Sunil Kumar v. Stock Guru India Ltd & Anr
[Citation -2017-LL-1113-18]

Citation 2017-LL-1113-18
Appellant Name Sunil Kumar
Respondent Name Stock Guru India Ltd & Anr
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 13/11/2017
Judgment View Judgment
Keyword Tags search and seizure operation • incriminating documents • income tax authorities • payment of interest • revenue authorities • undisclosed income • business premises • valuable article • books of account • partnership firm • beneficial owner • secured creditor • block assessment • office premise • monthly return • seized amount • decree holder • personal use • civil suit
Bot Summary: The applicant submits that on 18.01.2011 a search and seizure operation u/s 132 of Income Tax Act,1961 was carried out by the Investigation Wing of Income Tax Department at various residential and office premise of Judgment Debtor(SGI Group) when number of incriminating documents including the cash of Rs.34,69,00,000/- was seized. The Judgment Debtor is a partnership firm formed by Sh. Lokeshwar Dev and his wife Smt. Priyanka Saraswat Dev and is the flagship concern of the SGI Group, was carrying on systematic business but not reflecting the correct income in its books of accounts as required under the Income Tax Act, 1961. The seized amount since has to be appropriated towards tax demand in terms of Section 132B of the Income Tax Act,1961 on determination of the tax liability of the Judgment Debtor pursuant to the assessment of its undisclosed income determined on completion of the assessment proceeding. The applicant has filed this application for recovery of the tax demand raised against the applicant and it has issued the attachment order u/s 221 of the Income Tax Act,1961 to secure the interest of the revenue being Ex.P. No.381/2012 Page 3 of 16 authorized in law to recover the same. It is submitted by the learned counsel for the Income Tax Department that if the Decree Holder has any grievance against the attachment, the appropriate provision would be under Section 193(11) of the Income Tax Act, 1961 where he could have applied to get a favourable order but since no such application was filed, the execution proceedings to recover the amount lying attached under the orders of the Income Tax Department would be against the bar of Section 293 of the Income Tax Act. Under Section 226 Rule 4 the assessing officer may apply to the Court in whose custody there is money belonging to the assessee for payment to it of the entire amount of such money or if it is more than the tax amount, an amount sufficient to discharge the tax. The section rather clarifies the money which belong to the assessee shall only be available for payment as tax to the Income Tax Department, but what if money found in possession of the assessee does not belong to him or he is holding such money in trust/constructive or otherwise.


$ * IN HIGH COURT OF DELHI AT NEW DELHI % Reserved on: 01st November, 2017 Pronounced on: 13th November, 2017 + EX.P. 381/2012, EX.APPL.(OS) 66-67/2017 SUNIL KUMAR Decree Holder Through : Mr.Tanmaya Mehta, Mr.Piyush Singh, Ms.Nivedita Grover Advocates. versus M/S STOCK GURU INDIA LTD & ANR ..... Judgment Debtors Through : Mr.Sanjiv Rajpal, Adv. for Income Tax Dept. Ms.Kawaljit Kaur, Adv. for JD-1 &2 Ms.Romila Joshi, Advocate for HDFC Bank. CORAM: HON'BLE MR. JUSTICE YOGESH KHANNA YOGESH KHANNA, J. EX.APPL.(OS) 290/2014 1. This application is moved by Deputy Commissioner of Income Tax, Central Circle-3, New Delhi under section 226(4) of Income Tax Act, 1961 for recovery of income tax with interest, recoverable from judgment debtor for A.Y. 2010-2011 & 2011-2012 pursuant to assessment orders and demand notices for total sum of Ex.P. No.381/2012 Page 1 of 16 Rs.345,97,46,125/-, served upon assessee u/s 156 (2) of Income Tax Act, 1961. 2. applicant submits that on 18.01.2011 search and seizure operation u/s 132 of Income Tax Act,1961 was carried out by Investigation Wing of Income Tax Department at various residential and office premise of Judgment Debtor(SGI Group) when number of incriminating documents including cash of Rs.34,69,00,000/- was seized. Judgment Debtor is partnership firm formed by Sh. Lokeshwar Dev and his wife Smt. Priyanka Saraswat Dev and is flagship concern of SGI Group, was carrying on systematic business but not reflecting correct income in its books of accounts as required under Income Tax Act, 1961. 3. seized amount since has to be appropriated towards tax demand in terms of Section 132B of Income Tax Act,1961 on determination of tax liability of Judgment Debtor pursuant to assessment of its undisclosed income determined on completion of assessment proceeding. 4. It is alleged that judgment debtor was accepting deposit from public and offering return on deposits. group has claimed that they had expertise in stock and commodity market and deposits collected were used by group for trading in equity and commodity market, speculative business, FDR and investment in real estate. SGI had several plans which they offered to investors. deposits were collected from investors through agents. These Investors /agents were allowed to refer and introduced any other person to be investor/agent Ex.P. No.381/2012 Page 2 of 16 in firm under their downline as they would receive referral commission on investment of said new referred person. 5. decree holder who has been one of investors of Judgment Debtor filed suit for recovery against judgment debtors on premise he has been defrauded by judgment debtors and money decree of Rs. 1.60 crore was passed by this Court on 16.08.2012 which is now sought to be executed by way of this present execution. On application of HDFC bank this Court vide order dated 20.03.2013, keeping in view attachment orders qua bank accounts of judgment debtor already passed by income tax department vide order dated 11.01.2013, direct it not to release any payment from said account to any party without taking leave of this Court. 6. block assessment of Judgment Debtor pursuant to search operation and in terms of post search enquiry has been completed on 06.11.2013 and in terms thereof demand has been raised on them. assessment orders of Judgment Debtor for assessment years 2010-2011 and 2011-2012 alone determined its tax liability for these 2 years at Rs.345,97,46,885/-.The copy of demand notices issued u/s l56 (2) of Income Tax Act,1961 are attached. 7. It is averred applicant has put bank accounts of Judgment Debtors under attachment u/s 226 of I.T. Act, 1961 and one such bank account with HDFC Bank, Dwarka Branch, New Delhi has also been attached whose bank account No. is 02498630000147. applicant has filed this application for recovery of tax demand raised against applicant and it has issued attachment order u/s 221 of Income Tax Act,1961 to secure interest of revenue being Ex.P. No.381/2012 Page 3 of 16 authorized in law to recover same. Hence it prays for direction to release sum to applicant as amount belonging to judgment debtor deposited by it in HDFC Bank, Dwarka Branch, New Delhi has been freezed for meeting tax liability arisen against it. 8. It is submitted by learned counsel for Income Tax Department that if Decree Holder has any grievance against attachment, appropriate provision would be under Section 193(11) of Income Tax Act, 1961 where he could have applied to get favourable order but since no such application was filed, execution proceedings to recover amount lying attached under orders of Income Tax Department would be against bar of Section 293 of Income Tax Act. 9. In support of his submission learned counsel for Income Tax Department has relied upon Rakesh Kumar Agarwal V. Bansal Commodities (2013) 39 Taxmann.com 136 (Delhi) which read as under:- 22. As noticed, facts are that duly authorized Income Tax Officers carried out search and seizure operations at residential and business premises of M/s. Bansal Commodities on 27th April, 1989. During these, seven Pay Orders for Rs.50.40 lakhs, prepared from accounts on 26th April, 1989 were found. Income Tax officials, on 28th April, 1989 issued deemed seizure order with respect to 7 pay orders for Rs.50.40 lakhs and served it upon Manager, Punjab National Bank. original pay orders were in control and possession of plaintiffs, M/s. Bansal Commodities. plaintiffs, resultantly did not present pay orders for payment and approached Income Tax Authorities with respect Ex.P. No.381/2012 Page 4 of 16 same. Income tax proceedings then onward rambled on. Finally, plaintiff s efforts at securing release from Income tax authorities ended, with order by CIT, rejecting their application under Section 132 (11). They approached this Court, challenging that order, under Article 226 of Constitution of India. On 20th May, 2004, that writ petition was dismissed, relegating M/s. Bansal Commodities to civil Court for its remedies by way of suit, through consent order. suit, filed later, was decreed in full, by impugned judgment. first objection to impugned judgment is that it was barred by Section 293 of Income Tax Act; second argument of appellants is that learned Single Judge should not have entertained suit since no ground to give benefit of Section 14 of Limitation Act, had been made out. 23. issue presented before Court is whether present proceedings are barred by Section 293 of Income Tax Act. section reads: 293. Bar of suits in Civil Courts. No suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act; and no prosecution, suit or other proceeding shall lie against Government or any officer of Government for anything in good faith done or intended to be done under this Act. 24. fact that assessment conducted as against Rakesh Kumar Agrawal was closed, and proceedings under Section 132 along with objections presented under Section 132 (10), which were considered and rejected under Section Ex.P. No.381/2012 Page 5 of 16 123 (12) were carried out is clear in this case. Section 132 proceedings and deemed seizure of seven pay orders (and representative amount) as against Mr. Kumar s tax dues were conducted and finalized in accordance with procedure under that provision, and to that action, there is no dispute in this case. question, then, is whether present suit deciding liability of Rakesh Kumar Agrawal to M/s. Bansal Commodities is barred. There can be no dispute that question of liability itself, as matter of contractual agreement between parties, is matter properly reserved for jurisdiction of civil court. question, here, however, does not concern private remedies that lie between two parties in this case, but whether, ownership of seven pay orders seized by income tax authorities under Section 132 - can be subject matter of present suit. xxx 26. As in this case, Revenue may not adjudicate on question of liability of Mr.Agrawal to Bansal Commodities, just as in Parmeshwari, Supreme Court held that: [i]t (was) not case of Revenue that Income Tax Authority can grant decree for partition. Neither is it true that such construction of Section 293 leaves third parties without remedy. Section 132(11) provides third person, (in this case M/s. Bansal Commodities), with necessary opportunity to present its case or claim that it is real and true owner or beneficial owner of proceeds (or amounts) under seven pay orders, before Income Tax authorities. That was, in fact, done in this case. result of Ex.P. No.381/2012 Page 6 of 16 present suit being held to be maintainable and judgment of Learned Single Judge allowed to operate, would be, in words of Supreme Court: direct effect of getting that order of Income-tax Officer under Section 132(5) of Act set aside or modified to that extent. This Section 293 does not permit... Equally, Supreme Court noted that: Section 293 is quite specific and does not admit of any ambiguity if ultimately suit is to result in decree or order which sets aside or modifies any proceeding taken or order made under Act, that suit would not be maintainable. We are not concerned with frame of suit as such but to see ultimate result to which suit as such but to see ultimate result to which suit would lead to. . 27. Similarly, this question was also considered by this Court in Prem Kumar and Sons (HUF) v. Union of India and Ors., [2006] 280 ITR 152 (Delhi), where Income Tax authorities proceeded under Section 132 to seize certain assets alleged to belong to Hindu Joint Family from appellant assessee. appellant had also filed suit against Income Tax authorities for recovery of certain amount as for financial loss plaintiff had suffered as result of loss of interest on maturity value of financial assets seized. In that proceeding, Single Judge Court dismissed suit given provisions of Section 293, and on appeal, Court noted that where specific remedy is available under Section Ex.P. No.381/2012 Page 7 of 16 132 (in that case remedy lay in provisions on payment of interest under Section 132B), jurisdiction of Civil Court remains barred. In this case, M/s. Bansal Commodities clearly had recourse to Section 132(11), which they took advantage of, though ultimately their view was rejected by Income Tax authorities in accordance with statutory discretion vested in it. Thus, Section 293 clearly comes into operation in this case. xxx 28. Significantly, order under Section 132 effecting deemed seizure of pay orders as against tax dues of Rakesh Kumar Agrawal continues to operate till date, having never been set aside in any writ proceeding before this Court or Special Leave Petition before Supreme Court. Therefore, effect of present suit with form not being determination, but rather substance of relief claimed would be that order under Section 132 would necessarily be required to be modified, and thus, Section 293 prohibits present action. impugned judgment of Learned Single Judge that ownership of seven pay orders lies with M/s. Bansal Commodities and order of CIT, i.e. that seven pay orders are to be utilized as against tax dues of Mr. Kumar cannot stand together. With proceedings under Section 132 having been initiated in 1989 and having attained finality in terms of procedure within that provision being complied with, Section 293 mandates that jurisdiction of civil court with respect to present suit is barred. Ex.P. No.381/2012 Page 8 of 16 10. Hence it is argued by learned counsel for Income Tax Department that this money belong to revenue and decree holder has no right to recover money attached/seized by revenue. 11. I disagree with submission of learned counsel for department. Section 293 of Income Tax Act perhaps has no applicability in present proceedings. It bars filing of suit in civil court to set aside or modify any proceedings taken and / or made under Income Tax Act. Decree Holder has not filed any suit in any civil court against revenue authorities challenging/setting aside/modifying any proceedings taken and/or made under this Act. Decree Holder rather had filed civil suit for recovery of his own money of Rs.1,60,00,000/- with pendetelite and further interest based on two post dated cheques issued by Judgment Debtors. suit was filed by decree holder on premise that Judgment Debtors had cheated Decree Holder and had committed fraud upon him. Para 4 of Judgment dated 16.08.2012 in CS(OS)2866/2011 also notes this fact: 4. It is case of plaintiff that he never received any return on his investments with defendants and when he tried to approach defendants at their Delhi office, he found that office was closed and telephone numbers of defendants were also not available. It then transpired that defendants had been working under pre-planned conspiracy to cheat public-at- large and had aired their advertisements on internet, and through periodically conducted seminars, so as to gain trust of public-at-large. Plaintiff also discovered that bank account of defendants on which post dated cheques were issued, had been seized by police even Ex.P. No.381/2012 Page 9 of 16 before issuance of aforesaid cheques. Plaintiff also met other individuals who had been cheated and duped by defendants and came to know that police had registered FIR bearing No.84/2011, against defendants and that case was thereafter transferred to Economic Offences Wing, Malviya Nagar, New Delhi. On 16.06.2011, plaintiff served legal notice on defendants, terminating agreement on account of fraud committed by defendants and called upon defendants to pay to plaintiff assured monthly return and principal sum invested. 12. Court then in para 7 of its judgment returned finding:- 7. In view of aforesaid, suit of plaintiff is decreed in favour of plaintiff and against defendants Nos.1 and 2. defendants are held jointly and severally liable to pay to plaintiff sum of Rs. 1,60,00,000/- (Rupees one crore and sixty lakhs only) along with interest@ 18% per annum from date of institution of suit till date of payment. aforesaid amount shall be paid by defendant Nos.l and 2 within eight weeks, failing which defendants shall be liable to pay interest @ 20% per annum till date of payment. 13. Thus court believed averments of fraud made by decree holder against judgment debtors. 14. Now on equity, department of course can seize money/properties which belong to assessee/the judgment debtors but of none other. Now in this case decree holder has alleged his money being Rs.1,60,00,000/- was received by judgment debtors by cheating Ex.P. No.381/2012 Page 10 of 16 him and said money belong to decree holder and need to be returned by judgment debtors. It is argued such money of decree holder is held by judgment debtors in trust and decree holder has proprietary interest in amount so seized to extent of his decree. 15. Section 86 of Indian Trusts Act, 1882 is relevant in this regard: 86. Transfer pursuant to rescindable contract. Where property is transferred in pursuance of contract which is liable to rescission, or induced by fraud or mistake, transferee must, on receiving notice to that effect, hold property for benefit of transferor, subject to repayment by latter of consideration actually paid. 16. Per above, if money was transferred in pursuance of contract induced by fraud or mistake, as proved by decree holder and so noted in judgment dated 16.08.2012 in CS(OS) No.2866/2011, judgment debtor on receiving notice of rescission ought to have held money in trust for benefit of decree holder. 17. In National Crime Agency V. Gary John (2014) EWHC 4384 (CH) Court held as under: 40.I consider that each of lead claimants has proprietary claim to part of Fund on ordinary principles of law and equity. Although Mr Nicholas Cox, counsel for NCA, highlighted several possible difficulties with such claim, he did not at end of day firmly oppose it. There are two possible routes by which lead claimants can establish proprietary claim. first is that, as from February 2005 when Mr Robb and AGA conspired to defraud by ceasing to honour their obligations to investors and to Ex.P. No.381/2012 Page 11 of 16 transfer all investors' payments to Mr Robb for his personal use and enjoyment, Mr Robb and AGA held payments by lead claimants or their traceable proceeds on constructive trust for lead claimants ("the fraud constructive trust"). second is that, from time when lead claimants claimed return of their payments, that is to say, at latest, when they joined present proceedings, their transactions were rescinded and their payments or their traceable proceeds were held on trust for them ("the rescission trust"). 41.The fraud constructive trust was described Lord Browne-Wilkinson in following well-known passage in Westdeutsche at p. 716 "I agree that [the] stolen moneys are traceable in equity. But proprietary interest which equity is enforcing in such circumstances arises under constructive, not resulting, trust. Although it is difficult to find clear authority for proposition, when property is obtained by fraud equity imposes constructive trust on fraudulent recipient: property is recoverable and traceable in equity. Thus, infant who has obtained property by fraud is bound in equity to restore it: Stocks v. Wilson [1913] 2 K.B. 235, 244; R. Leslie Ltd. v. Sheill[1914] 3 K.B. 607. Moneys stolen from bank account can be traced in equity: Bankers Trust Co. v. Shapira [1980] 1 W.L.R. 1274, 1282C-E: see also McCormick v. Grogan (1869) L.R. 4 H.L. 82, 97". xxx Ex.P. No.381/2012 Page 12 of 16 50.Contrary to some scholarly analysis (see Burrows', "The Law of Restitution" (3rd ed) pp. 174-179 and academic material to which he refers, including, in particular, various writings of Professor Robert Chambers), I also consider that fact that fraud only subsequently arises in transaction which began as legitimate transaction is not, of itself, bar to rescission or to constructive trust then arising. There is no binding authority on that point one way or other: see generally discussion in Goff & Jones, Law of Unjust Enrichment (8th ed) paras. 37-07 to 37-24 on limits of proprietary relief for unjust enrichment. Whatever may be position in other cases, fraud is special. As Lord Bingham said in HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 at paragraph [15]: " fraud is thing apart. This is not mere slogan. It reflects old legal rule that fraud unravels all: fraus omnia corrumpit. It also reflects practical basis of commercial intercourse. Once fraud is proved, 'it vitiates judgments, contracts and all transactions whatsoever': Lazarus Estates Ltd v Beasley [1956] 1 All ER 341 at 345, [1956] 1 QB 702 at 712 per Denning LJ." 51.I consider that there are good policy reasons for enabling victim of fraud, which supervenes in transaction, to set aside transaction so as to pursue proprietary claim even though that will have priority over other unsecured creditors of fraudster or of any other person who has received traceable proceeds. xxx Ex.P. No.381/2012 Page 13 of 16 18. Taking clue from judgment above, where judgment debtor had received money by fraud then at best he shall be holding money in constructive trust for decree holder, even if fraud had subsequently been committed. Though here learned counsel for revenue referred to Section 292(C) of Income Tax Act, 1961 to take benefit of presumption attached to amount seized viz:- 292C (1) Where by books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in possession or control of any person in court of search under section 132 (or survey under Section 133A), it may, in any proceedings under this Act, be presumed (i) That such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; But admittedly, presumption as is envisaged in section 292C is rebuttable one and in this case stood rebutted by decree in favour of decree holder which confirmed Rs.1.6 crores was received by judgment debtor by fraud. Now, here Rule 9 of Second Schedule of Income Tax Act would become relevant and it read: Schedule II Rule 9 General bar to jurisdiction of civil courts, save where fraud alleged. xxx xxx xxx Provided that suit may be brought in civil court in respect of any such question upon ground of fraud. Ex.P. No.381/2012 Page 14 of 16 19. Rule 9 confirms my view qua leverage to be given to plaintiff if he brings suit on grounds of fraud. This exactly has been case of decree holder. 20. I may now refer to Section 226 of Income Tax Act, 1961 which relate to other modes of recovery. Under Section 226 Rule 4 assessing officer may apply to Court in whose custody there is money belonging to assessee for payment to it of entire amount of such money or if it is more than tax amount, amount sufficient to discharge tax. 21. section rather clarifies money which belong to assessee shall only be available for payment as tax to Income Tax Department, but what if money found in possession of assessee does not belong to him or he is holding such money in trust/constructive or otherwise. To my mind such money can t be adjusted against tax liability of assessee. 22. Further plea of revenue that decree holder ought to have applied u/s 132(11) per Rakesh Kumar Aggarwal (supra) is also not sustainable, per Section 132(11) stands omitted by Finance Act of 2002 w.e.f. 01.06.2002 and hence decree holder could not have availed of such provision in any case. 23. Lastly plea of Income Tax Department that it being secured creditor, would not be of any benefit to revenue in view of fact money seized to extent of decree does not belong to assessee being obtained by fraud as discussed above. assessee Ex.P. No.381/2012 Page 15 of 16 though was in possession of it but at best can said to have held it only in constructive trust. 24. Application is thus dismissed for reasons aforesaid. 25. No order as to cost. EX.P. 381/2012, EX.APPL.(OS) 66-67/2017 26. List for further proceedings on 15.02.2018. YOGESH KHANNA, J NOVEMBER 13, 2017 VLD Ex.P. No.381/2012 Page 16 of 1 Sunil Kumar v. Stock Guru India Ltd & Anr
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