LEGAL ISSUE: Whether bitumen can be classified as “other valuable articles” under Section 69A of the Income Tax Act, 1961, and whether a carrier of goods can be considered the owner of those goods for the purposes of this section.
CASE TYPE: Income Tax Law
Case Name: M/s. D.N. Singh vs. Commissioner of Income Tax, Central, Patna and Another
[Judgment Date]: 16 May 2023
Introduction
Date of the Judgment: 16 May 2023
Citation: (2023) INSC 445
Judges: K.M. Joseph, J. and Hrishikesh Roy, J. (authored a concurring opinion)
Can a transporter of goods be deemed the owner of those goods if they fail to deliver them? The Supreme Court of India recently addressed this question, along with clarifying what constitutes “other valuable articles” under Section 69A of the Income Tax Act, 1961. This judgment arose from a case where a transport company was accused of misappropriating bitumen, leading to a tax assessment based on the value of the undelivered goods.
Case Background
M/s. D.N. Singh, the appellant, operated as a carriage contractor, transporting bitumen from oil companies like HPCL, IOCL, and BPCL in Haldia to various divisions of the Road Construction Department of the Government of Bihar. The appellant claimed to have been in this business for about three decades. The case arose from a scam where transporters allegedly misappropriated bitumen instead of delivering it to the designated government departments.
For the assessment year 1995-1996, the Assessing Officer found that the appellant had lifted 14,507.81 metric tonnes of bitumen but delivered only 10,064.1 metric tonnes, leading to an allegation of non-delivery of 4,443.1 metric tonnes. The Assessing Officer added Rs. 21,985,700 to the appellant’s income under Section 69A of the Income Tax Act, 1961. Similarly, for the assessment year 1996-1997, the Assessing Officer found a discrepancy of 2,094.52 metric tonnes and added Rs. 10,471,720.30 to the appellant’s income.
The appellant provided photocopies of challans to prove delivery, but the Assessing Officer found discrepancies and denials from some Junior Engineers who were supposed to receive the bitumen.
Timeline
| Date | Event |
|---|---|
| 1995-1996 | Assessment year for initial dispute. |
| 27.03.1998 | Assessing Officer issues order for 1995-1996, alleging short delivery of bitumen. |
| 23.01.1998 | Show-cause notice issued to the appellant. |
| 31.03.1999 | Assessing Officer passes order for 1996-1997, noting short delivery of bitumen. |
| 15.09.2000 | Commissioner Appeals partially deletes the addition for 1995-1996 and remands part of the matter. |
| 18.12.2000 | Appellate Authority orders deletion of addition for 1996-1997. |
| 07.02.2001 | Revenue seeks rectification of order dated 15.09.2000. |
| 31.05.2001 | Rectification application allowed, matter remanded to Assessing Officer. |
| 11.01.2002 | ITAT dismisses appeals for 1995-1996 and allows revenue appeal for 1996-1997. |
| 05.03.2009 | High Court dismisses the appeal filed by the appellant under Section 260A of the Income-Tax Act, 1961. |
| 18.12.2017 | Review Petition is dismissed by the High Court. |
| 16.05.2023 | Supreme Court allows the appeals. |
Course of Proceedings
The Commissioner Appeals partly allowed the appeal for the assessment year 1995-1996, deleting a portion of the addition and remanding the matter for cross-examination of certain Junior Engineers. However, the Income Tax Appellate Tribunal (ITAT) later dismissed the appeals for 1995-1996 and allowed the revenue’s appeal for 1996-1997, reinstating the Assessing Officer’s order. The High Court upheld the ITAT’s decision for the assessment year 1996-1997, leading to the appeal before the Supreme Court.
The High Court held that the appellant was the owner of the bitumen and that bitumen was a valuable article under Section 69A. The High Court rejected the argument that Section 69A would not apply as the appellant had offered an explanation, stating that an explanation, though offered, if not accepted, would lead to the invocation of Section 69A.
Legal Framework
The case revolves around Section 69 and Section 69A of the Income Tax Act, 1961. These sections deal with unexplained investments and unexplained money, bullion, jewellery, or other valuable articles, respectively.
Section 69 of the Income Tax Act, 1961 states:
“Where in the financial year immediately preceding the assessment year the assessee has made investments which are 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 the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
Section 69A of the Income Tax Act, 1961 states:
“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.”
The key difference between the two sections is that Section 69 deals with unexplained investments, while Section 69A deals with unexplained ownership of money or other valuable articles. Both sections allow the Assessing Officer to treat the value of such investments or articles as the income of the assessee if no satisfactory explanation is provided.
Arguments
Appellant’s Submissions:
- The appellant, being a carrier, cannot be treated as the owner of the bitumen. The appellant’s role was limited to transporting and delivering the goods, not owning them.
- Bitumen cannot be considered as “other valuable articles” within the meaning of Section 69A of the Income Tax Act, 1961. The term should be interpreted in the context of the preceding words, i.e., money, bullion, and jewellery, implying that “other valuable articles” must be items of similar nature, which bitumen is not.
- The appellant contended that the photocopies of the delivery challans were not fabricated and the two Junior Engineers failed to appear for cross-examination.
- The addition should have been based on the cost of the bitumen, not its value.
- The appellant relied on Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar [(1984) 147 ITR 251] and Mohan B. Samtani v. Commissioner of Income-Tax [(1993) 199 ITR 370] to argue that mere possession does not equate to ownership and that the burden was on the department to prove their case.
- The appellant also cited Kotak Mahindra Bank Ltd. v. A. Balakrishnan [(2022) 9 SCC 186] and Kishinchand Chellaram v. Commissioner of Income Tax [(1980) Suppl. SCC 660].
Revenue’s Submissions:
- The Revenue contended that the appellant was the owner of the bitumen since it was in possession of the bitumen and had not delivered it to the consignee.
- The Revenue argued that the term “other valuable articles” in Section 69A should be interpreted broadly to include any article of value, including bitumen.
- The Revenue relied on Chuharmal S/O Takarmal Moh nani v. Commissioner of Income Tax [(1988) 3 SCC 588] to support the argument that possession can be treated as ownership.
[TABLE] of Submissions
| Main Submission | Appellant’s Sub-Submissions | Revenue’s Sub-Submissions |
|---|---|---|
| Ownership of Bitumen | Appellant was a carrier, not an owner. | Appellant was in possession of the bitumen and did not deliver it. |
| Goods were to be delivered to the Road Construction Department, not owned by the carrier. | Possession implies ownership for tax purposes. | |
| Appellant was a bailee, not an owner. | The appellant did not deliver the bitumen to the consignee and was therefore the owner. | |
| Bitumen as “Other Valuable Article” | Bitumen does not fit within the context of “money, bullion, jewellery.” | “Other valuable articles” includes any article of value. |
| Bitumen is a common, low-value item. | Bitumen has a market value and is therefore a valuable article. | |
| The term should be interpreted using the principle of ejusdem generis. | The term should be interpreted broadly and not restricted by the preceding words. | |
| Valuation | Addition should have been based on the cost of the bitumen, not its value. | The value of the bitumen was correctly considered. |
| Procedure | The appellant was not given the right to cross-examine the Junior Engineers. | The Assessing Officer had the right to assess based on available evidence. |
Innovativeness of the argument: The appellant innovatively argued that bitumen, being a common and low-value item, should not be considered a “valuable article” under Section 69A, thereby challenging the broad interpretation of the provision.
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether the appellant could be treated as the owner of the bitumen.
- Whether bitumen could be treated as “other valuable articles” under Section 69A of the Income Tax Act, 1961.
- How the value of the bitumen is to be ascertained.
- Whether the ITAT erred in passing contradictory orders for the assessment years 1995-1996 and 1996-1997.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Brief Reasoning |
|---|---|---|
| Whether the appellant could be treated as the owner of the bitumen. | No | The appellant was a carrier, not an owner. The possession was unlawful. |
| Whether bitumen could be treated as “other valuable articles”. | No | Bitumen is not a high-priced article and does not fit within the context of money, bullion, and jewellery. |
| How the value of the bitumen is to be ascertained. | Not addressed | The Court did not address the valuation issue as the first two issues were decided in favour of the appellant. |
| Whether the ITAT erred in passing contradictory orders. | Not addressed | The Court did not address this issue as the first two issues were decided in favour of the appellant. |
Authorities
The Supreme Court considered the following authorities:
Cases:
- Chuharmal S/O Takarmal Moh nani v. Commissioner of Income Tax, M.P., Bhopal [(1988) 3 SCC 588] – Discussed the principle that title follows possession.
- Commissoiner of Income Tax, Salem v. K. Chinnathamban [(2007) 7 SCC 390] – Affirmed that “income” has a wide meaning, including anything that results in gain.
- Patel Roadways Ltd. v. Birla Yamaha Ltd. [(2000) 4 SCC 91] – Discussed the liability of a common carrier as an insurer.
- Nath Bros. Exim International Ltd. v. Best Roadways Ltd. [(2000) 4 SCC 553] – Explained the liability of a common carrier under the Carriers Act, 1865.
- Mohan B. Samtani v. Commissioner of Income-Tax [(1993) 199 ITR 370] – Held that mere possession does not equate to ownership.
- Commissioner of Income Tax v. K.I. Pavunny [(1998) 232 ITR 837] – Discussed ownership of contraband articles.
- Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar [(1984) 147 ITR 251] – Held that a carrier is not the owner of the goods.
- R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax [(1971) 3 SCC 369] – Discussed the meaning of “owner” under the Income Tax Act, 1922.
- Late Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax [(1986) Supp. SCC 700] – Discussed the meaning of “belonging to” under the Wealth Tax Act, 1957.
- Commissioner of Income Tax v. Podar Cement Pvt. Ltd. [(1997) 5 SCC 482] – Discussed the meaning of “owner” under Section 22 of the Income Tax Act, 1961.
- Mysore Minerals Ltd. v. Commissioners of Income Tax [(1999) 7 SCC 106] – Discussed the meaning of “owner” for the purpose of claiming depreciation.
- Industrial Credit and Development Syndicate Ltd. v. Commissioner of Income Tax [(2013) 3 SCC 541] – Discussed the meaning of “owner” in the context of lease agreements.
- Bhagwandas Narayandas v. Commissioner of Income Tax [(1973) 98 ITR 194] – Discussed what constitutes “valuable articles” under Section 132 of the Income Tax Act.
- Commissioner of Income Tax v. M.K. Gabrial Babu [(1991) 188 ITR 464] – Discussed the interpretation of “other valuable article or thing” under Section 132(1) of the Act.
- Dhanush General Stores v. Commissioner of Income Tax [(2011) 339 ITR 651]– Held that Kirana articles are not valuable articles.
- Commissioner of Income Tax, Kolkata v. SMIFS Securities Limited [(2012) 13 SCC 488] – Discussed the principle of ejusdem generis in the context of Explanation 3(b) to Section 32(1) of the Act.
- Rohit Pulp and Paper Mills Limited v. Collector of Central Excise [(1990) 3 SCC 447] – Discussed the principle of noscitur a sociis.
Legal Provisions:
- Section 69 of the Income Tax Act, 1961 – Deals with unexplained investments.
- Section 69A of the Income Tax Act, 1961 – Deals with unexplained money, bullion, jewellery, or other valuable articles.
- Section 69B of the Income Tax Act, 1961 – Deals with understated investments in bullion, jewellery, or other valuable articles.
- Section 15 of the Carriage by Road Act, 2007 – Provides for the rights of a common carrier in case of consignee’s default.
- Section 148 of the Contract Act, 1872 – Defines bailment.
- Section 151 of the Contract Act, 1872 – Declares the standard of care for a bailee.
- Section 405 of the Indian Penal Code, 1860 – Defines criminal breach of trust.
- Section 39 of the Sale of Goods Act, 1930 – Deals with delivery to a carrier.
- Section 27 of the Sale of Goods Act, 1930 – Deals with sale by a person who is not the owner.
[TABLE] of Authorities
| Authority | Court | How it was used |
|---|---|---|
| Chuharmal S/O Takarmal Moh nani v. Commissioner of Income Tax, M.P., Bhopal [(1988) 3 SCC 588] | Supreme Court of India | Distinguished; the principle that title follows possession was discussed, but not applied to the facts of the case. |
| Commissoiner of Income Tax, Salem v. K. Chinnathamban [(2007) 7 SCC 390] | Supreme Court of India | Followed; the definition of “income” was discussed. |
| Patel Roadways Ltd. v. Birla Yamaha Ltd. [(2000) 4 SCC 91] | Supreme Court of India | Cited; the liability of a common carrier was discussed. |
| Nath Bros. Exim International Ltd. v. Best Roadways Ltd. [(2000) 4 SCC 553] | Supreme Court of India | Cited; the liability of a common carrier under the Carriers Act was discussed. |
| Mohan B. Samtani v. Commissioner of Income-Tax [(1993) 199 ITR 370] | Calcutta High Court | Followed; the principle that mere possession does not equate to ownership was discussed. |
| Commissioner of Income Tax v. K.I. Pavunny [(1998) 232 ITR 837] | Kerala High Court | Cited; the ownership of contraband articles was discussed. |
| Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar [(1984) 147 ITR 251] | Madras High Court | Followed; the principle that a carrier is not the owner of the goods was discussed. |
| R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax [(1971) 3 SCC 369] | Supreme Court of India | Distinguished; the meaning of “owner” was discussed in a different context. |
| Late Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax [(1986) Supp. SCC 700] | Supreme Court of India | Cited; the meaning of “belonging to” under the Wealth Tax Act was discussed. |
| Commissioner of Income Tax v. Podar Cement Pvt. Ltd. [(1997) 5 SCC 482] | Supreme Court of India | Cited; the meaning of “owner” under Section 22 of the Income Tax Act was discussed. |
| Mysore Minerals Ltd. v. Commissioners of Income Tax [(1999) 7 SCC 106] | Supreme Court of India | Cited; the meaning of “owner” for the purpose of claiming depreciation was discussed. |
| Industrial Credit and Development Syndicate Ltd. v. Commissioner of Income Tax [(2013) 3 SCC 541] | Supreme Court of India | Cited; the meaning of “owner” in the context of lease agreements was discussed. |
| Bhagwandas Narayandas v. Commissioner of Income Tax [(1973) 98 ITR 194] | Gujarat High Court | Approved; the definition of “valuable articles” under Section 132 was discussed. |
| Commissioner of Income Tax v. M.K. Gabrial Babu [(1991) 188 ITR 464] | Kerala High Court | Cited; the interpretation of “other valuable article or thing” under Section 132(1) was discussed. |
| Dhanush General Stores v. Commissioner of Income Tax [(2011) 339 ITR 651] | Chhattisgarh High Court | Approved; the principle that Kirana articles are not valuable articles was discussed. |
| Commissioner of Income Tax, Kolkata v. SMIFS Securities Limited [(2012) 13 SCC 488] | Supreme Court of India | Cited; the principle of ejusdem generis was discussed. |
| Rohit Pulp and Paper Mills Limited v. Collector of Central Excise [(1990) 3 SCC 447] | Supreme Court of India | Cited; the principle of noscitur a sociis was discussed. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant is not the owner of the bitumen. | Accepted. The court held that the appellant was a carrier and not the owner of the bitumen. |
| Bitumen is not a “valuable article” under Section 69A. | Accepted. The court held that bitumen is not a high-priced article and does not fit within the context of money, bullion, and jewellery. |
| The addition should have been based on the cost of the bitumen, not its value. | Not addressed. The court did not address this issue as the first two issues were decided in favor of the appellant. |
| The ITAT erred in passing contradictory orders for the assessment years 1995-1996 and 1996-1997. | Not addressed. The court did not address this issue as the first two issues were decided in favor of the appellant. |
| The Revenue argued that the appellant was the owner of the bitumen since it was in possession of the bitumen and had not delivered it to the consignee. | Rejected. The court held that possession does not equate to ownership, especially when the possession is unlawful. |
| The Revenue argued that the term “other valuable articles” in Section 69A should be interpreted broadly to include any article of value, including bitumen. | Rejected. The court held that the term should be interpreted in the context of the preceding words and should include only high-priced articles. |
How each authority was viewed by the Court?
✓ Chuharmal S/O Takarmal Moh nani v. Commissioner of Income Tax, M.P., Bhopal [(1988) 3 SCC 588]*: Distinguished. While the case discussed the principle that title follows possession, the Supreme Court found that it did not apply to the facts of this case where the appellant was a carrier and not an owner.
✓ Commissoiner of Income Tax, Salem v. K. Chinnathamban [(2007) 7 SCC 390]*: Followed. The Court affirmed that “income” has a wide meaning, including anything that results in gain.
✓ Patel Roadways Ltd. v. Birla Yamaha Ltd. [(2000) 4 SCC 91]*: Cited. The Court discussed the liability of a common carrier as an insurer.
✓ Nath Bros. Exim International Ltd. v. Best Roadways Ltd. [(2000) 4 SCC 553]*: Cited. The Court discussed the liability of a common carrier under the Carriers Act, 1865.
✓ Mohan B. Samtani v. Commissioner of Income-Tax [(1993) 199 ITR 370]*: Followed. The Court discussed the principle that mere possession does not equate to ownership.
✓ Commissioner of Income Tax v. K.I. Pavunny [(1998) 232 ITR 837]*: Cited. The Court discussed the ownership of contraband articles.
✓ Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar [(1984) 147 ITR 251]*: Followed. The Court discussed the principle that a carrier is not the owner of the goods.
✓ R.B. Jodha Mal Kuthiala v. Commissioner of Income Tax [(1971) 3 SCC 369]*: Distinguished. The Court discussed the meaning of “owner” but in a different context.
✓ Late Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax [(1986) Supp. SCC 700]*: Cited. The Court discussed the meaning of “belonging to” under the Wealth Tax Act.
✓ Commissioner of Income Tax v. Podar Cement Pvt. Ltd. [(1997) 5 SCC 482]*: Cited. The Court discussed the meaning of “owner” under Section 22 of the Income Tax Act.
✓ Mysore Minerals Ltd. v. Commissioners of Income Tax [(1999) 7 SCC 106]*: Cited. The Court discussed the meaning of “owner” for the purpose of claiming depreciation.
✓ Industrial Credit and Development Syndicate Ltd. v. Commissioner of Income Tax [(2013) 3 SCC 541]*: Cited. The Court discussed the meaning of “owner” in the context of lease agreements.
✓ Bhagwandas Narayandas v. Commissioner of Income Tax [(1973) 98 ITR 194]*: Approved. The Court approved the view that a document of title or a fixed deposit receipt would not qualify as “other valuable articles.”
✓ Commissioner of Income Tax v. M.K. Gabrial Babu [(1991) 188 ITR 464]*: Cited. The Court discussed the interpretation of “other valuable article or thing” under Section 132(1).
✓ Dhanush General Stores v. Commissioner of Income Tax [(2011) 339 I339 ITR 651]*: Approved. The Court approved the view that Kirana articles are not valuable articles.
✓ Commissioner of Income Tax, Kolkata v. SMIFS Securities Limited [(2012) 13 SCC 488]*: Cited. The Court discussed the principle of ejusdem generis.
✓ Rohit Pulp and Paper Mills Limited v. Collector of Central Excise [(1990) 3 SCC 447]*: Cited. The Court discussed the principle of noscitur a sociis.
Ruling:
The Supreme Court allowed the appeals, setting aside the judgment of the High Court. The Court held that the appellant, being a carrier, could not be treated as the owner of the bitumen and that bitumen could not be classified as “other valuable articles” under Section 69A of the Income Tax Act, 1961. The Court emphasized that “other valuable articles” should be interpreted in the context of the preceding words, i.e., money, bullion, and jewellery, and should include only high-priced articles.
Conclusion
The Supreme Court’s decision in M/s. D.N. Singh vs. Commissioner of Income Tax provides a significant clarification on the interpretation of “other valuable articles” under Section 69A of the Income Tax Act, 1961. The Court emphasized that the term should be interpreted using the principle of ejusdem generis, meaning that it should be understood in the context of the preceding words, i.e., money, bullion, and jewellery. This interpretation limits the scope of “other valuable articles” to items of similar nature and value, excluding common goods like bitumen.
Furthermore, the Court clarified that a carrier of goods cannot be deemed the owner of those goods simply because they are in possession of them. This ruling protects transporters from being held liable for tax on goods they are merely entrusted to carry. The Court also reiterated that mere possession does not equate to ownership, especially when the possession is unlawful.
Key Takeaways:
- The term “other valuable articles” under Section 69A is not to be interpreted broadly but in the context of the preceding words.
- Carriers of goods are not owners of those goods for the purposes of Section 69A.
- Mere possession does not equate to ownership.
- The principle of ejusdem generis should be applied when interpreting “other valuable articles”.
Flowchart
Bitumen was not delivered.
Appellant is the owner.
Upheld the Assessing Officer’s Claim.
Appellant is the owner of the bitumen.
Bitumen is a “valuable article”.
Appellant is a carrier, not the owner.
Bitumen is not a “valuable article”.
Appeals allowed.