to thirty-five thousand per day. In his examination on oath, that too in December, 1985, it was stated by the complainant that he gathered the information by following the servants, patients and the petitioner himself. And that if a search was made, huge amount of undisclosed money of rupees 20 lakhs was likely to be found. Apart from the merits of the complaint and statement on oath which can be said for any professional, be he a lawyer or doctor, the information remained in cold storage for more than one and half years because the local unit was verifying it, without there being anything on record to support it. And yet it suddenly became a live wire in May, 1987, commencing with a report from the Assistant Director on May 25, culminating in an authorisation on May 26, by the Director stationed at Kanpur and availability of warrant for search and raid on the same day at 8.30 a.m. Even the extract from the report which resulted in this raid and formed the foundation for action reads as under :
" Enquiries with regard to the abovementioned allegations were made by the Investigation Wing at Allahabad. Mr. N. L. Tahiliani has been the most leading surgeon in the town. He is known for his roaring practice in this field of medical profession and also for his high rate of fee for operations. He stays in a posh house owned by him which is situated in a posh locality of Allahabad. The allegations made above appear to be prima facie correct on the basis of the local enquiries made.
On the basis of the allegations and consequent enquiries made and also on the basis of the standard of living maintained by him and the reputation and number of patients he attracts, there is every reason to believe that in the case of Sri Nand Lal Tahiliani, action under Section 132 of the Income-tax Act is required. This is so because there is also reason to believe that in the normal course provided under the Act, he will not disclose to the Department his correct income and wealth which is much more than what he has been declaring to the Department. "
5. What was there in the report which was not known to the Department or is not known to it against any doctor ? If the reputation of roaring practice and rumour for "charging high rate of fee" can furnish information without any tangible material for formation of a reasonable belief under Section 132, then it would amount to clothing the Department with arbitrary powers to take action against any person even for personal vendetta or through misguided zeal. What could have resulted in an action against the petitioner under Section 132 was a reasonable belief that he was in possession of any money, bullion or jewellery or other valuable article representing wholly or partly income or property which has not been disclosed or would not be disclosed. And not the prima facie satisfaction that the petitioner was having a roaring practice and charging high fee for operations. Further, this prima facie satisfaction was arrived on what ? On no other material apart from the general complaint received as far back as 1985. Impairment of the protection visualised by the Act can be upheld for valid and cogent reasons. Satisfaction of the authorities may be subjective, but it must be arrived at objectively on materials. Not one could be found on record. The expression is " reason to believe that the income has not been disclosed and not probably it may not have been disclosed ". It is not left to guessing. It carries with it the impress of certainty. The dwelling house of a person is his fortress. " Every householder, the good or the bad, the guilty or the innocent, is entitled to the protection designed to secure the common interest against unlawful invasion of the house ". Ransacking of the house and the act of taking away the property is an inroad on the citizens' right of privacy": one of the values of civilization. Any unwarranted intrusion on it cannot be countenanced. Reasonable belief exists if the information is not only trustworthy but reasonable and sufficient in itself to warrant the conclusion that the provisions of Section 132 were being violated. Because, if the exercise of power is bad or unlawful in inception, then it is not validated or nor does it change character from its success. It would not, therefore, be asking too much from the authorities to comply with the basic requirements of the section before they are permitted to invade the secrecy of one's home.
6. Even the report that the Assistant Director had reason to believe that in the normal course provided under the Act, he (petitioner) will not disclose to the Department his correct income and wealth which is much more than what he has been declaring to the Department, is fed on rumours and drawn on imagination. Allegations in paragraph 4(h) that tax returns from time to time including for assessment year 1985-86 were accepted and that the petitioner had not concealed any money or jewellery has not been denied. Even the averment in paragraph 4(a), that no summons was ever issued to the petitioner to produce any record, nor had the petitioner ever denied production of any books or documents, has not been controverted. The allegation in paragraph 4 of the counter-affidavit that notice under Section 131 of Income-tax Act was issued is vague. Even this much is not stated as to which year it related. The statement that the Director of Inspection has sufficient material in his possession to believe that the person to whom summons or notice was issued was in possession of money, bullion or jewellery or other valuable articles or things, is a mere reproduction of the section. That is hardly sufficient. If the authorities can be permitted to claim that on " consequent inquiries ", they are empowered to take action without keeping on record anything to support it, then it shall be empowering them with naked powers. Inquiries should have been reduced to writing in black and white to enable the Director to discharge the statutory responsibility of issuing an authorisation or warrant after being satisfied that the action suggested was justified and made available to the court to infer that the exercise of power was reasonable, at least. In fact, the Director appears to have mechanically endorsed the report. If the report extracted earlier was sufficient for action under Section 132, then the Director could order a search against any doctor of a metropolitan town. Being known for " roaring practice " and for " high rate of fee for operations " in the absence, of any other material could not be construed as constituting information in consequence of which the Director could have reason to believe that the petitioner had not disclosed his income or would not disclose it. Living in a posh house or posh locality by itself were not material which could result in initiation of proceedings under Section 132 of the Act specially when the petitioner is an old assessee. The standard of living maintained by him (petitioner) appears to have been added in the report more as a recital to add gloss to the recommendation than with any sense of responsibility. What led to this inference is not stated. Not a word has been mentioned in the report, nor could any record be shown to demonstrate that the standard of living was out of proportion so as to warrant the conclusion that the petitioner was concealing income. Even if the recommending authority had some notions of his own either on personal knowledge or on any inquiry, it should have been made available to the Director to draw the inference, as the action was to be taken by him. The requirement of "reason to believe" is not an empty formality. The Director and the Commissioner have been authorised to take action as they, being the senior officers of the Department, are expected to project their experience while invoking power under this section. The Director failed to live up to this expectation. He appears to have surrendered his reason to the report made by his Deputy/Assistant Director which was an attempt to initiate a fishing and roving inquiry for reasons best known to him as he did not consider it proper to place the result of " local inquiry " before the Director. Any complaint made by a person interested or disinterested should not be jumped upon and made an excuse to initiate proceedings unless it is thoroughly examined and the authorities are satisfied not only about its veracity and authenticity but it must be an information in consequence of which the authority must have reason to believe that income had not been disclosed as action under Section 132 transgresses liberty of a citizen. To say the least, such an adventure should be avoided as it not only frustrates the objectives sought to be achieved by such salutary provisions but spoils the reputation of the Department and causes incalculable harm to the person concerned. Therefore, the writ petition deserves to be allowed.
Om Prakash, J.
7. Not to criticise the Department, not to impute any motive to the taxation authorities, not to disagree, but to impress a word of caution upon the Department, I would like to add a few lines to the judgment of my learned brother, with which I am in full agreement.
8. Privacy is a very valuable right of a civilised society and violation thereof is not permissible except by authority of law and, therefore, the Department should not only be slow but slowest in acting upon the information being given by an informer. Before acting upon the information, source of knowledge of an informer should be fully tested and unless the departmental authorities make themselves doubly sure of the correctness of the information and the creditworthiness of the informer, they should be loath to act upon that information. The word of an informer should not be taken for granted. How, in what manner and from whom the information has been gathered--all this should be made clear beyond an iota of doubt by a thorough examination of the informer. No action should be taken on information based on surmises or guesses.
9. Let us test the information being received in this case by the Department on the touchstone of the aforementioned guidelines. Facts relating to information have already been stated succinctly but adequately in the order and they need not be reproduced over again. Pithily, the information is that if a search was carried out, then the Department would be able to seize rupees twenty lakhs representing undisclosed income. He also named the banks in which the petitioner allegedly has his bank accounts. The vital question is as to what is the source of information that on search, undisclosed income amounting to rupees twenty lakhs could be seized. It is nothing but a bare conjecture of the informer. Estimate being made by an informer cannot tantamount to "information " within the meaning of Section 132(1) of the Income-tax Act, 1961. If estimate alone can constitute information, then why should one act upon the estimate of an informer, because that sort of estimate can be made by the departmental authorities themselves, looking to the standard of living, reputation of the person in the society and the assets being ostensibly possessed by him. " Information" within the meaning of Section 132(1) should be as accurate as possible having reference to the precise assets of a person and not of general nature and that should in all probability, lead the authorities to have the unmistaken belief that money, bullion, jewellery or other valuable articles or things pointed out by the informer, would be found in the possession of the person named by the informer. No doubt, it is difficult to have direct evidence or a foolproof case before making a search, but all efforts must be made by the authorities to ensure the correctness of the information and they should assure and reassure themselves about the truthfulness and correctness of information before taking any action violating the privacy of a citizen.
10. There is nothing in this case to show mala fides on the part of the departmental authorities nor was it argued for the petitioner but if grater care had been taken, then the abortive bid made by the Department against the petitioner, would have been averted. When the bank accounts were not precisely disclosed and when information about rupee's twenty lakhs was nothing but a guesswork of the informer, the Director of Inspection should have put his foot down on that and should not have endorsed the action suggested by the Assistant Director.
11. BY THE COURT : For reasons stated in our separate orders, this petition succeeds and is allowed. The authorisation warrant issued by the Director of Inspection under Section 132(1) and the restraint order under Section 132(3) are quashed. There shall be no order as to costs.