Income Tax Act, 1961 – s.69A – Scope and applicability of – s.69A deals with unexplained money, bullion, jewellery or other valuable articles – Deeming effect of the provision – When applicable – Ambit of the word ‘owner’ in s.69A – Held (per K.M. Joseph, J.) : To apply s.69A of the Act, it is indispensable that the Officer must find that the other valuable article is owned by the assessee – A bailee who is a common carrier is not the owner of the goods – A bailee who is a common carrier would necessarily be entrusted with the possession of the goods – The purpose of 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 – The full rights of an owner include the power of enjoyment which further includes the power to destroy; the right to possession which further includes the right to exclude others; the power to alienate inter vivos or to charge as security and the power to bequeath the property – A carrier has none of these rights or powers – Sale by a carrier does not pass title except when it is immunised by the conduct of the owner of the good which would in turn estop the owner from impugning the title of the buyer – Held (per Hrishikesh Roy, J.) (concurring): s.69A provides as a rule of evidence that for the deeming effect to apply- the assessee must be the owner of money, bullion, jewellery and other valuable articles on which he is unable to proffer a satisfactory explanation – Determining ownership of goods is an important factor to impute tax liability – Someone having mere possession and without legal ownership or title over the goods will not be covered within the ambit of s.69A – An assessee may nevertheless be also regarded as deemed owner if possession is imputed on the assessee and no other person having a better claim is contesting the assessee’s claim – In the present case, the assessee was certainly not the owner of the bitumen - but was the carrier who was supplying goods from the consignor- oil marketing companies to the consignee-Road Construction Department – Notably, due to short delivery of goods, the possession of the assessee was unlawful – The inevitable conclusion therefore is that the assessee is not the owner, for the purposes of s.69A – Contract Act, 1872 – ss.148, 151 – Sale of Goods Act, 1930 – ss. 39, 27.
Income Tax Act, 1961 – s.69A – ‘Other valuable article’ within meaning of s.69A – Whether it must be intrinsically costly – Whether bitumen- the residual offshoot material during processing of crude oil, excluding its valuable constituents like petrol, diesel, LPG, aviation fuel etc., can be covered within the category of ‘other valuable article’ alongside money, bullion and jewellery within the meaning of s.69A – Held (per K.M. Joseph, J.): 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’ or ‘worth a great deal of money’ and not that it has ‘value’ – s.69A would then stand attracted – ‘Bitumen’ as such cannot be treated as a ‘valuable article’ – Held (per Hrishikesh Roy, J.) (concurring): When the principle of Ejusdem Generis is applied, the preceding words in s.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 s.69A, would be incorrect and would do violence to the plain language of the provision and will travel beyond the legislative intent – Additionally, the maxim ‘noscitur a sociis’ i.e. (a word is known by its associates) would also support the above 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 within the expression ‘other valuable article’ in s.69A, would result in absurdities, that one needs to eschew – The common place items from kirana store and bitumen are intrinsically dissimilar to the high value items in s.69A and through an interpretive exercise, one should not categorise them with items such as gold bars and jewellery.
Income Tax Act, 1961– s.69A – Can a thief be the owner of the goods – Held (per K.M. Joseph, J.): The illegality of the ownership may not ill square with the requirement of s.69A that the assessing officer must find the assessee to be the owner of the article – However, that is not to say that without finding ownership or when it is obvious that someone else is the owner, a person found in possession, which is illegal, can be found to be the owner under s.69A – 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 s.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.
Income Tax Act, 1961 – s.69A – Article and Valuable Article – Distinguished – Held (per Hrishikesh Roy, J.): Articles of value are a genus of which valuable articles are a species i.e. a subset of high priced items – An article having value may not be a valuable article – Categorising all sundry items as valuable articles will lead to an interpretation which will be foreign to the purpose of the law and the intention of the legislature in so far as s.69A is concerned. Doctrines/Principles – Noscitur a Sociis and ejusdem generis – Discussed.
Maxims – Absoluta sententia expositore non indiget – Explained. Allowing the appeals, the Court
HELD: (Per K. M. Joseph, J.):
1. When goods are entrusted to a common carrier, the entrustment would amount to a contract of bailment within the meaning of Section 148 of the Contract Act, 1872 when it is for being carried by road, as in this case. A contract for bailment may not involve any consideration being payable in which case Section
58 of the Contract Act obliges the bailor to repay to the bailee the necessary expenses incurred by him for the purpose of bailment. Possession is central to bailment. Section 151 of the Contract Act declares that ‘in all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.’ Can it be said that the standard of care as declared in Section 151 is alone applicable to the common carrier. The subject matter is not res integra. [Para 37][555-D-F]
2. To apply Section 69A of the Income Tax 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. [Para 39][557-E-F]
3. Section 39 of the Sale of Goods Act, 1930 contemplates delivery pursuant to a contract of sale by the seller to the carrier as prima facie to be deemed to be the delivery of the goods to the buyer. It becomes the responsibility of the buyer of a carrier to fulfil its contractual obligations and deliver the goods to the consignee or as per its instructions. Sale by a carrier does not pass title except when it is immunised by the conduct of the owner of the good which would in turn estop the owner from impugning the title of the buyer. [Paras 42 & 43][558-F-G; 559-D]
4. A person may own, contraband or prohibited articles and still be within the embrace of Section 69A. In other words, the illegality of the ownership may not ill square with the requirement of Section 69A that the assessing officer must find the assessee to be the owner of the article. However, that is not to say that without finding ownership or when it is obvious that someone else is the owner, a person found in possession, which is illegal, can be found to be the owner under Section 69A. The question would arise pointedly, as to, when a common carrier refuses to deliver the consignment and continues to possess it contrary to contract and law and converts it into his use and presumably sells the same, as to whether he could be found to be the owner of the goods. Would he be any different from a person who commits theft and sells it claiming to be the owner. 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. [Para 47][560-G; 561-A-D]
5. The full rights of an owner as set out in Additional Commissioner of Income Tax, Bihar v. M/s. Sahay Properties and Investment Co.(P) Ltd. 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. A carrier has none of these rights or powers. 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’. [Paras 58 & 59][579-B-G]
6. Appellant as a carrier was entrusted with the goods. The possession of the appellant began as a bailee. The Court proceeds further on the basis that instead of delivering the goods, the appellant did not deliver the goods to the concerned divisions of the department in the State of Bihar. Ownership of the goods in question by no stretch of imagination stood vested at any point of time in the appellant. Property would pass from the consignor to the consignee on the basis of the principles which are declared in the Sale of Goods Act. It is inconceivable that any of those provisions would countenance passing of property in the goods to the appellant who was a mere carrier of the goods. Section 406 of the IPC makes it an offence for a person entrusted with property which includes goods entrusted to a carrier being misappropriated or dishonestly being converted to the use of the carrier. A specific illustration under Section 406 makes it abundantly clear that any such act by a carrier attracts the offence under Section 406. The Court in other words would have to allow the commission of an offence by the appellant in the process of finding that the appellant is the owner of the goods. In other words, 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. [Para 60][579-H; 580-A-E]
7. 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’ or ‘worth a great deal of money’ 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. This Court would conclude that ‘bitumen’ as such cannot be treated as a ‘valuable article’. [Para 79][590-D-E] Kotak Mahindra Bank Ltd. v. A. Balakrishnan and another (2022) 9 SCC 186; Kishinchand Chellaram v. Commissioner of Income Tax, Bombay City II, Bombay (1980) Suppl. SCC 660 : [1981] 1 SCR 720; Chuharmal S/O Takarmal Mohnani v. Commissioner of Income Tax, M.P., Bhopal (1988) 3 SCC 588; Commissoiner of Income Tax, Salem v. K. Chinnathamban (2007) 7 SCC
390 : [2007] 8 SCR 496; Patel Roadways Ltd. v. Birla Yamaha Ltd. (2000) 4 SCC 91 : [2000] 2 SCR 665; Nath Bros. Exim International Ltd. v. Best Roadways Ltd. (2000) 4 SCC 553 : [2000] 2 SCR 538; R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax, Punjab, Jammu and Kashmir, Himachal Pradesh and Patiala (1971) 3 SCC 369 : [1972] 1 SCR 639; Late Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax, Hyderabad (1986) Suppl. SCC 700 : [1986] 3
SCR 1072; Commissioner of Income Tax, Bombay & Ors. v. Podar Cement Pvt. Ltd. & Ors. (1997) 5 SCC
482 : [1997 ] 1 Suppl. SCR 394; Additional Mysore Minerals Ltd. M.G. Road, Bangalore v. Commissioners of Income Tax, Karnataka, Bangalore (1999) 7 SCC
106 : [1999] 2 Suppl. SCR 182; Industrial Credit and Development Syndicate Ltd. v. Commissioner of Income Tax, Mysore & Anr. (2013) 3 SCC 541 : [2013] 3 SCR 1082; Commissioner of Income Tax, Kolkata v. SMIFS Securities Limited (2012) 13 SCC 488 and Rohit Pulp and Paper Mills Limited v. Collector of Central Excise, Baroda (1990) 3 SCC 447 : [1990] 2 SCR 797 – referred to.
Dhirajlal Haridas v. Commissioner of Income Tax (Central), Bombay (1982) 138 ITR 570; Commissioner of Income Tax v. Amrit lal Chunilal (1984) 40 CTR Bombay 387; Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar (1984) Vol 147 ITR 251; Mohan B. Samtani v. Commissioner of Income–Tax (1993) Vol 199 ITR 370; J.S. Parkar v. V.B. Palekar (1974) 94 ITR 616 (Bom HC); Mohan B. Samtani v. Commissioner of Income-Tax 1993 Vol. 199 ITR 370 Calcutta; Commissioner of Income Tax v. K.I. Pavunny (1998) 232 ITR 837; Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar 1984 (147) ITR 251; Commissioner of Income Tax, Bihar v. M/s. Sahay Properties and Investment Co.(P) Ltd. 1983 (144) ITR 357; Bhagwandas Narayandas v. Commissioner of
Income Tax, Ahmedabad and others 1973 Vol. 98 ITR 194; Commissioner of Income Tax v. M.K. Gabrial Babu and others (1991) 188 ITR 464 Kerala and Dhanush General Stores v. Commissioner of Income Tax (2011)
339 ITR 651 Chhattisgarh – referred to.
HELD: (Per Hrishikesh Roy, J.) (Concurring):
1. 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. Additionally, the maxim ‘noscitur a sociis’ i.e. (a word is known by its associates) would also support the above 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. [Paras 10 & 11][594G-H; 595-A-B]
2. 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’. 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. It needs to be also reiterated that, ordinarily, fiscal laws including taxation statutes, are to be strictly interpreted and tax must not be imposed through analogy, inference or by extension of phrases used by the legislature. [Para 15][596-E-G]
3. 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. [Para 19][597-H]
Dhanush General Stores v. Commissioner of Income Tax (2011) 339 ITR 651 – approved.
Banarsi Debi v. ITO [1964] 7 SCR 539 and Augustan Textile Colours Ltd. v. Director of Industries & Anr. (Civil Appeal No. 2830/2022) (2022) 6 SCC 626; CIT v. Kasturi 237 ITR 24 (SC); DN Singh v. Commissioner of Income Tax & Anr. (2010) 324 ITR 304; New
Shorrock Spinning and Manufacturing Co. Ltd. v. N.V. Raval (1959) 37 ITR 41 and Capy Brandy Syndicate v. Inland Revenue (1921) 1 KB 64– referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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