Search Under IT Act Is Person-Centric; Premises Don't Decide 'Searched Person': Karnataka High Court

Holding that a “searched person” under the Income Tax Act is determined by the person against whom statutory satisfaction is recorded and not by whose premises are searched, the Karnataka High Court on Friday ruled that a taxpayer cannot be treated as a searched person merely because a search was conducted at his premises.

The ruling came in a case where the tax department initiated proceedings against the taxpayer under Section 153C based on documents seized during a search conducted at his premises.

Section 153C of the Income Tax Act, 1961, empowers tax authorities to assess the income of an “other person” where incriminating documents or assets seized during a search under Section 153A belong to or pertain to that person.

A division bench of Justices S.G. Pandit and K.V. Aravind clarified that the decisive factor for invoking search assessment provisions is not merely the place of search but the person against whom “reason to believe” is recorded under the statute.

The court emphasised that the concept of a “searched person” is person-centric and not premises-centric, and that invoking provisions solely based on the location of the search is legally unsustainable.

“Section 132 of the Act is person-centric and not premises-centric. The expression 'searched person' refers to the person in respect of whom satisfaction has been recorded under clauses (a) to (c) of sub-section (1) of Section 132, and not merely the person whose premises has been subjected to search,” the Bench held.

The case arose from a search conducted under Section 132 at the residential premises of C. R. Ram Mohan Raju.

Based on documents seized during the search, the Revenue initiated proceedings under Section 153C, contending that the taxpayer was an “other person” in respect of whom incriminating material was found.

The taxpayer challenged this action, arguing that once a search was conducted at his premises, proceedings ought to have been initiated under Section 153A by treating him as the searched person.

The Single Judge had accepted this contention, holding that since the premises were searched, the respondent was to be treated as a “searched person” and not as an “other person”.

Examining the statutory framework, the Division Bench undertook a detailed analysis of Sections 132, 153A and 153C, holding that the foundation of search-based assessments lies in the “reason to believe” recorded against a specific person, and not merely the location where the search is conducted.

The Court drew a clear distinction between the person in respect of whom “reason to believe” is recorded and the premises in respect of which only a “reason to suspect” is formed, holding that the warrant of authorisation is fundamentally person-specific, while the place of search is incidental.

“The expression “searched person” must be construed to mean the person against whom satisfaction is recorded and in whose name the warrant of authorization is issued, and not the person whose premises are merely subjected to search. A search conducted at the premises of a third party, on the basis of “reason to suspect” that material belonging to the searched person is kept therein, does not render such third party a “searched person”," the court said.

It further clarified that a search conducted at the premises of an “other person” does not automatically render such person a searched person.

The bench held that proceedings under Section 153A can be initiated only against the person who is actually searched, while proceedings against any other person, in whose premises material is found, can be initiated only under Section 153C, subject to statutory requirements.

Applying this principle, the Court held that the proceedings initiated against the respondent under Section 153C were valid and that the contention that proceedings should have been initiated under Section 153A was without merit.

“The proceedings initiated against the respondent under Section 153C are in accordance with law. The contention that such proceedings ought to have been initiated under Section 153A is devoid of merit,” the bench held.

The Court also clarified that Section 153C does not require a separate satisfaction note for each assessment year and that a consolidated satisfaction note is sufficient if it records that the seized material pertains to the “other person."

Accordingly, the High Court allowed the Revenue's appeal and set aside the single judge's order.

For Appellant: Ravi Raj Y.V., Senior Standing Counsel a/w M. Dilip, Standing Counsel

For Respondent: A. Shankar, Senior Advocate a/w Chandrasekhar V., Advocate