Supreme Court Clarifies “Other Valuable Articles” Under Section 69A of Income Tax Act: M/s. D.N. Singh vs. Commissioner of Income Tax (2023)

Introduction

Date of the Judgment: May 16, 2023

Citation: 2023 INSC 543

Judges: K.M. Joseph, J., Hrishikesh Roy, J. (Concurring)

Can a carrier of goods be considered the owner of those goods for tax purposes if they fail to deliver them? The Supreme Court of India recently addressed this question while interpreting Section 69A of the Income Tax Act, 1961, which deals with unexplained money, bullion, jewelry, or other valuable articles. This case revolves around a dispute over the taxability of bitumen, a petroleum byproduct, that a carrier failed to deliver, and the court’s ruling has clarified the scope of “other valuable articles” under the Income Tax Act.

The core issue was whether the appellant, a carriage contractor, could be deemed the owner of bitumen that was not delivered to the intended recipients and whether bitumen could be classified as an “other valuable article” under Section 69A of the Income Tax Act. The Supreme Court bench, comprising Justices K.M. Joseph and Hrishikesh Roy, delivered a detailed judgment, with Justice Roy providing a concurring opinion, clarifying the interpretation of the said provision.

Case Background

The appellant, M/s. D.N. Singh, 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 business had been ongoing for about three decades. However, a scam surfaced where transporters were accused of misappropriating bitumen instead of delivering it to the designated government departments. This led to scrutiny by the Income Tax Department.

For the assessment year 1995-1996, the Assessing Officer alleged that the appellant lifted 14,507.81 metric tonnes of bitumen but delivered only 10,064.1 metric tonnes, resulting in a shortfall of 4,443.1 metric tonnes. The appellant provided photocopies of challans to prove delivery, but the Assessing Officer summoned Executive and Junior Engineers to verify the same. While most Junior Engineers confirmed delivery, two denied it. The Assessing Officer, therefore, added a sum of 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 shortfall of 2,094.52 metric tonnes of bitumen, adding Rs. 10,471,720.30 to the appellant’s income, again under Section 69A. The appellant challenged these additions, leading to a series of appeals before the Commissioner Appeals, the Income Tax Appellate Tribunal (ITAT), and finally, the High Court.

Timeline

Legal Framework

The core legal provisions at play in this case are:

• Section 69 of the Income Tax Act, 1961: Deals with unexplained investments. It states that if an assessee has made investments that are not recorded in their books of account and they cannot provide a satisfactory explanation, the value of those investments can be deemed as their income.
• Section 69A of the Income Tax Act, 1961: This section, inserted by the Finance Act, 1964, addresses unexplained money, bullion, jewelry, or other valuable articles. It states that if an assessee is found to be the owner of such items, which are not recorded in their books of account, and they cannot provide a satisfactory explanation for their acquisition, the value of these items can be deemed as their income. The section reads as follows:
  
  “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.”
• Section 69B of the Income Tax Act, 1961: This section deals with situations where the amount of investments in bullion, jewelry, or other valuable articles is not fully disclosed in the books of account. If the Assessing Officer finds that the amount spent exceeds the amount recorded and the assessee cannot provide a satisfactory explanation, the excess amount can be deemed as income.
• Section 15 of the Carriage by Road Act, 2007: This section outlines the rights of a common carrier when a consignee fails to take delivery of goods. It allows the carrier to sell the goods under certain conditions after a specified period.
• Section 405 of the Indian Penal Code, 1860: Defines criminal breach of trust, which includes the dishonest misappropriation or conversion of property by someone entrusted with it, such as a carrier. Illustration (f) under Section 405 specifically mentions a carrier misappropriating property as an example of criminal breach of trust.
• Section 39 of the Sale of Goods Act, 1930: Deals with the delivery of goods to a carrier, which is generally considered delivery to the buyer.
• Section 27 of the Sale of Goods Act, 1930: States that a buyer does not acquire better title to goods than the seller had, unless the sale is authorized by the owner.

Arguments

Appellant’s Submissions:

• The appellant argued that the High Court erred in upholding the addition of income under Section 69A of the Income Tax Act, 1961.
• It was contended that the appellant, being a carrier, could not be treated as the owner of the bitumen, and therefore, Section 69A was not applicable.
• The appellant submitted that bitumen could not be considered as “other valuable articles” within the meaning of Section 69A, as it does not fit the context of money, bullion, and jewelry.
• The appellant contended that the finding that the photocopies of the delivery challans were fabricated was a gross error.
• The appellant relied on the fact that the two Junior Engineers who denied receiving the bitumen did not appear for cross-examination.
• The appellant pointed out the contradictory orders passed by the ITAT for the assessment years 1995-1996 and 1996-1997.
• The appellant argued that the burden of proof was on the department to prove its case.
• The appellant cited various case laws to support their arguments, including:
  • 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
  • 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

Respondent’s (Revenue) Submissions:

• The Revenue argued that the High Court’s decision was correct and should be upheld.
• The Revenue contended that the appellant, by not delivering the bitumen, became its owner for tax purposes.
• It was submitted that the term “other valuable articles” in Section 69A should be interpreted broadly to include bitumen.
• The Revenue relied upon Chuharmal S/O Takarmal Moh nani v. Commissioner of I ncome Tax, M.P., Bhopal (1988) 3 SCC 588 to argue that possession can imply ownership.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

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. How the value of the bitumen should be ascertained.
4. 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

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Chuharmal S/O Takarmal Moh nani v. Commissioner of I ncome Tax, M.P., Bhopal [ (1988) 3 SCC 588 ]*: Distinguished on facts, stating that while title usually follows possession, it does not apply to a carrier who is not the owner.
• Commissoiner of Income Tax, Salem v. K. Chinnathamban [(2007) 7 SCC 390]*: Cited to support the wide meaning of “income” but not directly relevant to the core issue of ownership.
• Patel Roadways Ltd. v. Birla Yamaha Ltd. [(2000) 4 SCC 91]*: Used to highlight the liability of a common carrier but not the ownership issue.
• Nath Bros. Exim International Ltd. v. Best Roadways Ltd. [(2000) 4 SCC 553]*: Used to discuss the liability of a common carrier under the Carriers Act, 1865, but not the ownership issue.
• Mohan B. Samtani v. Commissioner of Income- Tax [1993 Vol. 199 ITR 370 Calcutta]*: Distinguished based on the fact that evidence was produced to show that the assessee was not the owner.
• Addl. Commissioner of Income Tax v. S. Pichaimanickan Chettiar [1984 (147) ITR 251]*: Relied upon to support the view that a carrier is not the owner of the goods.
• Commissioner of Income Tax v. K.I. Pavunny [(1998) 232 ITR 837]*: Discussed to highlight that even illegal articles can be owned, but this does not mean that a carrier can be deemed the owner.
• R.B. Jodha Mal Kuthiala Vs. Commissioner of Income Tax, Punjab, Jammu and Kashmir, Himachal Pradesh and Patiala [(1971) 3 SCC 369]*: Distinguished based on the context of the Income Tax Act, 1922, and the specific facts of the case.
• Late Nawab Sir Mir Osman Ali Khan v. Commissioner of Wealth Tax, Hyderabad [1986 (supp.) SCC 700]*: Used to discuss the meaning of “belonging to” but distinguished as it was under the Wealth Tax Act.
• Commissioner of Income Tax, Bombay & Ors. v. Podar Cement Pvt. Ltd. & Ors. [(1997) 5 SCC 482]*: Used to discuss the meaning of “owner” in the context of Section 22 of the Income Tax Act, 1961, and distinguished based on the facts of the case.
• Additional Commissioner of Inco me Tax, Bihar v. M/s. Sahay Properties and Investment Co.(P) Ltd. [1983 (144) ITR 357]*: Approved the reasoning on the concept of ownership, stating that the person receiving income is the owner.
• Mysore Minerals Ltd. M.G. Road, Bangalore v. Commissioners of Income Tax, Karnataka, Bangalore [(1999) 7 SCC 106]*: Used to discuss the definition of “owner” in the context of Section 32 of the Income Tax Act, 1961, and distinguished based on the facts of the case.
• Industrial Credit and Development Syndicate Ltd. v. Commissioner of Income Tax, Mysore & Anr. [(2013) 3 SCC 541]*: Used to discuss the meaning of “owner” in the context of Section 32 of the Income Tax Act, 1961, and distinguished based on the facts of the case.
• Bhagwandas Narayandas v. Commissioner of Income Tax, Ahmedabad and others [1973 Vol. 98 ITR 194]*: Approved the view that documents of title are not “valuable articles”.
• Commissioner of Income Tax v. M.K. Gabrial Babu and others [(1991) 188 ITR 464 Kerala]*: Cited to support the view that “other valuable articles” should be interpreted in the context of money, bullion, and jewelry.
• Dhanush General Stores v. Commissioner of Income Tax [(2011) 339 ITR 651 Chhattisgarh]*: Relied upon to support the view that kirana items are not “valuable articles”.
• Commissioner of Income Tax, Kolkata v. SMIFS Securities Limited [(2012) 13 SCC 488]*: Used to discuss the application of the principle of ejusdem generis.
• Rohit Pulp and Paper Mills Limited v. Collector of Central Excise, Baroda [(1990) 3 SCC 447]*: Used to discuss the application of the principle of noscitur a sociis.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• Ownership: The court emphasized that for Section 69A to apply, the assessee must be the owner of the goods. A carrier, who is merely entrusted with the goods for transportation, cannot be deemed the owner, even if they fail to deliver the goods.
• Definition of “Valuable Article”: The court clarified that the term “other valuable articles” in Section 69A must be interpreted in the context of the preceding words “money, bullion, and jewelry.” It emphasized that a “valuable article” must be a high-priced item, not just any article with some value. Bitumen, being a low-cost, ordinary article, does not qualify as a “valuable article” under Section 69A.
• Legislative Intent: The court considered the legislative intent behind Section 69A, which was to target unaccounted wealth held in the form of high-value assets like gold and jewelry, and not to include ordinary items.
• Principles of Interpretation: The court applied the principles of ejusdem generis and noscitur a sociis to interpret the phrase “other valuable articles,” limiting its scope to items similar in nature to money, bullion, and jewelry.

Sentiment Analysis of Reasons Given by theCourt: The court’s reasoning is primarily logical and based on a strict interpretation of the law. The sentiment is neutral and objective, focusing on legal principles rather than emotional or policy-based arguments. The court’s tone is authoritative and decisive, clearly stating its conclusions on each issue.

Ratio of Fact vs. Law: The judgment is heavily skewed towards legal interpretation. While the facts of the case are relevant, the court’s focus is on the interpretation of Section 69A of the Income Tax Act and the definition of “other valuable articles.” The court’s analysis of the facts is used to support its legal conclusions.

Logical Reasoning: The court’s reasoning is highly logical and structured. It begins by framing the issues, then analyzes the facts and the relevant legal provisions, and finally, applies the law to the facts. The court’s reasoning is based on established principles of legal interpretation, such as ejusdem generis and noscitur a sociis.

Decision

The Supreme Court allowed the appeals, setting aside the judgments of the High Court and the orders passed by the Assessing Officer. The Court held that:

• The appellant, being a carrier, could not be treated as the owner of the bitumen.
• Bitumen does not qualify as “other valuable articles” under Section 69A of the Income Tax Act, 1961.

Flowchart of the Court’s Decision

Concurring Opinion by Justice Hrishikesh Roy

Justice Hrishikesh Roy provided a concurring opinion, emphasizing the following points:

• The interpretation of “other valuable articles” under Section 69A must be understood in the context of the preceding words, i.e., money, bullion, and jewelry.
• The principle of ejusdem generis and noscitur a sociis must be applied to limit the scope of “other valuable articles” to items of a similar nature to money, bullion, and jewelry.
• The court’s role is to interpret the law, not to expand its scope beyond what was intended by the legislature.
• The mere fact that the bitumen was not delivered does not make the carrier its owner under the Income Tax Act.

Impact of the Judgment

This judgment has significant implications for tax law and for carriers in India.

• Clarity on Section 69A: The judgment clarifies the scope of “other valuable articles” under Section 69A of the Income Tax Act, limiting it to high-value items similar to money, bullion, and jewelry. This prevents the tax authorities from arbitrarily including ordinary goods under this provision.
• Protection for Carriers: The judgment protects carriers from being deemed owners of goods they are merely transporting, even if they fail to deliver the goods. This is crucial for the transportation industry, as it clarifies that carriers are not liable for tax on goods they do not own.
• Burden of Proof: The judgment emphasizes that the burden of proof lies on the tax authorities to establish ownership of goods, not on the assessee to prove they are not the owner.
• Impact on Tax Assessments: The judgment will impact tax assessments where goods were treated as “other valuable articles” under Section 69A, particularly in cases involving carriers and transporters.
• Consistency in Interpretation: The judgment ensures a consistent interpretation of the Income Tax Act, preventing arbitrary assessments and promoting fairness in tax administration.

Key Takeaways

• A carrier is not the owner of goods they are transporting, even if they fail to deliver them.
• “Other valuable articles” under Section 69A of the Income Tax Act must be interpreted in the context of money, bullion, and jewelry.
• The principle of ejusdem generis and noscitur a sociis should be used to interpret the phrase “other valuable articles.”
• The burden of proof lies on the tax authorities to establish ownership, not on the assessee to disprove it.
• The judgment provides clarity and protection for carriers and transporters under the Income Tax Act.

Conclusion

The Supreme Court’s judgment in the case of M/s. D.N. Singh vs. Commissioner of Income Tax is a landmark ruling that clarifies the interpretation of Section 69A of the Income Tax Act, 1961. The Court’s emphasis on the definition of “other valuable articles” and the concept of ownership provides much-needed clarity and protection for carriers and transporters. This judgment will have a lasting impact on tax law and will ensure a fair and consistent approach to tax assessments in India.