JOYALUKKAS INDIA PRIVATE LIMITED, V. THE PRINCIPAL DIRECTOR GENERAL OF INCOME TAX,

WP(C)/14693/2021

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Joyalukkas India Private Limited, a company engaged in the jewellery business, filed a writ petition challenging notices issued under the Prohibition of Benami Property Transactions Act, 1988. The petitioner was involved in a legal dispute concerning the classification of transactions with goldsmiths as benami properties. Following a search and seizure operation, the Income Tax Department initiated proceedings against the petitioner, leading to provisional attachments and subsequent notices. The petitioner contested these actions, leading to the current writ petition. The court's decision to quash the notices was based on a recent Supreme Court ruling that found the relevant section of the Benami Act to be unconstitutional.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 749784 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 10-01-2023
• Assessment Year: misc
• Other Referred Cases: Union of India and another v. M/s.Ganapati Dealcom Pvt.Ltd [2022 SCC OnLine 1064]
• Laws Referred To: Income Tax Act, Prohibition of Benami Property Transactions Act, 1988
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: P; MANU
• Assessee Lawyers: ASWIN GOPAKUMAR; ANWIN GOPAKUMAR; NIRANJAN KANDAMPULLY; VIKRAM SUSAN PAULSON; PRAFUL SURENDRAN
• Keywords: Benami property; Provisional attachment; Search and seizure; Goldsmiths; Job work agreements
• Section: 132; 46; 3(2); 26(1); 26(3); 24(4)(b)(i)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE V.G.ARUN TUESDAY, THE 10TH DAY OF JANUARY 2023 / 20TH POUSHA, 1944 WP(C) NO. 14693 OF 2021 PETITIONER/S: JOYALUKKAS INDIA PRIVATE LIMITED, DOOR NO.40/2096 A & B, PEEVES TRITON, MARINE DRIVE, SHANMUGHAM ROAD, ERNAKULAM, COCHIN-682 031, REPRESENTED BY ITS DIRECTOR AND AUTHORISED SIGNATORY P.D.JOSE. BY ADVS. ASWIN GOPAKUMAR ANWIN GOPAKUMAR NIRANJAN SUDHIR KANDAMPULLY VIKRAM NIKITHA SUSAN PAULSON PRAFUL SURENDRAN RESPONDENT/S: 1 THE PRINCIPAL DIRECTOR GENERAL OF INCOME TAX, (INVESTIGATION), AARYA BHANGI PINNACLE, SAHODARAN AYYAPPAN ROAD, ELAMKULAM, KOCHI-682 020. 2 THE ASSISTANT COMMISSIONER OF INCOME TAX (BP UNIT), KOCHI, GROUND FLOOR, POORNIMA BUILDINGS, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI-682 036. BY ADVS. SHRI.P.VIJAYAKUMAR, ASG OF INDIA MANU S., ASG OF INDIA THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 30.11.2022, THE COURT ON 10.01.2023 DELIVERED THE FOLLOWING: W.P .(C) No.14693 of 2021 -2- JUDGMENT Dated this the 10th day of January, 2023 The petitioner, a private Limited Company engaged in jewellery business, has filed this writ petition seeking to quash Exts.P6 series notices issued by the first respondent. The short facts are as under; The petitioner receives old gold brought for exchange by its customers as part of its business. In order to assess the value of the old gold, it has to be melted and purified. For this purpose, the petitioner had entered into job work agreements with goldsmiths. Payments for the above activity were made through banking channels, after deducting the tax at source. While so, on 10.01.2018, a search and seizure under Section 132 of the Income Tax Act was W.P .(C) No.14693 of 2021 -3- conducted at various premises of the petitioner. Consequently, proceedings under the Prohibition of Benami Property Transactions Act, 1988 ('the Act') was initiated alleging that eight goldsmiths engaged by the petitioner were actually functioning as benami entities of the petitioner. On initiation of the proceedings, the second respondent passed a provisional attachment order under Section 24(4)(b)(i) of the Act, on the premise that the capital balance in the account of the goldsmiths was benami property. Accordingly, the goldsmiths were arrayed as benamidars and the petitioner as the beneficial owner under Section 2(12) of the Act. Thereafter, notices were issued under Section 26(1) of the Act, requiring the petitioner to produce documents/evidences to prove that the property is not benami property coming within the meaning of Section 2(9)(A) of the Act. Although petitioner filed the statements and documents, as W.P .(C) No.14693 of 2021 -4- directed, the second respondent confirmed the provisional attachment order as per Section 26(3) of the Act. Thereupon, the petitioner preferred appeals under Section 46 of the Act. Pending the appeals, the petitioner was issued with notices requiring to show cause as to why sanction should not be accorded for prosecuting the petitioner for offence under Section 3(2) of the Act. The petitioner responded to the notices by submitting detailed explanations. Not being satisfied with the explanations, the first respondent issued Ext.P6 series of notices, calling upon the petitioner to submit detailed explanation. While admitting the appeal on 22.12.2021, this Court granted an interim stay of further proceedings pursuant to Ext.P6. 2. Learned Counsel for the petitioner submitted that Ext.P6 notices and the proceedings proposed under Section 3 of the Act are liable to be quashed in the light of the W.P .(C) No.14693 of 2021 -5- recent judgment of the Apex Court in Union of India and another v. M/s.Ganapati Dealcom Pvt.Ltd [2022 SCC OnLine 1064]. Having gone through the judgment, I find the submission to be well founded. 3. In M/s.Ganapati Dealcom Pvt.Ltd, the legal question considered was whether the Prohibition of the Benami Property Transaction Act, 1988, as amended by Benami Transactions (Prohibition) Amendment Act, 2016 has prospective effect. After elaborate consideration, it was held that Section 3 r/w Section 2(a) and Section 5 of the 1988 Act are overly broad, disproportionately harsh and operate without adequate safeguards and are hence, unconstitutional from the inception. Based on that finding, the Apex Court declared Section 3(2) of the Amendment Act as unconstitutional. As rightly contended by the Counsel for the W.P .(C) No.14693 of 2021 -6- petitioner, Section 3(2) of the Act having been declared unconstitutional, Ext.P6 series of notices and further proceedings thereon are liable to be quashed. In the result, the writ petition is allowed and Ext.P6 series of notices are quashed. Sd/- V.G.ARUN JUDGE Scl/ W.P .(C) No.14693 of 2021 -7- APPENDIX OF WP(C) 14693/2021 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF ONE OF EIGHT PROVISIONAL ATTACHMENT ORDERS THAT ARE EXACTLY IDENTICAL ALBEIT CERTAIN FIGURES. Exhibit P2 TRUE COPY OF ONE OF THE ORDER OF THE ADJUDICATING AUTHORITY UNDER SECTION 26(3) OF THE PBPT ACT DATED 16.03.2020. Exhibit P3 TRUE COPY OF ONE OF THE APPEALS FILED BY THE PETITIONER UNDER SECTION 46 OF THE PBPT ACT TO APPELLATE TRIBUNAL IN NEW DELHI. Exhibit P4 TRUE COPY OF THE NOTICES DATED 25.06.2021 ISSUED BY RESPONDENT NO.1 UNDER SECTION 3(2) OF THE PBPT ACT. Exhibit P5 TRUE COPY OF ONE OF THE REPLIES DATED 14.07.2021 SUBMITTED BY THE PETITIONER TO RESPONDENT NO.1. Exhibit P6 TRUE COPIES OF THE NOTICES DATED 14.07.2021 ISSUED BY THE RESPONDENT NO.1. Exhibit P7 TRUE COPY OF THE NOTICE ISSUED BY THE 1ST RESPONDENT DATED 18/11/2021 Exhibit P8 TRUE COPY OF THE LETTER ISSUED BY THE COUNSEL FOR THE PETITIONER DATED 25/11/2021 "