The Supreme Court while setting aside an impugned judgment of the Patna High Court has observed that the assessee in the matter was not the owner of the concerned bitumen for the purpose of section 69A of the Income Tax Act,1961 (Act), as it had no rights and powers that an owner ordinarily has among other things. The Court further held that bitumen cannot be treated as a ‘valuable article’ under Section 69A of the Income Tax Act, 1961.

The matter at hand, broadly delved upon two pertinent questions, whether the assessee in the present could be regarded as an ‘owner’ for the concerned goods, and, secondly, whether ‘bitumen’ could be covered within the category of ‘other valuable article’, alongside money, bullion and jewellery, as mentioned in Section 69A of the Income Tax Act, 1961. The opinion of the bench was called upon to decide the ambit of the word "owner" under the Act.

A bench of Justice K.M. Joseph and Justice Hrishikesh Roy in separate but concurring judgment thus observed, "The Court is conscious of the fact that income derived from an illegal business can be legitimately brought to tax...However, that is a far cry from justifying invocation of Section 69A of the Act as it is indispensable to invoke the said provision that the assessing officer must find that the articles in question was under the ownership of the assessee in the financial year. This is apart from other requirements being met".

"...The possession of the appellant at best is a shade better than that of a thief as the possession had its origin under a contract of bailment. This is also not a case where any case is set up of the carrier exercising rights available in law entitling it possess goods as of right or pass on title to another under law as permitted. Hence, this Court would hold that the Assessing Officer acted illegally in holding that one appellant was the ‘owner’ and on the said basis made the addition", the judgment further read.

Senior Advocate Ramesh P. Bhat, appeared on behalf of the appellant and Additional Solicitor General N. Venkatraman, appeared on behalf of the Revenue.

At the outset, the appellants argued that they cannot be treated as the owner, as appellant was a carrier. It fulfilled its obligations by lifting the goods in question and delivered the same. There was no complaint by the oil companies from whom, the bitumen had been lifted, about there being short delivery. There was even no complaint from the Consignee Department.

As per the averments made by the appellants, they carried on business as carriage contractor for bitumen loaded from oil companies namely HPCL, IOCL and BPCL from Haldia for almost three decades. The goods were to be delivered to various divisions of the Road Construction Department of the Government of Bihar.

Subsequently, a scam was reported where of transporters of bitumen, lifted from oil companies, misappropriating the bitumen and not delivering the quantity lifted to the various Divisions of the Road Construction Department of the Government of Bihar.

The Assessing Officer, then taking note of the scam, issued Show-Cause Notice dated January 23, 1998 invoking Section 69A of the Act., alleging that the appellant had lifted 14507.81 metric tonnes of bitumen but delivered only 10064.1 metric tones for one assessment year. However, there was another show-cause notice was sent for a the subsequent year also.

The appeal filed by the revenue against the order of the Commissioner was allowed by the ITAT, confirming the additions by the Assessing Officer The High Court then in its impugned order dated March 5, 2009 while confirming the additions dismissed the appeal filed by the appellant under Section 260A of the Income-Tax Act, 1961 for the assessment year 1996-1997. Pursuant to which even the review petition was dismissed on December 18, 2017.

The High Court in its observations had held:

-focusing on the scope of Section 69A of the Act, it found that the word ‘owner’ has different meaning in different contexts and when a transporter sells the goods and receives money for that not on behalf of the real owner, it became the owner for the purpose of tax. Having lifted bitumen and not supplied to the Road Construction Department to which it was to be supplied, the appellant was liable to pay tax on the bitumen lifted and not delivered.

-that any article which has value would come under the expression ‘valuable article’ under Article 69A and the value of such article can be deemed to be the income of the assessee

- The appellant was thus found to be the owner of the bitumen and the addition was sustained.

The Supreme Court in its 109 judgment dealt with all the aspects in detail and referred to an array of cases on the subject matter. To understand the essentials under Section 69A of the Act, the provisions were encapsulated as under:

a. The assessee must be found to be the owner;

b. He must be the owner of any money, bullion, jewellery or other valuable articles;

c. The said articles must not be recorded in the Books of Account, if any maintained;

d. The assessee is unable to offer an explanation regarding the nature and the source of acquiring the articles in question; or The explanation, which is offered, is found to be, in the opinion of the Officer, not satisfactory;

e. If the aforesaid conditions are satisfied, then, the value of the bullion, jewellery or other 22 valuable article may be deemed as the income of the financial year in which the assessee is found to be the owner;

f. In the case of money, the money can be deemed to be the income of the financial year.

Justice Joseph in his judgment even underlined certain rights and powers that are available to an owner and not a carrier, thus clearly distinguishing them not only be definition but also inherently.

A Carrier, a Bailee?

The bench recognizing the fact that to apply Section 69A of the Act, it is indispensable the other valuable article, inter alia, is owned by the assessee stated, “A bailee, who is a common carrier, is not an owner of the goods. A bailee who is a common carrier would necessarily be entrusted with the possession of the goods. The purpose of the bailment is the delivery of the goods by the common carrier to the consignee or as per the directions of the consignor. During the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods. In the 34 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”.

Is a Thief an Owner?

"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", the judgment read.

Whether Bitumen a Valuable Article

The appellants contended that bitumen was a misfit in the genre of "money, bullion and jeweller" and that it was never the legislative intent to treat it as a valuable article. The Court, therefore, after relying on a series of judgments and the definitions observed, "Bitumen may be found in small quantities or large quantities. If the ‘article’ is to be found ‘valuable’, then in small quantity it must not just have some value but it must be ‘worth a good price’ {See Black’s Law Dictionary (supra)} or ‘worth a great deal of money’ {See Concise Oxford Dictionary (supra)} and not that it has ‘value’. Section 69A would then stand attracted. But if to treat it as ‘valuable article’, it requires ownership in large quantity, in the sense that by multiplying the value in large quantity, a ‘good price’ or ‘great deal of money’ is arrived at then it would 90 not be valuable article. Thus, this Court would conclude that ‘bitumen’ as such cannot be treated as a ‘valuable article’".

While Justice Roy in an interesting observation opined, "...While doing the above analysis, the 1976 song 'The First Hello, The Last Goodbye' written & sung by the British singer Roger Whittaker is buzzing in my mind. The singer here goes lyrical while crooning about things of great value and aptly sings '…gold would not be precious if we all had gold to spare…..'. Taking a cue from the song’s lyrics, it can be appropriately said that the legislature while introducing section 69A to the Income Tax, Act, 1961 by the Finance Act, 1964, was concerned only with such precious and aspirational articles like bullion and jewellery which are capable of being repositories of hidden earnings but were not really concerned about common place stuff like “bitumen”, which would not attract a second glance, on any road surface of our country".

The Court thus allowed the appeals while setting aside the impugned judgment. However, on different grounds, the order by the Commissioner of Appeals deleting the addition made on the aforesaid basis stood restored.

Cause Title: M/s.D.N. Singh v. Commissioner Of Income Tax, Central, Patna And Another

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