The Supreme Court elucidated the extent of “other valuable articles” within the context of Section 69A of the Income Tax Act, 1961, to determine if Bitumen falls within its purview.
The Court emphasized that Section 69A aimed to address undisclosed income pertaining to the taxpayer, specifically mentioning other valuable articles. Bitumen's classification as a valuable article solely due to its bulk quantity was deemed untenable.
It was propounded that the carrier, acting as a bailee, does not become the owner of the goods and that the purpose of bailment is to deliver the goods to the consignee. The Bench opined that the carrier’s possession of the goods does not confer ownership, and treating a carrier as the owner, especially in cases involving illegal possession, would undermine the rights of the true owner and be unlawful. It was further clarified that income derived from an illegal business can be taxed, but that does not justify applying Section 69A in this case.
Brief Facts:
The Appellant-Assessee had a business as a carriage contractor for bitumen loaded from oil companies and the goods were to be delivered to various divisions of the Road Construction Department of the Government of Bihar.
However, the media reported a scam that involved transporters of bitumen lifting 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 issued a Show-Cause Notice alleging that the Appellant had lifted 14507.81 metric tonnes of bitumen but delivered only 10064.1 metric tonnes. This meant that the appellant had yet to deliver 4443.1 metric tonnes.
The Assessing Officer added a sum of Rs.2 Crore the figure arrived at by finding that 4443.80 metric tonnes of bitumen had not been delivered.
Later, for the assessment year 1996-1997, the Assessing Officer added a sum of Rs. 10 Crore as income of the appellant, finding that while 10300.77 metric tonnes had been lifted by the appellant, only 8206.25 metric tonnes had been delivered. Accordingly, it was found that 2094.52 metric tonnes had not been delivered.
The Appellate Authority order to remove the addition of Rs. 10 crore for the assessment year 1996-1997 was ordered to be removed.
The Revenue officer then appealed to the Income-Tax Appellate Tribunal ( “ITAT”) for both assessment years. The ITAT allowed the appeal for the assessment year 1996-1997 and declared the addition made by the Assessing Officer invalid.
The Appellant’s Appeal under Section 260A of the Income-Tax Act, 1961 was dismissed by the High Court. The Appeal pertained to the assessment year 1996-1997. The Appellant later filed a Review Petition, which was also dismissed. Consequently, the Appellant has filed a Special Leave Petition challenging both the original and review orders.
Contentions of the Appellants:
It was contended that the Appellants should not be treated as the owner since they were a carrier and had fulfilled their obligations by lifting and delivering the goods. It was asserted that the goods had been delivered without misappropriation, and there were no complaints from the oil companies or the Consignee Department regarding any shortfall.
Observations of the Court:
Hon’ble Mr. Justice K.M. Joseph analysed and examined the legal status of a common carrier as the owner of goods for tax assessment purposes. The Court emphasized that the carrier, acting as a bailee, does not become the owner of the goods and that the purpose of bailment is to deliver the goods to the consignee. The Bench opined that the carrier’s possession of the goods does not confer ownership, and treating a carrier as the owner, especially in cases involving illegal possession, would undermine the rights of the true owner and be unlawful. It was further clarified that income derived from an illegal business can be taxed, but that does not justify applying Section 69A in this case.
The interpretation of Section 69A was discussed, particularly regarding the meaning of “other valuable articles” concerning the Principle of Ejusdem Generis and Noscitur a Sociis. The definition of “valuable” emphasised financial or market worth. The intention behind introducing Section 69A of the Act, 1961 was to target unaccounted income belonging to the assessee, specifically referring to other valuable articles. The concept of valuable articles may evolve with the emergence of new marketable items that meet the required criteria. In the case at hand, bitumen, a residual product obtained from petroleum distillation and used in road construction, was considered. While bitumen has value and is sold in bulk, it does not meet the criteria of being worth a good price or a great deal of money. Therefore, it cannot be classified as a valuable article under Section 69A.
Hon’ble Mr. Justice Hrishikesh Roy highlighted that the principle of “absoluta sententia expositore non indiget” asserts that if the language used by the legislature is clear and comprehensible, no additional interpretation is needed. Bitumen cannot be considered a valuable article merely based on its bulk quantity. The intent behind the 1964 Amendment (Section 69A came to be inserted by Finance Act, 1964) was to address the mischief of owning high-value, less bulky items to avoid tax, not to tax ordinary and commonplace articles like bitumen.
The decision of the Court:
The Supreme Court quashed the impugned order and judgement of the Appellate Authority and held that Bitumen cannot be classified as ‘other valuable articles’ and thus the Appellant was not guilty of evading Tax liability.
Case Title: M/s D. N. Singh v Commissioner Of Income Tax & Anr.
Case No.: Civil Appeal Nos. 3738 to 3739 of 2023
Citation: 2023 Latest Caselaw 484 SC
Coram: Hon’ble Mr. Justice K.M. Joseph and Hon’ble Mr. Justice Hrishikesh Roy
Advocates for Petitioner: Advs. Mr. Ramesh P. Bhatt, Mr. Diggaj Pathak, Mrs. Shweta Sharma, Mr. Rohit Priya Ranjan and Ms. Prachi Kohli
Advocates for Respondent: Advs. Mr. N Venkatraman, Mr. Raj Bahadur Yadav, Mr. Udai Khanna, Mr. Saurabh Mishra, Mrs. Diksha Rai, Mr. Shubranshu Padhi
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