“The poorest man may in his cottage bid defiance to all the force of the crown.”
This statement made by the British politician William Pitt in 1763 embodies the inviolable right of individuals to enjoy their property to the exclusion of the State’s burdening and overbearing might.
The principles of life, liberty and property are cornerstones of modern civilisation. Any attempt to curtail an individual’s freedom to indulge in their property as they please is a direct attack on individual sovereignty.
In introducing the Finance Bill, 2017, the Bharatiya Janata Party-led Union government has silently proposed amendments to the Income Tax Act, 1961, that are a scathing attack on every Indian’s right to privacy and control over their property.
These arbitrary changes place unrestricted and unaccountable police powers in the hands of bureaucrats. With the proposed changes, it will now be legal for income tax officials to enter any business or home without a justifiable cause.
Search and seizure
Section 132 of the Income Tax Act gives income tax authorities “search and seizure” powers. Any person who may be in possession of documents, accounts or properties, which after notice have not been disclosed to the authorities or are likely to not be disclosed, will be subject to such search and seizure powers listed under Section 132.
Given that search and seizure powers constitute a considerable infringement on the fundamental rights of citizens, the Income Tax Act has a specific safeguard to prevent the capricious exercise of this power.
Authorities seeking to engage in such an operation must base their assessment on a principle known as “reason to believe”. The assessing authority should have “reason to believe” that the individual on whom notice has been served, as well as those who have not been served notice, will in all likelihood not disclose their books or produce documents, accounts or properties as required by the income tax authorities.
Further, if a search and seizure measure is challenged before an appellate authority or tribunal, it will be imperative for income tax officials to effectively prove, beyond doubt, the reasoning or belief that led to such a measure.
It is evident that the term “reason to believe” written into Section 132 of the Income Tax Act constitutes a statutory restraint.
The scope of limitations placed on search and seizure powers was elucidated by the Calcutta High Court in Mamchand and Co. and Ors v Commissioner of Income Tax, West.
In this case the court explained that when challenged, it is the income tax commissioner’s duty to prima facie show “reason to believe” so as to bring the matter within the scope of Section 132(1)(b) of the Income Tax Act.
However, among the numerous amendments to the Income Tax Act proposed in the Finance Bill, 2017, is a change to the existing provisions of Section 132. As per an amendment in the Bill, an explanation will be added under the fourth proviso of Section 132(1) of the Act.
This explanation, which supplements the section, states:
“For removal of doubts, it is hereby declared that the reason to believe, as recorded by the Income Tax authority, under this subsection shall not be disclosed to any person or any authority or the appellate tribunal.”
This gives a whole new meaning to Section 132. It not only removes the only check placed on the powers to be exercised by the income tax authorities, it also tilts the balance in favour of officials. With the statute undoubtedly dispensing with the need to establish “reason to believe” before undertaking a search and seizure operation, it will become increasingly difficult for courts to compel authorities to show cause for the operation.
The proposed amendment thus completely erodes any accountability that should guard search and seizures. It places indomitable powers on the judgment of individual tax officers, which cannot be called into question before any higher authority.
If passed into law, the updated section will essentially destroy an individual’s privilege to enjoy their property. It will place citizens at the mercy of tax officials who may enter their places of business or residences indiscriminately, not necessarily to pursue any lawful search objective, but possibly also to harass them for unscrupulous personal pecuniary gains.
Suggested push back
For citizens to save themselves from impending tax terrorism, it is important to block the proposed amendment or drastically dilute the powers it aims to give income tax authorities.
If the proposal to remove “reason to believe” is not defeated, there can be a concerted push to include a requirement for income tax officials to first issue a mandatory notice under Section 132 before conducting a search and seizure operation. In such a circumstance, the assessing authority may not need to give a reason for the search and seizure, but he will be compelled to give a notice to the party whose premises are to be targeted.
Lawmakers can also push for a provision wherein the admissibility of evidence gathered under a search and seizure operation devoid of the “reason to believe” principle may be denied or given lower importance than other evidence accumulated.
There can also be an extra provision that allows the victims of such unlawful and arbitrary raids to sue the officers involved for damages, which shall be paid from the personal estate of the officials involved in the operation.