Income Tax Dept competent to have Interim Custody of Seized Currency Notes: Kerala HC [Read Order]

The Kerala High Court has ruled that the Income Tax Department is competent to seek interim custody of currency notes seized during searches and seizures, pending the completion of assessment or trial.

The Division Bench of Justice P B Suresh Kumar and C Pratheep Kumar, in its recent judgement, addressed the conflicting views on whether the Income Tax Department can take possession of seized currency under the provisions of the Income Tax Act, 1961, in conjunction with the Code of Criminal Procedure, 1973.

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The issue arose in several cases where large sums of money, amounting to over ₹180 lakh, were seized by various law enforcement agencies, including excise and railway police, during different raids. The seized amounts were deposited with the jurisdictional magistrates, and both the Income Tax Department and the accused parties filed applications seeking interim custody of the money.

In an earlier case, Union of India v. State of Kerala, a single judge ruled that the Income Tax Department, under Sections 132A and 132B of the Income Tax Act, could claim interim custody of the seized currency. However, in R. Ravirajan v. State of Kerala, another judge held that, in the absence of an income tax assessment or demand, the accused is entitled to interim custody of the money.

Due to this conflict, the matter was referred to a larger bench, which reviewed the provisions of the Income Tax Act. The bench, headed by Justice P.B. Suresh Kumar and Justice C. Pratheep Kumar, clarified that Sections 132A and 132B empower the Income Tax Department to hold seized assets, including money, if they are suspected to represent undisclosed income. The court emphasized that, under the law, the department is best suited to hold the seized currency pending trial or assessment, provided there is reason to believe the money is part of undisclosed income.

It was observed that, “If the competent authority has reason to believe that the amount seized represents wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act and is unable to issue a requisition in terms of Section 132A of the Act for the reason that asset has been produced by the officer or authority who seized the same before the Jurisdictional Magistrate, as clarified by this Court in Abdul Khader, the competent authority shall be held to be authorised to prefer an application seeking interim custody of the currency notes under Section 451 of the Code, for otherwise, Sections 132B and 132A , would become futile.”

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The court further noted that, while the authorities can seek interim custody of the currency, they are bound to return the money to the accused if the proceedings are not completed within six months, as per the law. However, the court found that any direction for disbursement or appropriation of the money before the conclusion of the trial or assessment is premature and should be addressed only under Section 452 of the CrPC, which deals with the final disposal of seized property.

To Read the full text of the Order CLICK HERE

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