2023 (5) TMI 746 - Supreme Court

This case is based on Additions u/s 69A - Unexplained money, etc. as Owner of valuable article

Ambit of the word ‘owner’ in section 69A  - carriage contractor for bitumen 

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?

High Court confirmed the additions: [2018 (7) TMI 1728 - PATNA HIGH COURT]

Point of contentions raised by the appellant:

The learned Senior Counsel would contend that bitumen cannot be treated as other valuable article within the meaning of Section 69A of the Act. The very company of words, in which the words ‘other valuable article’ is found, viz., money, bullion and gold, should have persuaded the Court to find the addition illegal. It was also canvassed before us that the appellant 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. In fact, it is the contention of the appellant that the goods had been delivered and there was no misappropriation. 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. 

Judgement:

 K. M. JOSEPH, J.

it is not the case of either party that the appellant had become the owner of the bitumen in question in a manner authorised by law. On the other hand, the specific case of the appellant is that the appellant never became the owner and it remained only a carrier. However, as noticed, if it is found that there has been short delivery, this would mean that the appellant continued in possession contrary to the terms of contract of carriage.

A CARRIER, A BAILEE?

To apply Section 69A of the Act, it is indispensable that the Officer must find that the other valuable article, inter alia, is owned by the assessee. 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 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? OWNERSHIP BEING ILLEGAL

 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. 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, when the facts are known that the carrier 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.

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

It may be true that in order to be an owner, all the rights and powers of an owner need not be present at the same point of time in the same person. It may be true that ownership may be associated with a better right to be in possession and actual possession in a given case may be harmonised with ownership. Being in possession with a right to be possession may lead to a presumption that the possessor is the owner, unless it be that there are indications to the contrary. The beneficial vesting may in the context clothe the person with title as the owner. 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. 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’.

Present Case

Proceeding on the basis that there was short delivery of the goods by the appellant, inevitably, the Court must find that the act was not a mere omission or a mistake but a deliberate act by a carrier involving it in the commission of an offence under Section 406. In other words, the Court must necessarily find that the appellant continued to possess the bitumen and misappropriated and it is in this state that assessing officer would have to find that the appellant by the deliberate act of short delivering the goods and continuing with the possession of the goods not only contrary to the contract but also to the law of the land, both in the Carriers Act 1865 and breaking the penal law as well, the appellant must be treated as the owner.

 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. It is further found that the appellant could not be said to be in possession in his own right, accepting the case of the Revenue that there was short delivery. This Court finds that the appellant did not possess the power of alienation. 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.

OTHER VALUABLE ARTICLE - PRINCIPLE OF EJUSDEM GENERIS; NOSCITUR A SOCIIS

Unlike a document of title or a fixed deposit receipt, which cannot, by itself, be disposed of or alienated, bitumen would be goods, which can be transferred. It would have a value in the market depending upon its quality.

Section 69A provides for unexplained ‘money, bullion, jewellery’. It is thereafter followed by the words ‘or other valuable articles’. Does this mean that the words ‘other valuable articles’ must be read ejusdem generis? The principle applies when the following conditions are present [Principles of Statutory Interpretation by Justice G P Singh, 14th Edition]:

“(1) the statue contains an enumeration of specific words; (2) the subjects of enumeration constitutes a class or category; (3) that class or category is not exhausted by the enumeration; (4) the general terms follow the enumeration; and (5) there is no indication of a different legislative intent”. If the subjects of enumeration belong to a broad based genus as also to a narrower genus, there is no principle that the general words should be confined to the narrower genus.”

Premium price cannot be attributed to an otherwise ordinary and common place article like bitumen only on the basis of huge mass of bitumen. It would be an incorrect way to categorize bitumen as a ‘valuable article’, under Section 69A of the Income Tax, Act.

A document of title or a fixed deposit receipt would not be ‘articles’ which can be bought and sold in a market. An article, would also not encompass an item of immovable property. This Court can safely conclude that an article must be movable property. One strong indication that the Principle of Ejusdem Generis may not apply is a decision of this Court in Chuharmal (supra), where the articles involved were watches. Watches by no stretch of imagination can be brought in on the basis of ejusdem generis. They do not belong to the so-called genus of money or bullion or jewellery. The hallmark of a watch in the context of the expression ‘other valuable article’ would be that it is marketable and it has value. When it comes to value, it is noticed that in the definition of the word ‘valuable’ in Black’s Law Dictionary, it is defined as ‘worth a good price; having a financial or market value’. The word ‘valuable’ has been defined again as an adjective and as meaning worth a great deal of money in the Concise Oxford Dictionary. Valuable, therefore, cannot be understood as anything which has any value.

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.

Let us consider a few examples. Let us take the case of an assessee who is found to be the owner of 50 mobile phones each having a market value of Rs.2 lakhs each. The value of such articles each having a price of Rs.2 lakhs would amount to a sum of Rs.1 crore. Let us take another example where the assessee is found to be the owner of 25 highly expensive cameras. Could it be said that despite having a good price or worth a great deal of money, they would stand excluded from the purview of Section 69A. On the other hand, let us take an example where a person is found to be in possession of 500 tender coconuts. They would have a value and even be marketable but it may be wholly inapposite to describe the 500 tender coconuts as valuable articles. It goes both to the marketability, as also the fact that it may not be described as worth a ‘good’ price.

Each case must be decided with reference to the facts to find out that while articles or movables worth a great deal of money or worth a good price are comprehended articles which may not command any such price must stand excluded from the ambit of the words ‘other valuable articles’. The concept of ‘other valuable articles’ may evolve with the arrival in the market of articles, which can be treated as other valuable articles on satisfying the other tests.

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’.

Concurrent decision by Hrishikesh Roy, J

 if all sundry articles of nominal value are bracketed in the category of valuable article, it will lead to an absurdity and will also be inconsistent with the legislative intent. Focusing on the high total value of an article, ignoring its lowly per unit price would mean including low-cost ordinary articles also in the valuable category, under Section 69A. This would defy the legislature’s logic. In this context, when the principle of Ejusdem Generis is applied, the preceding words in Section 69A such as money, bullion, jewellery would suggest that the phrase ‘other valuable article’ which follows those words, would justify inclusion of only high value goods. Any other way of reading the phrase ‘other valuable article’ or ‘valuable article’ by ignoring the kind of specific goods mentioned in the preceding part of Section 69A, would be incorrect and would do violence to the plain language of the provision and will travel beyond the legislative intent.

It must be said that for purposes of interpreting Section 69A of the Income Tax, Act 1961- the ordinary and literal meaning should be opted as the words in the statute are clear and unambiguous. The provision does not need any addition or subtraction and stands on its own legs. The phrase ‘valuable article’ would simply mean an item ‘worth a great deal of money’. It cannot mean, as is said in the impugned order, to include ‘any article of value’. Therefore, 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.

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.

Full Text:

[2023 (5) TMI 746 - Supreme Court] a judgement against the decisin of HC [2018 (7) TMI 1728 - PATNA HIGH COURT]

Section 69A - Unexplained money, etc.