Not mere ownership over huge volume of ordinary article would attract implication of deemed income u/s 69A

While analysing the rights of a carrier and that of an owner from the prism of the Carriage by Road Act, 2007, criminal breach of trust under IPC, the Sale of Goods Act, 1930 and whether a thief can be an owner, the Supreme Court of India deleted the addition made under Section 69A of Income Tax Act in the case of a carriage contractor of bitumen over short supply of bitumen for Road Construction Department of Government of Bihar which was lifted from the public sector oil companies.

Clarifying on the issue as to whether a carrier can be held as owner for short supply for the purpose of Section 69A, the Division Bench comprising of Justice K.M. Joseph and Justice Hrishikesh Roy observed that “in the context of Section 69A, unexplained valuable article has to be high priced item which are procured to hide income, to avoid tax liability. To adopt a wide interpretation for the phrase- ‘valuable article’ and thereby include within its scope any sundry article of whatever value, is found to be unjustified”.

The Bench further added that “an ordinary ‘article’ cannot be bracketed in the same category as the other high-priced articles like bullion, gold, jewellery mentioned in Section 69A by attributing high value to the run-of-the-mill article, only on the strength of its bulk quantity”.

Senior Advocate Ramesh P. Bhat appeared for the Assessee, while the Revenue was represented by ASG N. Venkataraman and AOR Raj Bahadur Yadav.

Briefly, for the Assessment year 1996-97, the Assessee carried on business as carriage contractor for bitumen loaded from oil companies namely HPCL, IOCL and BPCL from Haldia. The goods were to be delivered to various divisions of the Road Construction Department of the Government of Bihar. Later, a scam was reported in the media, which consisted 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. Accordingly, the AO made addition under Section 69A after finding that the assessee had not delivered 2094.52 metric tonnes of bitumen. This addition was sustained by the ITAT as well as the High Court observing that any article which has value would come under the expression ‘valuable article’ under Section 69A and the value of such article can be deemed to be the income of the assessee, if assessee fails to offer any explanation.

After considering the submission, the Apex Court observed that for invoking Section 69A, the Revenue must find that the Assessee is an owner of the valuable article and that 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 Apex Court further observed that possession alone may in cases where there is no explanation about the source and quality of possession, justify the Revenue to find carrier as the owner but when the facts are known that the carrier or is not the owner and somebody else is the owner, “then to describe him as the owner may produce results which are most illegal apart from being unjust”.

The Bench highlighted that the intent of the legislature behind Section 69A is to subject articles like gold, jewellery, and other valuable items, to income tax, where such articles are typically owned with the intention of avoiding income tax.

The Bench elucidated that the maxim ‘noscitur a sociis’ i.e. (a word is known by its associates) would also support the view that the other valuable articles should be items in the nature of silver bars, or jewellery or money i.e. only high priced item.

“It is given, that no law could possibly provide for an exhaustive list of all valuable items that may facilitate high income assessees to adjust their income. Only an indicative list of valuable articles can practically be mentioned in the Section. But to include bitumen- the residual offshoot material during processing of crude oil, excluding its valuable constituents like petrol, diesel, LPG, aviation fuel etc., within the expression ‘other valuable article’ in Section 69A, would result in absurdities, that we need to eschew”, added the Bench.

Accordingly, the Apex Court concluded that bitumen is not a valuable article in the context of Section 69A and the assessee was not the owner of the concerned bitumen for the purpose of section 69A of the Income Tax Act.

Cause Title: M/s D.N Singh vs. CIT [Civil Appeal No. 3738-3739 of 2023 / 2023-Enterslice-10-SC-IT]

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