Income Tax Act - Carrier of Goods Not An ‘Owner’; Bitumen Not A ‘Valuable Article’ Under S. 69A : Supreme Court

The Supreme Court has ruled that bitumen cannot be treated as a ‘valuable article’ under Section 69A of the Income Tax Act, 1961. The bench comprising Justices K.M. Joseph and Hrishikesh Roy made the observation while dealing with an appeal filed against the decision of the Patna High Court, who had upheld the additions made by the Assessing Officer (AO) towards the bitumen lifted by the assessee as a carriage contractor, which was allegedly not delivered by it to the consignee- the Road Construction Department of the Government of Bihar, as instructed.

Upholding the additions, the High Court had held that the assessee was the owner of the bitumen. It had further ruled that any article which has value will come under the expression “valuable article” under Section 69A of the Act.

While setting aside the additions made by the AO, the top court held that the ownership of the goods did not pass to the assessee, who was a mere carrier of goods and whose possession of bitumen began as a bailee. Thus, the assessee could not be said to be the ‘owner’ of bitumen so as to attract Section 69A.

While dealing with the issue whether bitumen can be treated as a ‘valuable article’ under Section 69A of the Income Tax Act, Justice Joseph remarked that whether the goods fall within the ambit of the words ‘other valuable articles’ must be determined both on the basis of marketability of the goods as well as whether they can be described as ‘worth a good price’. He further held that the Principle of Ejusdem Generis may not apply to determine whether the goods fall within the category of ‘other valuable articles’.

Justice Joseph held that for an ‘article’ to be ‘valuable’, even in small quantity it must be ‘worth a good price’ or ‘worth a great deal of money’, and it is not sufficient if it has some ‘value’. Considering the price of one kilogram of bitumen, he concluded that ‘bitumen’ cannot be treated as a ‘valuable article’.

Justice Roy, in his separate but concurring judgment, noted that Section 69A of the Income Tax Act specifically lists three items i.e., money, jewellery, and bullion. Thus, he remarked that there is no basis to give a wide interpretation to Section 69A and include within its ambit, any and every article of value.

Applying the principle of Ejusdem Generis, Justice Roy held that the preceding words in Section 69A- such as money, bullion, and jewellery- would suggest that the phrase ‘other valuable article’ would justify inclusion of only high value goods.

Justice Roy remarked that the legislature never intended that any and every article of value should be brought within the ambit of Section 69A. He observed that Section 69A was inserted to address only the high-priced precious items that command a premium price, which are often used by high wealthy individuals to park their unaccounted income, by converting the same into gold and bullion.

As a corollary, an ordinary ‘article’ cannot be bracketed in the same category as other high-priced articles like bullion, gold, and jewellery, by attributing high value to the run-of-the-mill articles, only on the strength of their bulk quantity. He thus concluded that a premium price cannot be attributed to an otherwise ordinary and common place article like bitumen, only on the basis of its huge mass/ quantity.

Section 69A provides that where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article which is not recorded in its books of account, if any, maintained by him and the assessee offers no explanation about the nature and source of acquisition of such money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the said money and the value of such bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.

The appellant-assessee, M/s. D.N. Singh, carries the business of a carriage contractor. The assessee lifted bitumen loaded from various oil companies which were delivered to various divisions of the Road Construction Department of the Government of Bihar.

Thereafter, a scam was reported in the media, alleging that the transporters of bitumen were misappropriating the bitumen and were not delivering the whole quantity lifted from oil companies.

Taking note of the scam, the Assessing Officer (AO) issued a Show-Cause Notice to the assessee. The AO found that the appellant-assessee had not delivered the entire quantity of bitumen lifted by it from the oil companies. The AO thus passed an order making additions to the assessee’s income by invoking Section 69A of the Act.

In appeal, the Commissioner (Appeals) set aside the additions made by the AO.

The appeal filed by the revenue department against the order of the Commissioner (Appeals) was allowed by the ITAT who confirmed the additions made by the AO. The same was upheld by the High Court in appeal.

In the appeal filed before the Supreme Court, the top court observed that for Section 69A of the Act to apply, it is indispensable that the Officer must find that the ‘other valuable article’ is owned by the assessee.

A Bailee, Who Is A Common Carrier, Is Not An ‘Owner’ Of The Goods

While considering the issue whether the assessee could be said to be the owner of the bitumen allegedly lifted and not delivered by it, Justice Joseph reckoned that a bailee, who is a common carrier, is necessarily entrusted with the possession of the goods and it is not an owner of the said goods.

He further noted that the purpose of bailment is the delivery of goods by the common carrier. Further, during the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods. “In the case of an entrustment to the carrier otherwise than under a contract of sale of goods also, the possession of the carrier would not convert it into the owner of the goods,” the court said.

Referring to Section 27 of the Sale of Goods Act, 1930, the court further observed that sale by a carrier does not pass title to the goods, except when it is immunised by the conduct of the owner of the good which would in turn estop the owner from impugning the title of the buyer.

A Thief Cannot Be Considered As The Owner Of The Property

Justice Joseph also delved into the issue whether a person can be considered an ‘owner’ under Section 69A if his ownership is illegal. He ruled that a person may own contraband or prohibited articles and still be within the embrace of Section 69A. “In other words, the illegality of the ownership may not ill square with the requirement of Section 69A that the assessing officer must find the assessee to be the owner of the article,” the court said.

However, the court added that a person found to be in illegal possession of goods, cannot be said to be the owner under Section 69A without finding ownership, or when it is obvious that someone else is the owner.

Justice Joseph remarked that it would be straining the law beyond justification if the court were to recognise a thief as the owner of the property within the meaning of Section 69A. “Recognising a thief as the owner of the property would also mean that the owner of the property would cease to be recognised as the owner, which would indeed be the most startling result,” said the court.

The court added: “While possession of a person may in appropriate cases, when there is no explanation forthcoming about the source and quality of his possession, justify an assessing officer finding him to be the owner.” However, when the facts are known that the carrier is not the owner and somebody else is the owner, then to describe the said carrier as the owner may produce results which are most illegal apart from being unjust.

Carrier Of Goods Doesn’t Have Full Rights or Powers Of An Owner

While considering the ambit of the word ‘owner’ in Section 69A, Justice Joseph said that the concept of ‘owner’ cannot be divorced from the context in which the expression is employed.

He referred to the full rights of an owner set out by the top court in its decision in Commissioner of Income Tax, Bombay & Ors. vs Podar Cement Pvt Ltd & Ors., (1997) 5 SCC 482, which are: the power of enjoyment which includes the power to destroy; the right to possession which includes the right to exclude others; the power to alienate inter vivos or to charge as security; and the power to bequeath the property.

The court observed that a carrier has none of the said rights or powers.

Actual Possession In Certain Cases May Be Harmonised With Ownership

Justice Joseph, however, remarked that actual possession in a given case may be harmonised with ownership, and that being in possession with a right to be in possession, may lead to a presumption that the possessor is the owner, unless there are indications to the contrary. “The beneficial vesting may in the context clothe the person with title as the owner,” said the court.

The court added: “Another concept which emerges is a person in receipt of money having actual control over the property with no person having a better right to defeat his claim of possession may open the doors to a finding that he is the owner within the meaning of Section 69A.” Thus, a person in actual physical control of the property and realising the entire income for his own use may indicate the presence of ownership. “The absence of the conveyance needed to complete the transfer may not detract from a person being found to be the owner. The soul of the reasoning appears to be the entitlement to receive the income from the property ‘in his right’,” the bench said.

Ownership Of Goods Did Not Pass To The Assessee, Who Was Mere Carrier Of Goods

Perusing the facts of the case, Justice Joseph reckoned that the assessee’s possession of bitumen began as a bailee, who was entrusted with the said goods as a carrier.

He concluded that, assuming that the assessee did not deliver the goods to the concerned divisions of the State Department, the ownership of the said goods by no stretch of imagination stood vested at any point of time in the assessee.

“Property would pass from the consignor to the consignee on the basis of the principles which are declared in the Sale of Goods Act. It is inconceivable that any of those provisions would countenance passing of property in the goods to the appellant who was a mere carrier of the goods,” said the court.

Justice Joseph concluded that a carrier who clings on to possession of the goods entrusted to it as a carrier- not only without having a shadow of a right, but contrary to both the contract as well as the law- cannot be found to be the owner. In such a case, recognising any right with the carrier in law would involve negation of the right of the actual owner.

“This Court is unable to agree that in the facts it could be found that the appellant could be found to the owner. It is further found that the appellant could not be said to be in possession in his own right,” Justice Joseph said, adding that the possession of the assessee at best was a shade better than that of a thief as the possession had its origin under a contract of bailment. Holding that the assessee did not possess the power of alienation with respect to the bitumen, the court ruled that the assessee, at no point of time, could claim any right over the bitumen as an owner.

Bitumen Not A “Valuable Article” Under Section 69A

Justice Joseph remarked that under Section 69A, the term ‘valuable’ cannot be understood as anything which has any value. Noting that Bitumen was ordinarily sold in bulk and that the price of one kilogram of bitumen was only Rs.5 in the relevant Financial Year under consideration, he concluded that ‘bitumen’ as such cannot be treated as a ‘valuable article’.

Justice Roy, in his separate but concurring judgment, also held that bitumen is not a ‘valuable article’ under Section 69A, and that the assessee was not the owner of the concerned bitumen for the purpose of Section 69A.

The court thus allowed the appeal and set aside the judgment of the High Court, restoring the order of the Commissioner (Appeals) where it had deleted the additions made by the AO.

Other report on the judgment can be read here

Case Title: M/s. D.N. Singh vs Commissioner of Income Tax, Central, Patna & Anr.

Citation : 2023 LiveLaw (SC) 451

Counsel for the Appellant: Mr. Ramesh P. Bhatt, Sr. Adv. Mr. Diggaj Pathak, AOR Mrs. Shweta Sharma, Adv. Mr. Rohit Priya Ranjan, Adv. Ms. Prachi Kohli, Adv.

Counsel for the Respondent: Mr. N Venkatraman, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Udai Khanna, Adv. Mr. Saurabh Mishra, Adv. Mrs. Diksha Rai, Adv. Mr. Shubranshu Padhi, Adv.

Income Tax Act, 1961: Section 69A-The Supreme Court has ruled that bitumen cannot be treated as a ‘valuable article’ under Section 69A of the Income Tax Act, 1961. Justice K.M. Joseph held that for an ‘article’ to be ‘valuable’, even in small quantity it must be ‘worth a good price’ or ‘worth a great deal of money’, and it is not sufficient if it has some ‘value’. Considering the price of one kilogram of bitumen, he concluded that ‘bitumen’ cannot be treated as a ‘valuable article’.

Applying the principle of Ejusdem Generis, Justice Hrishikesh Roy held that the preceding words in Section 69A- such as money, bullion, and jewellery- would suggest that the phrase ‘other valuable article’ would justify inclusion of only high value goods.

The top court also held that the ownership of the goods did not pass to the assessee, who was a mere carrier of goods and whose possession of bitumen began as a bailee. Thus, the assessee could not be said to be the ‘owner’ of bitumen so as to attract Section 69A.

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