The Hon'ble Supreme Court in a recent judgment deleted Section 69A addition made in the hands of the transport contractor on the value of short-delivered 'bitumen'. The Supreme Court held that the bitumen is not a valuable article under Section 69A and the Assessee being a carrier of goods was not the 'owner' of the concerned bitumen for the purpose of Section 69A.

Mr. S. Ramanujam (Chartered Accountant) analyses the Supreme Court judgment in detail with its poetic overtones. The author apprises that in the impugned judgment Patna High Court confirmed the addition on account of short supply by holding the transport contractor to be ‘owner’ for the purpose of Section 69A. He states that with respect to the term 'owner' used in Section 69A the Supreme Court observed that the owner should have full rights in respect of any property including, power of enjoyment, right to possession, power to alienate inter vivos or to charge as security and power to bequeath the property. He highlights Supreme Court’s observation that the Assessee was entrusted with goods as a carrier, thus his possession began as a bailee and since a carrier has none of the rights or powers of an owner, the ownership was never vested with the carrier.

The author emphasises on the lyrics of a song extracted in the Judgment “…gold would not be precious if we all had gold to spare….”, to assert that the legislature while introducing Section 69A was concerned only with 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'.

“SC Judgment on Sec.69A - A Lyrical Extravaganza...”

Introduction:

Can a transport operator (common carrier) be assessed on the value of short-delivered goods to the consignee and be taxed under section 69A (unexplained money, etc.) of the Income Tax Act? Though on a first blush, the readers may feel the answer is obvious and the person who possess the goods is presumed to be the owner of the goods and if the transporter has sold it to someone else the goods lying in his custody instead of delivering the same to the consignee, he needs to pay tax on the income derived by him. It is a settled law that income earned from a business irrespective of the fact that whether the business is legal or otherwise cannot make the assessee escape from tax. However, a two-member bench of the honourable SC, after traversing the whole gamut of case laws, jurisprudence, related Acts including British texts held otherwise—by simple interpretation of the words in Sec 69A. The logic is infallible, and the judgment rendered has many poetical overtones which will cast an everlasting impression in the minds of the readers.

Facts of the case in D.N. Singh v CIT [TS-252-SC-2023] & the High Court’s Views:

1. The assessee is a transport contractor engaged in the business of transporting `bitumen’ from oil refineries and delivering it to the Government of Bihar for road-laying purposes. He was in the same business for 3 decades.

2. A scam broke out in the media during 1995-96 and it was alleged that various Transport contractors with the connivance of government officials short-supplied the bitumen and misappropriated the goods.

3. In 2 assessment years, huge additions were made to the assessee s income by adding the value of short-delivered bitumen @ Rs 219.85 lacs and Rs 104.72 lacs respectively. The Assessing Officer made additions under section 69A of the Act.

4. The Hon’ble HC held that a transport contractor who did not deliver the consigned goods but received the full sale proceeds on behalf of the consignor becomes the owner of the money for the purposes of the sec 69A. The HC also noticed that various Courts have interpreted the word 'owner' used in the Income tax Act in different contexts in various ways and after relying / distinguishing various judgements, held that the assessee is the Owner for the purposes of sec 69A of the Act by concurring with the views of the ITAT.

5. The HC also rejected the argument advanced by the assessee that, the words `other valuable article ‘used   in section 69A would not include `bitumen‘ as according to the assessee in terms of sec 69A, bitumen should have some nexus with money, bullion or jewellery.

6. Alternative argument that, even assuming that bitumen is taxable, it should be taxed only at its cost and not on its value was also rejected, as no evidence to this effect was produced.

The law extracted:

Before we embark on the discussion on law, let us look at the relevant provisions:

69A. Unexplained money, etc.

Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the  Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”

Sec 69B: Amount of Investments, etc, not fully disclosed in books of accounts

Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery, or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.

DECISION OF THE SC – TWO JUDGMENTS (CONCURRING)

Hon’ble Justice KM Joseph: (Parts I & II)

Part I

A: Section Dissected:

The learned Judge analysed the section 69A by splitting the section into its essential parts:

(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 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.

B: Owner & Ownership rights:

Commenting on the term Owner used in sec 69A, the learned judge drew inspiration from the decision of the Patna HC in Add CIT v Sahay Properties and Investment Company Limited [TS-5665-HC-1982(Patna)-O] and held that the owner should have full rights in respect of any property as listed below:

• The power of enjoyment which includes the power to destroy.

• The right to possession which includes the right to exclude others.

• The power to alienate inter vivos or to charge as security.

• The power to bequeath the property.

C: Analysis by the Hon’ble Judge:

The Court further held:

I. A carrier has none of the above rights or powers as an owner.

II. The assessee was entrusted with goods as a carrier and his possession began as a bailee.

III. Ownership of the goods at no point in time vested with the carrier.

The Hon’ble Judge while answering the questions posed looked at the evidence collected by the Assessing Officer while framing the assessment and, analysed in full many case laws rendered in the past under the following Acts:

(i) Contract Act—bailor—bailee

(ii) The Carriage by Road Act-2007

(iii) Indian Penal Code—criminal breach of trust

(iv) The Sale of Goods Act

(v) The various judicial pronouncements interpreting the meaning of the word `owner’ under the Income Tax Act

D: Some important Observations:

The learned judge further observed:

“The Court is conscious of the fact that income derived from an illegal business can be legitimately brought to tax [See AIR 1980 SC 1271]. 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.

There is no equity about a tax. Equally, a person cannot be taxed based on intendment. Unlike the possession of a person who for all intents and purposes, and in his own right, earns income from house property, lawfully otherwise, and falls short of ownership only for want of a formal conveyance as required under Section 54 of Transfer of Property Act, a carrier who clings on to possession not only without having a shadow of a right, but what is more, both contrary to the contract as also the law cannot be found to be the owner. “

The judge also posed a question in the context of Sec 69A and answered it in the following manner:

“ Can a thief be an owner for the purpose of sec 69 A?

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.

Though the assessee was in possession of `bitumen’, 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.

On the above reasonings, the Hon‘ble judge held that the crucial words in the section 69 A – viz ` owner’ cannot be applied to the assessee in this case.

Part II

Second limb of Sec 69 A: 'other valuable article'

E: Facts reiterated:

Here the article short-delivered by the assessee is 'bitumen'. Bitumen is defined in the Concise Oxford English Dictionary as ‘a black viscous mixture of hydrocarbons obtained naturally or as a residue from petroleum distillation, used for road surfacing and roofing’. Bitumen appears to be a residual product in the petroleum refineries.

F: Interpretation by the Honble judge:

Analysing the words used in the section in the context of `bitumen‘, the learned judge held:

“The Section uses the word ……… valuable article or thing:

It is a case of the appellant that applying the Principle of Ejusdem Generis, bitumen would stand out as a strange bedfellow in the company of its immediate predecessor words, viz., money, bullion and jewellery. In other words, it is the case of the appellant that bitumen is a clear misfit, and it could not have been the legislative intention to treat bitumen as other valuable article. Valuable, therefore, cannot be understood as anything which has any value.

The intention of the lawgiver 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. The question is whether `bitumen’ will fall within the meaning of valuable article?

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”

G: Hon’ble Judge’s illustrations:

Mobile Phones V Tender Coconuts – whether valuable article?

“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 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 stand excluded from the purview of Section 69A. Though the tender coconuts 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.”

The learned judge also extracted the cost of bitumen worked out by the AO from the assessment order as Rs 5 Per KG (in (1995-96) and concluded that this cannot be valuable article in terms of Section 69A.

Thus, the Hon’ble judge disapproved the views of the HC and held that the Assessee cannot be assessed under Section 69A as he is neither the owner nor he possessed any valuable article.

CONCURRING VIEWS By HON’BLE JUSTICE HRISHIKESH ROY

Here, The hon’ble judge , after concurring with the views of the Other Judge regarding the term owner used in sec 69A , expressed the following views on the other limb of the section .

A: His views on `Valuable article’

By drawing additional reference to a case law decided in the Context of Sec 69B - Refer  Dhanush General stores v CIT [TS-5492-HC-2011(Punjab & Haryana)-O], wherein it was held that the provisions of Sec 69B cannot be applied in the case of excess stock worked out at Rs 87 000, the learned judge expounded his views in the following manner:

“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 .

Notably, it can be seen that articles of value are a genus of which valuable articles are a species i.e., a subset of high-priced items. To put it differently, an article having value, may not be a valuable article. As for instance, a bag of cement, a sack of rice or a diamond stone will certainly have some value. But only the diamond stone can be regarded as a high-cost valuable item. To categorise all sundry items as valuable articles will mean an interpretation which will be foreign to the purpose of the law and the intention of the legislature in so far as Section 69A is concerned”.

B: Lyrical extract by The Hon’ble Judge:

The learned Judge further added:

“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.

In conclusion, it is held that 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 of the Income Tax Act,1961”.

Conclusion: Though the learned judge extracted only the relevant portion from the lyrics, it is worthwhile to look at the beginning portion which is extracted below. (Though this has nothing to do with the Income tax provisions, in the authors view, this too need to be noticed)