2023 (5) TMI 746 - SC - Income Tax

Carriage contractor cannot be treated as owner of bitumen under Section 69A of Income Tax Act

M/s. D.N. SINGH Versus COMMISSIONER OF INCOME TAX, CENTRAL, PATNA AND ANOTHER

SC held that a carriage contractor cannot be treated as owner of bitumen under Section 69A of Income Tax Act. The appellant, contracted to transport ... Addition u/s 69A - Owner of valuable article - ambit of the word ‘owner’ in section 69A - carriage contractor for bitumen - Meaning of word ‘money’ - Interpretation of Section 69A - Applicability of the Principle of ejusdem generis and Noscitur a Sociis - Whether bitumen is ‘other valuable articles’? Allegation against the appellant that he had lifted 14507.81 metric tonnes of bitumen but delivered only 10064.1 metric tonnes. This meant that the appellant had not delivered 4443.1 metric tonnes. - whether the appellant could be treated as the owner of the bitumen? - HC confirmed the additions HELD THAT:- 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 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. Can a thief become the 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. Ambit of the word ‘owner’ in section 69A When it came to the Podar Cement Pvt. Ltd.[1997 (5) TMI 2 - SUPREME COURT], this Court took into consideration the ground reality in the context of Section 22 of the Act and approved of taxing the income of a person who is entitled to receive income from the property in his own right under Section 22. We have elaborately referred to the judgment of the Patna High Court in the Sahay Properties case [1982 (12) TMI 27 - PATNA HIGH COURT]. The full rights of an owner as set out therein may again be reiterated as: - (1) The power of enjoyment which includes the power to destroy. (2) The right to possession which includes the right to exclude others. (3) The power to alienate inter vivos or to charge as security. (4) The power to bequeath the property. This Court may at this juncture observe that a carrier has none of these rights or powers. Deemed ownership 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’. This Court has already found that the appellant is bereft of any of the rights or powers associated with ownership of property. The only aspect was the alleged possession of the goods which is clearly wrongful when it continued with the appellant contrary to the terms of the contract and the law. The Court is conscious of the fact that income derived from an illegal business can be legitimately brought to tax [1980 (5) TMI 2 - SUPREME COURT]. 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. What is however important is, the requirement in Section 69A that the assessing officer must find that the assessee is the owner of the bitumen. This Court is unable to agree that in the facts it could be found that the appellant could be found to the owner. Quite clearly, if the case of short delivery is accepted, the consignee if property had passed to it had every right over the bitumen and proceeding on the basis that the assessing officer’s reasoning is correct, the department definitely had a case that it had not received the bitumen in question. The right over the bitumen as an owner at no point of time could have been claimed by the appellant. 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 intention of the law-giver in introducing Section 69A was to get at income which has not been reflected in the books of account but found to belong to the assessee. Not only it must belong to the assessee, but it must be other valuable articles. 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 not be valuable article. Thus, this Court would conclude that ‘bitumen’ as such cannot be treated as a ‘valuable article’. For purpose of Section 69A of Income Tax Act, it is therefore declared that- an ‘article’ shall be considered ‘valuable’ if the concerned article is a high-priced article commanding a premium price. As a corollary, 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. To put it in another way, it is not the ownership of huge volume of some low cost ordinary article but the precious gold and the like, that would attract the implication of deemed income under Section 69A. Conclusion Thus bitumen is not a valuable article in the context of Section 69A and the assessee here was not the owner of the concerned bitumen for the purpose of section 69A. No Additions - Decided in favor of assessee. Issues Involved:1. Whether the appellant could be treated as the owner of the bitumen.2. Whether bitumen could be treated as other valuable articles under Section 69A of the Income Tax Act, 1961.3. Whether the ITAT erred in passing contradictory orders for the assessment years 1995-1996 and 1996-1997.4. How the value of the bitumen is to be ascertained.Summary:I. Ownership of Bitumen:The appellant, a carrier, was entrusted with bitumen for delivery to the Road Construction Department of Bihar. The court held that a carrier, being a bailee, does not become the owner of the goods. The possession of the bitumen by the appellant, if not delivered, would be wrongful and contrary to the terms of the contract and law. The court emphasized that recognizing the appellant as the owner would involve negating the actual owner's rights and would be akin to recognizing a thief as the owner, which is legally untenable.II. Bitumen as a Valuable Article:The court examined whether bitumen could be classified as 'other valuable articles' under Section 69A. It was concluded that bitumen, being a residual product from petroleum refining, does not fit within the category of valuable articles like money, bullion, or jewellery. The principle of ejusdem generis and noscitur a sociis were applied, indicating that 'other valuable articles' should be items of high value and marketability, which bitumen is not.III. Contradictory Orders by ITAT:The court noted that the ITAT had passed contradictory orders for the assessment years 1995-1996 and 1996-1997. However, it focused on the substantive issues of ownership and classification of bitumen rather than resolving the procedural inconsistencies.IV. Valuation of Bitumen:The court did not delve deeply into the valuation issue, as it concluded that bitumen does not qualify as a valuable article under Section 69A. The assessment order had valued bitumen at Rs. 4999.58 per metric ton, but this valuation became irrelevant due to the court's findings on the primary issues.Conclusion:The appeals were allowed, and the impugned judgment was set aside. The court restored the order by the Commissioner Appeals, deleting the addition made on the basis of the alleged short delivery of bitumen. The court held that bitumen is not a valuable article under Section 69A, and the appellant, as a carrier, could not be treated as the owner of the bitumen.