Madras High Court
K.Nagarajan vs The Adjudication Authority on 31 August, 2021
W.P.No.22037 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 31.08.2021
CORAM
THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM
W.P.No.22037 of 2017
and
W.M.P.No.23086 of 2017
K.Nagarajan, I.A.S
Managing Director
Tamil Nadu Warehousing Corporation
82, Anna Salai,
Chennai – 600 032. ...Petitioner
Vs.
1.The Adjudication Authority,
Under the Prohibition of Benami Property
Transaction Act,
Room No.26, 4th Floor,
Jeevan Deep Building,
Parliament Street,
New Delhi – 110 001.
2.The Approving Authority,
Additional Commissioner of Income Tax,
Corporate Circle Range – 1,
Aayakar Bhavan,
121, Mahathma Gandhi Road,
Chennai – 600 032.
3.The Initiating Officer,
Deputy Commissioner of Income tax,
Corporate Circle Range – 1(1)
Aayakar Bhavan
1/18
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W.P.No.22037 of 2017
121, Mahathma Gandhi Road,
Chennai – 600 032.
4.B.Sundari
D/o.K.Balasubramanian (Late)
No.21, Ponniamman Koil Street,
Kottur, Chennai – 600 085. ...Respondents
PRAYER : Writ Petition filed Under Article 226 of the Constitution of
India, to issue a writ of Certiorari, calling for the entire records pertaining to
the impugned order passed by the 3rd respondent dated 12.05.2017 and the
consequential impugned Notice issued by the 1st respondent in Reference
No.R-52/2017 dated 26.05.2017 and quash the same in so far as the adverse
finding of the 3rd respondent as against the petitioner declaring him as the
beneficial owner of the property mentioned in the impugned order as illegal
and arbitrary.
For Petitioner : Mr.A.Iruthayaraj
For Respondents : M/s.M.Sheela
Special Public Prosecutor
[For Income Tax]
Assisted by
M/s.Prarthana.M and Aswini.G
[R1 to R3]
Mr.B.Kumar
Senior Counsel
Assisted by M/s.Kanimozhimathi
[For R4]
2/18
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W.P.No.22037 of 2017
ORDER
The Writ Petition on hand is instituted, questioning the legal validity
of the order dated 12.05.2017 and 26.05.2017.
2. The impugned orders are challenged in view of the fact that the
third respondent passed the impugned order dated 12.05.2017, implicating
the petitioner as the beneficial owner of the property in question without
issuing any notice or giving any opportunity to the petitioner. Thus, the
petitioner raised the ground that the impugned order is per se illegal and
violative of the principles of natural justice.
3. The petitioner states that he joined service in the Revenue
Department, Government of Tamil Nadu in 1977 and subsequently, elevated
from State Civil Services to Indian Administrative Services in 2000 Batch
allotment. He was serving in the Tamil Nadu Warehousing Corporation as
Managing Director from 8th September 2014 onwards.
4. In pursuance of a search warrant issued by the Income Tax
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W.P.No.22037 of 2017
Department (Investigation Wing) in the name of B.Ayyappan, who was said
to be the Managing Director of M/s.Kathir Kaman Jewellers (P) Ltd,
Chennai. Further, a search warrant was issued in the name of
Mrs.R.Sabitharani, the petitioner's spouse to search her residence in Issa
Pallavaram, Chennai, wherein the petitioner lives with his spouse. The
search was conducted on 23 rd and 24th of November, 2016. Some items of
gold and an amount of Rs.7,28,300/- in cash were found during search. The
petitioner's spouse, who had been working as the Chief Technical Officer
(C.T.O.) in Central Bank of India since 1985 with a substantial income as
salaries and other emoluments, admitted that the aforesaid cash and items of
gold belongs to her and the Income Tax Search Team conducted an enquiry.
The Prohibitory Orders dated 24.11.2016 issued to the petitioner's spouse by
the Deputy Director (Investigation Wing), Income Tax Department were
subsequently lifted on 18.01.2017. She was being assessed with reference to
the assets found during search.
5. Under these circumstances, to the shock and surprise of the
petitioner, the third respondent passed the impugned order, dated
12.05.2017, arraying the petitioner as a beneficial owner of the property
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W.P.No.22037 of 2017
attached provisionally without any justification much less legal evidence of a
definite nature. The third respondent passed the impugned order under
Section 24(4)(a)(i) of the Benami Transactions (Prohibition) Amendment
Act, 2016 [hereinafter referred to as the 'Act']. The amended Act came into
force with effect from 01.11.2016. Thus, the petitioner states that the
amended Act shall be applicable only to the Benami transactions entered
into on or after the date of commencement of the Benami Transactions
(Prohibition) Amendment Act, 2016 i.e. on or after 01.11.2016 as provided
under Section 3(3) of the Act. Even the impugned order shows that the
transaction alleged to be Benami transaction was entered into on 28.10.2016
and therefore, the impugned order passed by the third respondent with the
approval of the second respondent lacks jurisdiction.
6. In this context, the learned counsel appearing on behalf of the
petitioner mainly contended that the impugned order was passed without
issuing any show cause notice to the petitioner as mandated under Section
24(2) of the Act. Thus, the entire action initiated against the petitioner was
in violation of the principles of natural justice. The petitioner was not
provided with an opportunity to defend his case in the manner provided and
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W.P.No.22037 of 2017
thus, the order impugned per se void.
7. The learned counsel for the petitioner further contended that the
proceedings under the Benami Transactions (Prohibition) Amendment Act,
2016 are required to be an independent proceedings. Thus, an adverse
finding of the third respondent as against the petitioner based on the
statements recorded under Section 131 of the Income Tax Act by Income
Tax Officers in a different context is unsustainable. The impugned orders are
passed based on certain assumptions, conjunctures, surmises and
speculations. Thus, the impugned orders do not have its legs to stand before
the scrutiny of law.
8. The learned counsel for the petitioner reiterated that the provisions
of the Benami Transactions (Prohibition) Amendment Act, 2016 pertaining
to the transactions entered into 28.10.2016 prior to the amendment Act
cannot be enforced. Admittedly, the amendment Act came into force only on
01.11.2016, after the alleged transaction. Thus, the very initiation itself is in
violation of the provisions of the Act. The impugned orders are passed based
on the reliance on the sworn statement of one B.Ayyappan, Managing
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W.P.No.22037 of 2017
Director of M/s.Kathir Kaman Jewellers (P) Ltd, Chennai. Thus, there is no
basis for such initiation.
9. The learned counsel appearing on behalf of the respondents 1 to 3
contended that the amendment Acts of the year, 2016, more specifically,
Section 1 Sub-Section (3) categorically states that “the provisions of Sections
3, 5 and 8 shall came into force at once and the remaining provisions of this
Act shall be deemed to have come into force on 19 th day of May 1988”.
Therefore, the intention of the Legislature is to ensure that the pre-
amendment Act is in force for all purposes and the amendments are carried
on, in order to make the legislation more effective. When Section 1 Sub-
Section (3) clarifies the said position that except Sections 3, 5 and 8 and the
remaining provisions of the Act shall be deemed to have come into force on
19th day of May 1988, when the original Act namely the prohibition of
Benami Property Transactions Act, 1988 came into force, then, the very
ground raised by the petitioner in this regard is unsustainable. Section 24 is
Notice and attachment of property involved in Benami transaction. As far as
the impugned order dated 12.05.2017 is only a provisional attachment made
under Section 24(4)(a)(i) of the Benami Transactions (Prohibition)
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W.P.No.22037 of 2017
Amendment Act 2016 and after the provisional attachment, the notice to
show-cause under Section 26(1) was issued to the petitioner, who is the
beneficial owner. Therefore, the procedures as contemplated under the
provisions of the Act are scrupulously followed and thus, the petitioner has
to face the adjudication in the manner prescribed. Instead of facing the
adjudication, the petitioner is making an attempt to prolong the issue for the
purpose of escaping from the clutches of law. Thus, the Writ Petition is
unnecessary and to be rejected.
10(a). In support of the said contention, the learned counsel for the
respondents 1 to 3 relied on the judgment of the High Court of Madras in
the case of Dinesh Chand Surana Vs Deputy Commissioner of Income
Tax and Ors. reported in [MANU/TN/3340/2018] and the relevant portion
of the order is extracted hereunder:
“6. The petitioner has filed W.P.Nos.13160
& 13161 of 2018 challenging the order, dated
23.05.2018 under Section 24(4) of the Act. In my
considered view, the prayer sought for by the
petitioner is not maintainable, since the order
passed under Section 24(4) of the Act is being an
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W.P.No.22037 of 2017
order of provisional attachment and the petitioner
cannot be stated to have been aggrieved over
such order, especially, when the adjudicating
authority under the Benami Act has already
initiated proceedings under Section 24(4) of the
Act, which is only a provisional attachment and
cannot be permitted to stall the adjudication
under the Act by the adjudicating authority.
Therefore, the relief sought for by the petitioner in
W.P.Nos.13160 & 13161 of 2018 cannot be
granted.”
(b) The High Court of Chattisgarh at Bilaspur rendered a judgment on
06.02.2020 in the case of Tulsiram and Ors. Vs Assistant Commissioner of
Income Tax (Benami Prohibition) and Ors. reported in
[MANU/CG/0099/2020] held as follows:
“10.V. As regards the intention of the
Legislature, while enacting the Amendment Act of
2016, the clarification given by the Hon'ble
Finance Minister in the Lok Sabha on 27.07.2016
while recommending the Amendment Bill, 2016 to
the House. He stated that “....if we brought a new
Bill, properties acquired benami between the
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W.P.No.22037 of 2017
period of 1988 onwards would have all gone scot
free. So, it was considered necessary that the old
law be allowed to remain, and the new
amendments be inserted into the old law itself.”
“VIII. The object of the Act was clearly
stated by the then Finance Minister while
introducing the Amendment Act, 2016 as “....the
principal object behind this bill is that a lot of
people who have unaccounted money invest and
buy immovable property in the name of some
other person or a non-existent person or a
fictitious person or a benami person. So, these
transactions are to be discouraged......It is
predominantly an anti-black money measure that
any transaction which is benami is illegal and the
property is liable to be confiscated.”
11. Relying on the said judgments, the learned counsel for the
respondents 1 to 3 emphasized that the very initiation, per se, is invalid and
in violation of the provisions of the amended Act. Thus, the Writ Petition is
to be dismissed.
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W.P.No.22037 of 2017
12. Let us examine the nature of the impugned proceedings passed
with reference to the provisions of the Act. As discussed above, Section 1
Sub-Section (3) clarifies that the provisions of Sections 3, 5 and 8 shall came
into force at once, and the remaining provisions of the amendment Act shall
be deemed to have came into force on 19 th day of May,1988. Section 3
contemplates “Prohibition of benami transactions”. Though the petitioner
has relied on Sub-Section (3) to Section 3, stating that whoever enters into
any benami transaction on and after the date of commencement of the
Benami Transactions (Prohibition) Amendment Act, 2016, shall,
notwithstanding anything contained in Sub-Section (2), be punishable in
accordance with the provisions contained in Chapter VII, Section 1 Sub-
Section (3) clarifies that the other remaining provisions of the Act shall be
deemed to have come into force on the 19th day of May, 1988. Thus, in
respect of the transactions prior to the amendment i.e. on 01.11.2016, the
actions were taken under Section 24 is valid and in accordance with law. In
the present case, investigations and search were conducted prior to the
amendment Act. The alleged benami transactions were also occurred prior to
the amendment. But, the provisional attachment under Section 24 was made
after the amendment, which is certainly permissible under Section 1 Sub-
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W.P.No.22037 of 2017
Section (3) of the Act. Thus, the reference made by the learned counsel for
the petitioner regarding Sub-Section (3) to Section 3 cannot have any
application in respect of the facts and circumstances of the case on hand.
13. Section 24 stipulates Notice and attachment of property involved
in benami transactions. Section 24 (4)(a)(i) enumerates as follows:
“(4) The initiating officer, after making such
inquires and calling for such reports or evidence
as he deems fit and taking into account all
relevant materials, shall, within a period of
ninety days from the date of issue of notice under
Sub-Section (1),-
(a) where the provisional attachment has
been made under Sub-Section (3),-
(i) pass an order continuing the
provisional attachment of the property with the
prior approval of the Approving Authority, till
the passing of the order by the Adjudicating
Authority under Sub-Section (3) of Section 26;
or”
14. Therefore, the impugned order dated 12.05.2017 is only a
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W.P.No.22037 of 2017
provisional attachment of the property with the prior approval of the
approving authority till the passing of the order by the adjudicating authority
under Sub-Section (3) of Section 26. After making such provisional
attachment, Sub-Section (5) to Section 24 states that “Where the Initiating
Officer passes an order continuing the provisional attachment of the property
under sub-clause (i) of clause (a) of Sub-Section (4) or passes an order
provisionally attaching the property under sub-clause (i) of clause (b) of that
sub-section, he shall, within fifteen days from the date of the attachment,
draw up a statement of the case and refer it to the Adjudication Authority.”
15. Section 25 speaks about Adjudication of benami property. Section
26 contemplates “Manner of service of notice.” Sub-Section (1) to Section
26 reads as under:
“(1) Manner of service of notice- (1) On receipt of
a reference under sub-section (5) of Section 24, the
Adjudicating Authority shall issue notice, to furnish such
documents, particulars or evidence as is considered
necessary on a date to be specified therein, on the
following persons, namely:-
(a) the person specified as a benamidar
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therein;
(b) any person referred to as the beneficial
owner therein or identified as such;
(c) any interested party, including a banking
company;
(d) any person who has made a claim in respect
of the property:
Provided that the Adjudicating Authority shall
issue notice within a period of thirty days from the date
on which a reference has been received:
Provided further that the notice shall provide a
period of not less than thirty days to the person to whom
the notice is issued to furnish the information sought.”
16. Therefore, the scheme of the Act is unambiguous under Section
24(4)(a)(i). A provisional attachment of property shall be made in order to
prevent the persons from encumbering the property during the process of
adjudication and after passing the provisional attachment, if the proceedings
are to be continued, then, an adjudication under Section 25 and thereafter
Section 26(1), show-cause notice is to be issued. In the present case, it is not
in dispute that the impugned order dated 12.05.2017, is an order of
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provisional attachment passed under Section 24(4)(a)(i) of the Benami
Transactions (Prohibition) Amendment Act, 2016 and the second
amendment order dated 26.05.2016 is the notice to show-cause under
Section 26(1) of the Act. Thus, for all purposes, it is only the commencement
of proceedings under the Act and the petitioner has to respond to the show
cause notice by submitting their explanations/objections along with the
documents and evidences and thereafter, the authorities are bound to
adjudicate the matter in the manner provided and take appropriate decision.
This being the scope of the Act, the petitioner has misconstrued the
provisions based on certain incorrect interpretations, filed the present Writ
Petition. Now, the impugned show cause notice dated 26.05.2017 is to be
responded by the petitioner by submitting their explanations/objections, if
any and thereafter, the authorities are bound to take a decision, considering
the documents and the objections, if any filed by the petitioner. Thus, the
petitioner has approached this Court at the initial stage and the adjudication
is yet to be completed.
17. This being the factum established, the petitioner is at liberty to
submit his objections/defence statements, evidences and documents, if any,
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within a period of three weeks from the date of receipt of copy of this order
and on receipt of such objections etc., the respondents are bound to continue
the proceedings and complete the same by following the procedures as
contemplated as expeditiously as possible, since the matter is pending for a
long time and the petitioner is directed to co-operate for the completion of
proceedings instead of making an attempt to prolong and protract the issues
on flimsy grounds.
18. With these directions, the Writ Petition stands dismissed. No
costs. Consequently, connected miscellaneous petition is closed.
31.08.2021
Speaking order/Non-speaking order
Internet:Yes/No
Index : Yes/No
Kbs/Kak
To
1.The Adjudication Authority,
Under the Prohibition of Benami Property
Transaction Act,
Room No.26, 4th Floor,
Jeevan Deep Building,
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W.P.No.22037 of 2017
Parliament Street,
New Delhi – 110 001.
2.The Approving Authority,
Additional Commissioner of Income Tax,
Corporate Circle Range – 1,
Aayakar Bhavan,
121, Mahathma Gandhi Road,
Chennai – 600 032.
3.The Initiating Officer,
Deputy Commissioner of Income tax,
Corporate Circle Range – 1(1)
Aayakar Bhavan
121, Mahathma Gandhi Road,
Chennai – 600 032.
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W.P.No.22037 of 2017
S.M.SUBRAMANIAM, J.
Kbs/Kak
W.P.No.22037 of 2017
31.08.2021
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