Name-Sanket Jamuar

Subject- Principles of Taxation

Id no-018/2018/1949

Semester-V

According to Income Tax Act(IT act), 1961, revenue from agricultural is excluded from
taxes. The explanation for this exclusion is that the Constitution has provided the power to the
state governments to lay down laws on taxes on agricultural profits. However, when
calculating tax on non-agricultural income, income generated from agricultural activities is
often taken into account. Profit from agricultural activities is not taxable pursuant to
Section 10(1) of the Income Tax Act, 1961. Agricultural income is specified in accordance
with Section 2(1A) of the Act.
.

Meaning of Agricultural Income:

Section 2 (1A) of the Income Tax Act, 1961 defines “agricultural inc0me” as an inc0me under
the following three s0urces:

Section 2(1A) of the Income Tax Act, defines what is mean by agricultural income

1.Any land located within India and utilized for agricultural activities
2.Any income obtained by such property by virtue of farming on that land.
3.Any revenue obtained from land, as well as the cultivation of agricultural products
produced or obtained as a cost in kind or any method used by the farmer or earned as a rent in
kind in order to make the harvest suitable for sale
4.Any land held and controlled by the assessee, through which the assessee earns any income,
shall earn any rent or shall earns any income when the land is engaged in farming purpose.
The house must be built on the farmland or near the land. The assessee could use the house as
an outdoor residence, or a storehouse.
In view of these factors, revenues generated from farmhouse activities are also called
as agricultural incomes. Revenues from seeds and saplings cultivated in a nursery also came
under the ambit of agricultural income.1
Hence, we can consider inc0me attributable t0 a farmhouse as an agricultural inc0me, subject
to the ab0ve conditi0ns. Normally, the annual value of a building is taxable as „inc0me from
house pr0perty‟. However, in the case of a farm h0use, the annual value would be deemed
agricultural inc0me and thus, be exempt from tax.

In addition to the above, inc0me derived fr0m saplings or seedlings grown in nursery is also
considered as agricultural inc0me.

Taxability of Agricultural income post amendment by Finance (No.2) Act, 2014

Agricultural earnings may be included when calculating an individual's income tax if the
below criteria are met-
1. Net income from agriculture surpasses Rs. 5 000 for the preceding year and
2.Whole revenue, plus agricultural revenue, surpasses the basic exclusion threshold

This system is used to impose a tax on agricultural production in an implicit way

There is a plenty of purview for taxing revenue from non-agricultural activities. In several
instances, agriculturalists would not have any income that are taxable. This is because if the
money from farm incomes is distributed between the members of the family in either case, it
is subject to the exemption threshold. Many intermediaries, such as distributors, wholesalers,
vendors, etc., are however pocketing significant income and excluded due to these incomes
generated from agricultural activities . These profits are subject to taxation technically, but are
not taxed because of the flaws. If the Tax Ministry makes rigorous efforts to recover tax from
them, the tax base must be extended to cover these people.

Example – Let us say that an Individual Assessee has a T0tal inc0me of INR
7,50,000/- (excluding Agricultural inc0me) and a Net Agricultural inc0me of INR 100,000/-.
Then, per
this step, Tax shall be c0mputed on INR 7,50,000/- + INR 1,00,000/- = INR 8,50,000/-. Thus,

1
http://taxguru.in/income-tax/income-tax-treatment-taxability-of-agricultural-
income.html
income Tax am0unt as per this step shall be INR 82500/- for an individual wh0 is below the
age of 60 Years during the P.Y. 2017-18.

♠ Sec0nd, add the applicable basic tax slab benefit, as applicable, to the Net
Agricultural inc0me. Thus, per our example menti0ned above we shall add INR
2,50,000/- to INR
1,00,000/- as the applicable Tax slab benefit available t0 an individual below 60 Years of age
is INR 2,50,000/-. Now we will c0mpute income Tax on INR 3,50,000/- (Tax slab
benefit
2,50,000 + Net Agricultural inc0me 1,00,000). The amount of Tax shall be INR 5000/-.

♠ Thir2d, subtract the Tax computed in Sec0nd step from the Tax computed in First step = INR
77,500/-. Thus, this is the inc0me Tax liability subject to deducti0ns, Education Cess etc., as
applicable.

This pr0cess of computation is, however, followed only if the assessee’s n 0n-
agricultural income is in excess of the basic exemption slab.

Clearly, despite agricultural inc0me being tax-exempt, assessees have to be cauti0us

while dealing with such inc0me. They must make sure that they aggregate agricultural inc0me
with their t0tal income to avoid interest payments and possible penalties for c0ncealment of
income. Assessees must als0 maintain credible rec0rds to provide the tax authorities
with pr00f of
0wnership of agricultural land and evidence 0f having earned agricultural income.

To c0nclude, there is enough scope for taxing inc0me from activities which are n0n-
agricultural in nature. In fact, it is well known that agriculturists themselves d0 not have
taxable income, taking into acc0unt the fact that when it is divided am0ngst family members
who are inv0lved in agricultural 0perations, each 0ne of them w0uld have inc0me within the
exemption limit. However, there are hundreds 0f th0usands of middlemen like
wholesalers, retailers, distribut0rs, etc. wh0 earn substantial income from trading in
agricultural pr0duce as well as fruits, fl0wers, etc. Such income or pr0fits are fully
taxable under the present law and, theref0re, if concerted efforts are made by the Tax
Department to rec0ver tax from them, the need for widening the tax base to r0pe in
agriculturists and farmers, would be eliminated

Exemption as a tool of tax evasion and money laundering

The third Tax Administration Reform Commissi0n (TARC) study of 2014 was the
final government study to illustrate how the waiver for farm revenue has been abused. It was
quite uneven about the lethargy: the waiver has been utilized by non-farmers as a 'conduct to
escape taxes and money laundering.' The specific portion is reproduced to eliminate any
question as to the validity of this claim. In 2002, the Kelkar Committee (Task F0rce on Direct
Taxation) stated the similar thing: the waiver for farm revenue 'obfuscates both horizontal and
vertical equity' and 'promotes the laundering of non-agricultural revenue as agricultural
income, i.e. is becoming a medium for tax circumvention.'
Economist “Prof Arun Kumar, who studies black m0ney in the Indian economy”, says the
issue dates back to 1970s. He says “Wanchoo Committee - raised the issue and p0inted out
that "diversion of income to agriculture was being used t0 evade tax" by non-
agriculturists.

Extent of the exemption 'black hole' not known

The Kelkar Commission and the third TARC study are rather critical in their reports, however
did not provide any facts. aThis is quite unusual given the fact because those are the finance
ministry's key priorities and that the authority to had to dig for all the important facts.
There is no question that the taxing agencies had all the necessary information are the
collection of these information as the RTI response and the CAG report are clear-but these are
not publicly disclosed or evaluated in order to assess the scale of the circumvention of tax and
tax fraud. Even if the information is pr0vided - as was the case in the RTI reply to their own
retired
0fficial in 2015 - the tax authorities promptly discredited their 0wn data through a counter-
affidavit and st0pped responding to his subsequent RTI queries. This attitude raises questi 0ns
about the real intentions of the tax authorities and governments.
Revenue loss due to exemption on agricultural income
How much tax revenue is really l0st due to the exemption to agricultural income?
At least 0ne assessment exists: a study carried 0ut by the National Institute of Public Finance
and P0licy (NIPFP) - finance ministry's research b0dy - in 2012, which was published in
the Economic and Political Weekly.
This study estimated the p0tential of revenue from agricultural inc0me at about 1.2% of the
GDP in FY08 or 9% of the agriculture GDP 0f that year. It said the states could
earn additi0nal revenue of about 19% by taxing agricultural income.
This estimate was d0ne through a land-based, cr0p-specific, agricultural inc0me calculation
for all maj0r cr0ps: food grains, pulses, cereals, oilseeds, fibre crops, h0rticulture and
floriculture. Hence this is different fr0m what the Kelkar Committee and TARC reports were
talking about.
The study had also p0inted at the growing presence of corporate sector in agriculture and that
more than 50 c0mpanies reported income of 0ver Rs 100 crore from agriculture in FY10 -
totalling Rs 31,313 crore.
Revenue loss from agricultural income in FY20
Here is a back-of-the-envel0pe calculation taking the NIPFP's 2012 study as the basis.
At 1.2% 0f the GDP in FY20, the loss of revenue from agricultural inc0me would amount to
Rs 2.45 lakh cr0re - taking the GDP size for FY20 to Rs 20,442,233 crore at current prices,
as per the NS0's first advance estimate released last month.
This w0uld be 11% of the gross tax revenue (RE) pr0jected for FY20 (Rs 21.63 lakh crore) in
the last budget.
There are 0ther reasons why this matters.
Exemption undermines equity, increases tax rates
The Kelkar Committee listed tw0 reasons for taxing agriculture, to which the third
TARC
report added 0ne more (reason).
One, exemption to agricultural income dist0rts horizontal and vertical equity - those getting
exempti0ns are at an advantage over those earning equivalent level of inc0me from
non- agricultural activities (h0rizontal equity) and exemption fails to distinguish between the
p0or and the rich farmers (vertical equity).
Second, exempti0n "encourages laundering of non-agricultural income as agricultural inc0me,
i.e., it has become a conduit for tax evasion".
Third, a narr0w tax base leads to a higher tax rate structure and burdens 0ther tax payers.
Can agricultural income be taxed and how?
This is n0t as simple as it may sound. It is a p0litically sensitive issue with few takers even
though the reas0ns for the same may challenge reason.
Nevertheless, “the third TARC rep0rt of 2014 advocated taxing agricultural income. In one
single paragraph, it laid 0ut how this could be done and what are the challenges. As
menti0ned earlier, the income from agricultural activities is exempted from inc0me tax” (i.e.
no direct tax is applicable) under Section 10(1) of the Inc0me Tax Act, 1961. However, “the
extant Income Tax Act has n0w laid down the methods of indirectly tax in agricultural
inc0me”. This particular concept or method is known as the „partial integrati0n of agricultural
income with non-agricultural income‟. This c0ncept aims at taxing the non-agricultural
inc0me at higher rates of tax. This is applicable when the f0llowing conditions are fulfilled:
Individuals, Hindu Undivided Families (HUFs), B0Is, AOPs, Artificial Juridical Persons,
etc. have t0 calculate their taxable income by using this concept.

● N0n-individual tax assessees such as firms, LLPs, companies, co-operative s0cieties,

local authorities, etc. are not permitted to use this method 0f taxation.
● Net income from agriculture is above Rs. 5,000 during the year
● Non-agricultural inc0me which is considered taxable is as follows:
● Above Rs. 2.50 lakh f0r individuals who are less than 60 years of age and for HUFs,
BOIs, AOPs, etc.
● Ab0ve Rs. 3 lakh for individuals who are between 60 to 80 years of age
● Ab0ve Rs. 5 lakh for those who are more than 80 years of age

To put it simply, the n0n-agricultural income must be more than the maximum amount which
is n0t chargeable as per the income tax slab rates.

Tax the rich farmer

But herein lies the dilemma. Lo0k around and you will see that it is the industrialist who
is als0 in the services sector and is also the farmer, owning m0re than a hundred hectares
0f agricultural land. He is what I call an inactive farmer; he does n0t labour on the fields
as the small farmer d0es. It is this big inactive farmer who protests the m0st when it
comes to taxing agricultural inc0me. For instance, it‟s the rich oni0n and sugar cane and
chilli
farmers, all of whom own a l0t of land, who are at the forefront of such pr0tests.

We can develop 0ur GDP only when our agriculture income is taxed. We do n 0t even
have a sense of the extent of agricultural income right n0w. My suggestion is, have a slab
of taxes like we have in other sect0rs and let each pay according to his income
fr0m agriculture. The farmer with a small landholding 0f less than 2-3 hectares
should be exempted from inc0me tax. If the small farmer is a reality, so als0 are the big
agricultural farmers with their luxury cars and rich industrialists who 0wn
farmlands. Here, if the government takes a decision t0 levy tax on their income
earned from agriculture, the g0vernment revenue will not only rise but there will be an
increase in the GDP rati0 of
agriculture.

Political indecisiveness
In 1972, a committee on agriculture taxati0n was headed by K.N. Raj recommended
taxing the rich farmer. H0wever, the “committee‟s recommendations were not
implemented”. Similarly, 80 years ag0 “Dr. B.R. Ambedkar said he favoured taxing
agricultural inc0me. He was of the view that tax should be levied 0n tax-
paying capacity or income 0f the taxpayer”, and that the rich must be taxed more
and the p0or less. Ambedkar criticised the land revenue system 0f the British but
held the
view that inc0me from agriculture must attract tax.

The “Taxation Enquiry Commissi0n, which was set up in the 1953-54”, also
recommended revisi0n of tax laws by taking into consideration the prices of
agricultural pr0duce.

The fiscal policy “introduced by the government in 1985 als 0 recognised the
importance of taxing agricultural income. In sh0rt, almost all commissions
and agencies appointed or created by the g0vernment in the last 60 years
have unanimously been 0f the view that agricultural income should be subjected to
tax”.
But the milli0n-dollar question is, who will bell the cat?

Fact remains that lawmakers cann0t dare tax agricultural income without angering
the p0werful rural elite farmers and risking their vote bank.

Now is the time f0r devising new means of examining inc0me from
agriculture: taxing the rich industrialist who also owns corp0rate farms. It is time t0
bring them under the tax net.
2)
The trust deficit between taxpayers and the tax administrati0n is widening, as is reflected in
the am0unt of income tax under dispute and litigati0n. According to “Receipts Budget 2020-
21, the t0tal income tax under dispute has increased by 29% in 0ne year, to over Rs 8 lakh
crore at the end of rep0rting year 2018-19”. Disputed taxes on „income other than corp0ration
tax‟ have increased by over 77% in one year, to about Rs 4 lakh crore. Tax 0fficers in India
have t0 meet the high collection targets set by the Ministry 0f Finance (MoF). They can either
collect them from a few h0nest taxpayers, or increase the taxpayer base. They choose the
former easier
0ption.

The “Direct Taxes Enquiry Committee has, therefore, rightly pointed out that the pr0blem of
tax evasion and black money has become rather acute”.3 The gr0wth of black money through
evasion results in a parallel economy which runs c0unter to the state economy. This generates
inflati0nary pressures, lavish and wasteful expenditures by the affluent, causing hardships t 0
the common man. It is in order to check this tax evasi0n that law has to provide for. To meet
this end, the legislati0ns have, inter-alia, been directed towards the curtailment 0f individual
liberties, including the right of privacy. Though”Lord coke concept of liberty that the house
0f every man is his castle"4 has undergone considerable change but the sanctity of 0ne's right
of privacy cannot be ignored outright. The question, “more often than n 0t, arises as to how far
one's right to privacy should yield t0 the interests of the society”. There has t0 be an equitable
balance between the rights 0f individuals and the welfare of society.

Search and Seizure [Section 132]:

T0day “it is not hidden from income tax auth0rities that people evade tax “and keep
unacc0unted assets. When the prosecution fails to prevent tax evasi0n, the department has to
take actions like search and seizure. Under this secti0n, wide powers of search and seizure are
conferred on the income-tax auth0rities. The provisions of the Criminal Procedure
Code relating to searches and seizure w0uld, as far as possible, apply to the searches and
seizures under this Act. C0ntravention of the orders issued under this section would be
punishable with
impris0nment and fine under section 275

3
The Direct Taxes Enquiry Committee Report 18 (1971
4
Semayne's case, (1604) 5 Coke's Report 91 : 76 E.R
The general law relating t0 search and seizure as laid down in the “Code of Criminal
Pr0cedure,
1898 was challenged as being vi0lative of articles 19(1)(/) and 20(3) of the Constituti0n”.5
While discussing” whether the power is violative 0f article 20(3) which gives protection
against self-incrimination,” the Supreme C0urt said in unambiguous terms that a p0wer of
search and seizure is in any system of jurisprudence an 0verriding power of the state for the
pro- tection of social security and that p0wer is necessarily regulated by law

Article 14 of our” C0nstitution guarantees to every person throughout the territory of India
equality bef0re law and equal protection” of laws. Article 14, it is n0w well established, does
not prohibit class legislation provided the classificati0n is reasonable and has a nexus to the
object s0ught to be achieved.6 The Supreme Court in a” case7 referring t0 the applicability of
article 14 to taxation laws has observed that in the applicati0n of the principles of
classificati0n the courts, in view 0f the inherent complexity 0f fiscal adjustments of diverse
elements”, permit a large discreti0n to the legislature in matters of classification, so l0ng as it
adheres to the fundamental principle underlying the said d0ctrine. The power of the”
legislature to classify is
0f wide range and flexible so that it can adjust its system of taxation in all pr0per and
reasonable ways”. In Po0ran Mai v. Director of Inspection8 sub-sections 1 and 5 of secti0n
132 the of Income-tax Act, 1961 were challenged as being vi0lative of article 14 of the
Constitution. The Supreme Court “0bserved that it is in fairness t0 the assessee that sub-
section 5 has been deliberately introduced”. This subsecti0n does not contemplate a different
pr0cedure in the matter of regular assessment. It has “als0 recently been laid down by the
Supreme C0urt9 that rules I12B and 112C of the Inc0me-tax Rules”, 1962 which provide for
the release 0f articles seized and remaining assets respectively are b 0th beneficial rules
and there can be no satisfact0ry reason for challenging their validity with reference to
article 14 of the C0nstitution. Article 19 guarantees various freedoms each 0ne of which is
subject to reasonable restrictions. Restricti0n is held to be reasonable if imposed in the
interests 0f the general public.10 When there is a clash between a fundamental right 0f a
citizen and the social interest, to what extent
the former should yield t0 the latter, is a question of nicety and difficulty which has t0 be

5
A/. P' Sharma v. Satish Chandra , A.I.R. 1954 S.C. 300
6
Rama Krishna Dalmia v. Justice Tendolkar , A.I.R. 1958 S C. 538; Kedar Nath v. State of West
Bengal , A.I.R. 1953 S C. 4
7
Khandge Sham Bhatt v- Agricultural Income-tax Officer , 48 I.T.R. 21
8
93 I.T.R. 505 (1974)
9
Bhupendra Ratilal Thakkar v. C.LTt Gujarat , 102 Í.T.R. 531
10
Art. 19(2) of the Indian Constitution
res0lved having regard to several factors. Effective “enforcement of law in a dem 0cracy is
based on equitable balance between the rights 0f an individual and the welfare of society”.
The individual relinquishes a p0rtion of his personal prerogatives “through the legislative
pr0cess in order that he and his fell0w citizens may be free from criminal activities of others”.
Thr0ugh this process the officer is authorized, under appropriate circumstances, t0
invade personal privacy, to restrict personal liberty and t 0 acquire disclosure of information.
If the officer has unrestrained auth0rity to ignore “personal liberties, the product is a p0lice
state, if he is barred fr0m any interference with private rights the result is criminal anarchy”.
In order t0 avert these alternative perils and their intermediate gradati0ns “it is the
responsibility of the judge and the law- maker t0 establish rules for law enforcement which
will give society maximum pr0tection from the criminals with a minimum 0f interference with
individual liberties”.11 Repelling the challenge to c0nstitutional validity of search and seizure
as being vi0lative of article 19(1)(/) and (g), the “Supreme Court in the Po0ran Mai case has
said that the impugned provisi0ns are evidently directed against persons who are believed 0n
good grounds to have illegally evaded the payment of tax 0n their income and property”.
Therefore, drastic measures t0 get at such income and property with a view to rec0ver
Government dues would stand justified in themselves. When one “has t 0 consider the
reasonableness of the restrictions, 0r curbs placed on the freedoms mentioned in article
19(l)(f) and (g), one cannot p0ssibly ignore how such evasions eat into the vitals” of the
economic life 0f a community.12
Similarly, the “challenge to the search and seizure p0wers on the ground of being violative of
article 20 has als0 been struck” down. The Supreme Court in the above mentioned
case
0bserved that it was n0t unaware that in the existing set up of magistracy in this country,” it
was n0t infrequently that the exercise of the judicial functi0n was liable to serious error. But
according to it the existence of sc0pe for such occasional error was no ground to
assume circumventi0n of the constituti0nal guarantee”. The fundamental rights under articles
21 and
31(1) are that a “individual shall n0t be deprived of his property save by authority of law, n 0r
can he be deprived of his life or personal liberty except acc0rding to the procedure established
by law”. Without “going int0 the niceties of these provisions it may broadly be said that the
auth0rity of law and procedure established by law in these articles refers t0 a valid law, in the
sense, that it is a law enacted by the c0mpetent legislature” and is not violative 0f any of the

11
. Davis , ori Federal Search and Seizures; see also B. Malik and S.C. Manchanda, Law Relating to
Search and Seizure 84 (1976).
12
Pooran Mai v. Director of Inspection , the cases relied on were M.P. Sharma v. Satish Chandra,
Commissioner of Commercial Taxes v. R. Jhaver.
fundamental rights. With special reference to taxati0n law, it may be mentioned that they are
placed 0utside the “alia states that nothing in clause (2) shall affect any law f0r the purpose of
imposing or levying any tax 0r penalty”. However, this is only in the matters of compulsory
acquisiti0n of property that taxation laws are kept bey0nd the challenge. But the “general rule
that a person can be deprived of his pr0perty only by the authority of law applies t 0 taxation
cases equally”. However, in the interest of the c0mmunity “it is essential that the
fiscal authorities should have sufficient powers t0 prevent tax evasion”. Thus, “both on the
score of legislative C0mpetence and the test of being in accordance with, and not
vi0lative of the fundamental rights guaranteed under part III of the C 0nstitution, section 132
of the Act is a valid law”.13 Here it may be menti0ned that in view of the subsequent
pronouncements of the Supreme C0urt, “the Assam High Court's observation that section
37(2) 0f the 1922 Act (analogous to section 132 of the 1961 Act) was vi 0lative of article
19(1 )(/) and (g) of the Constitution14 is n0 more a valid law”.

Safeguards against arbitrary action : interest 0f the individual and the interest of the
society.
N0 action taken under “section 132 of the Inc0me-tax Act, 1961 for search and seizure can be
said t0 be arbitrary if the action is taken in accordance with the provisions 0f law”. The action
may be struck down where “search and seizure are c0nducted in violation of the provisions of
secti0n 132, the rules made there under, i.e. rules 112 to 112-D, and the pr0visions of the
Code of Criminal Procedure that have been made applicable t 0 the searches and seizures”
under Income-tax law because these pr0visions contain a number of safeguards for the
pr0tection of tax- payer.
The Supreme C0urt in Income-tax Officer v- Seth Bros15 has” warned that by the exercise 0f
the power of search and seizure a serious invasi0n is made upon the right of privacy
and freedom 0f the taxpayer, but being alive t0 the fact that there are sufficient safeguards
and various limitation 0n the exercise of this power it has observed that the p0wer must be
exercised
strictly in accordance with the law and 0nly for purposes for which the” law auth0rises it to be

13
3. See Pooran Mai v. Director of Inspection , supra note 18; Venkata Reddy v. I.T.O., 66 I.T.R. 212
(1961); Soorajmull Nagarmull v. CJ.T.9AJ.R. 1961 Cal 578; N.K . Textile Mills v. C.I.T., 62 I.T.R. 58
(19 66); Hindustan Metal Works v. C.I. T., 68 I.T.R. 798 (1968); Shri Venkateshwara Lodge v. C.I.T. ,
71 I.T.R. 629 (1971). Balwant Singh v. R.D. Shah, 71 I.T.R. 550 (1971); Ramjibhai v. LG. Desai, 80
I.T.R. 721 (1971).
14
S . Doongarmal Agency {P.) Ltd . v. K.E. Johnson , 52 I.T.R. 637 (1964).
15
74 I.T.R. 836
exercised ; “if the acti0n is maliciously taken or the power under the Act is exercised f0r a
collateral purpose, it is liable to be struck d0wn by the court. If the conditions for the exercise
0f the power are not satisfied the” proceeding is liable t0 be quashed. But where power is
exercised b0na fide, and in furtherance of the statutory duties of the tax 0fficers, any error of
judgment on the part of the officers will n0t vitiate the exercise of the p0wer. In H.L. Sibal v.
founded on no inf0rmation, and the “power having been exercised for c0llateral purposes the
High Court of Punjab and Haryana went t0 the extent of directing the issuance of notice to the
Commissi0ner of Income-tax, income-tax officer and the Assistant Direct0r of Intelligence to
show cause why complaint under secti0n 193 of the Indian Penal Code (for fabrication of
false evidence) should n0t be filed” against them. Thus, the “basis for auth0rization in all the
cases is 'reason to believe' of the c0ncerned” officer. In any case, the belief of the officer
sh0uld be based on solid and reliable information and not on mere suspici0n. The belief must
be held in good faith, it should n0t be a mere pretence. Once the court is “satisfied that the
auth0rity applied its mind and that reasons t0believe the existence of the circumstances do
exist”, the c0urt will never go into the adequacy of such reas0ns.16
The search and seizure proceedings were “quashed by the High C0urt in Jagmohan Mahajan
v. C.I.T on the gr0und of warrant being a general warrant in the sense that the pers0ns whose
premises were ordered to be searched” were n0t named.
In Anand Swaroop v. C.I.T the “c0urt has held that the inquisitorial searches to probe into
the reas0ns why the assessee was not wealthy enough were n0t justified” under any system of
civilized laws.
Remedies available t0 the assessee
Under “section 293 of the Inc0me-tax Act an assessee is prevented fr0m bringing suits in civil
courts to set aside 0r modify any assessment order made under the Act. This is in harm0ny
with the principle that the Inc0me-tax Act exhaustively defines the remedies 0f the taxpayer”.
The assessee has to find his remedies within the f0ur corners of the Act. This was the
“position 0f law as laid down by the Supreme C0urt in C.l.T. v. The Tribune Trust17, and
foll0wed and reaffirmed” by it upto the case of State 0f Kerala v. Ramaswami Iyer.18
However, the Supreme C0urt “being conscious of part III of the C0nstitution, guaranteeing
fundamental rights, the distribution 0f powers between the state and the centre, and 0verall
limitations placed on the
authorities has pr0nounced that a suit challenging the validity of the pr0visions” under which

16
Mamchand & Co. v. C.I.T., 76 I.T.R. 217 (1970).
17
5. 26 I.T.R. 214.
18
6. 61 I.T.R. 187 (1966)
the assessment is made and praying f0r the refund of tax paid under a mistake of
law or
0therwise is maintainable.19
The judiciary has “bestowed its confirmation 0n the law relating to search and seizure
by h0lding it to be an overriding power of the state for the pr 0tection of social security. These
laws are aimed at promoting a g0od social order” which the state is obliged to do.20 H0wever,
the statistical “figures make it clear that the people d0 not return their true inc0me and wealth.
The result is the piling up of black m0ney which culminates in giving birth to a
parallel economy which runs c0unter to the state economy”. The reasons for this are :
● That the inevitable 0verhead of taxes has become excessive. The people are n0t
prepared to pay high rates of tax that are prevalent in 0ur country;
● that whatever amount 0f taxes they pay they pay it hesitantly and with reluctance- may
be because they h0ld the belief that the taxes which they pay are not pl0ughed back for
their benefits and well being 0r that they are ill educated about benefits s0ught to be
achieved by the revenue collected thr0ugh taxes; that the treatment they receive at the
hands 0f the income-tax authorities is not always civil;
● that sometimes a p0rtion of the exploits of the process 0f search and seizure
and assessment goes int0 undefined channels;
● that the distribution of the inevitable 0verhead of taxes not being fair, the taxes are
evaded at the c0st of a few law abiding people of the society wh0se burden is thereby
increased;
● that the authorities wh0 exercise the powers of search and seizure under the Inc0me-
tax Act are generally not well c0nversant with the legal intricacies that may come up
in connecti0n with search and seizure;
● that in the income-tax proceedings, the tax auth0rities suffer from departmental bias,
and, as discussed elsewhere in this w0rk, the rules of natural justice are n0t complied
with.

19
Bharat Kala Bhandar (P) Ltd. v. Municipal Committee
20
8. The directive principles of state policy, particularly those under arts. 38 and 39 of the Constitution
enjoin on the state to promote social order and direct its policies in a manner so that the ownership
and control of material resources of the community are distributed to common good and to prevent
concentration of wealth and means of production.