As per the case facts, a carriage contractor was assessed under a section of the Income Tax Act concerning "other valuable articles" for bitumen transport, a common road material. The ...
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S).3738-3739 OF 2023
(Arising out of SLP(C) No (S).10617-10618 OF 2023
@ Diary No(s).7803 of 2018)
M/s.D.N. SINGH ..APPELLANT(S)
VERSUS
COMMISSIONER OF INCOME TAX,
CENTRAL, PATNA AND ANOTHER ..RESPONDENT(S)
J U D G M E N T
K.M. JOSEPH, J.
Index
A. THE FACTS ....................................................................................................................................... 2
B. SUBMISSIONS OF PARTIES ............................................................................................................ 15
C. ANALYSIS ....................................................................................................................................... 18
D. A CARRIER, A BAILEE? ................................................................................................................... 30
E. THE CARRIAGE BY ROAD ACT, 2007 .............................................................................................. 34
F. CRIMINAL BREACH OF TRUST ....................................................................................................... 35
G. THE SALE OF GOODS ACT, 1930 .................................................................................................... 36
H. IS A THIEF AN OWNER? OWNERSHIP BEING ILLEGAL. .................................................................. 37
I. THE CIRCULAR DATED 07.07.1964 ................................................................................................ 41
J. THE DEPARTMENTAL INSTRUCTIONS DATED 11.05.1994 ............................................................ 42
K. R. B. JODHA MAL DISTINGUISHED BY HIGH COURT ...................................................................... 43
L. “OTHER VALUABLE ARTICLE” ........................................................................................................ 75
2
M. PRINCIPLE OF EJUSDEM GENERIS; NOSCITUR A SOCIIS ............................................................ 81
N. WHETHER BITUMEN IS ‘OTHER VALUABLE ARTICLE’ .................................................................... 85
1. Delay condoned.
2. Leave granted.
A. THE FACTS
3. The appellant-assessee carried on business as
carriage contractor for bitumen loaded from oil
companies namely HPCL, IOCL and BPCL from Haldia. The
goods were to be delivered to various divisions of the
Road Construction Department of the Government of
Bihar. According to the appellant, it has been in the
business for roughly three decades.
4. By the impugned Order dated 05.03.2009 in M.A. 214
of 2002, the High Court has dismissed the Appeal filed
by the appellant under Section 260A of the Income -Tax
Act, 1961 (hereinafter refe rred to as, ‘the Act’, for
short). The assessment year involved in the impugned
Order is 1996-1997. Appellant filed a Review Petition ,
i.e., Review Petition No. 102 of 2009. By Order dated
18.12.2017, the Review Petition came to be dismissed.
3
It is, accordingly, that the present Special Leave
Petition has been filed, challenging both the Orders.
5. A scam was reported in the media. The sca m
consisted of transporters of bitumen, lifted from oil
companies, misappropriating the bitumen and not
delivering the quantity lifted to the various Divisions
of the Road Construction Department of the Government
of Bihar. The scam had its repercussion in the
assessments under the Act.
6. It all began, as far as the appellant is concerned,
in the assessment year 1995 -1996. By an Assessment
Order dated 27.03.1998 being passed , the Assessing
Officer, taking note of the scam, issued Show -Cause
Notice dated 23.01 .1998, alleging that the appellant
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.
The appellant produced photocopies of challans to
establish that the bitumen had been delivered. Summons
was issued by the Assessing Officer to the Executive
Engineers and Junior Engineers. It is the case of the
appellant that all Junior Engineers, except Shri Madan
4
Prasad and Ahia Ansari accepted the factum of deliver y
of bitumen. The Assessing Officer, in fact, noticed
that only those Junior Engineers accepted receipt of
bitumen, where the Engineer In -charge or the Executive
Engineer accepted the delivery. Shri Madan Prasad
denied that the signature alleged to be hi s, was not
his signature. The Assessing Officer found that the
Junior Engineers denied putting stamp and took the
position that if there was s tamp, then, it must
indicate the name of the section. The Assessing Officer
added a sum of Rs.21985700/ - being the figure arrived
at, by finding that 4443.80 metric tonnes of bitumen
had not been delivered. This was done by invoking
Section 69A of the Act.
7. Chronologically, this Court notices that for the
assessment year 1996-1997, the Assessing Officer passed
Order dated 31.03.1999. The appellant, in its Return,
disclosed a net profit of Rs.676133/ -. On scrutiny, the
Assessing Officer, again , noticing the scam and finding
that, while 10300.77 metric tonnes had been lifted by
the appellant, only 8206.25 metric tonnes had been
delivered. Accordingly, it was found that 2094.52
5
metric tonnes had not been delivered. On the said basis
and again invoking Section 69A of the Act, a sum of
Rs.10471720.30 was added as income of the appellant.
8. As against the Order dated 27.03.1998 for the
Assessment Year 1995 -1996, in Appeal, by Order dated
15.09.2000, the Commissioner Appeals found that all
Junior Engineers, except two, had accepted delivery.
After finding that the addition made by the Assessing
Officer in respect of quantity, where Junior Engineers
had accepted delivery, was untenable , the Appellate
Authority ordered deletion of a sum of Rs.20114659/ -.
This amount represented the va lue of 4064.28 metric
tonnes. In regard to the disputed quantity, viz., the
dispute raised by Shri Madan Prasad and Ahia Ansari,
Junior Engineers, the matter was remanded back for
affording an opportunity for cross -examination. This
Order related to the Assessment Year 1995-1996.
9. Next in chronological order, is the Order dated
18.12.2000 passed by the Appellate Authority in Appeal
carried by the appellant against the Order dated
31.03.1999, relating to the Assessment Year 1996 -1997.
The Appellate Authority referred to the assessment for
6
the previous year. It found m erit in the case of the
appellant that except two Junior Engineers, the others
had accepted the delivery. The addition of
Rs.10471720/- was ordered to be deleted.
10. The Revenue knocked at the doors of the Income -Tax
Appellate Tribunal (hereinafter referred to as, ‘the
ITAT’, for short) for both the Assessment Years, viz.,
1995-1996 and 1996-1997. In regard to the Order passed
by the Appellate Authority for the Assessment Year
1995-1996, another development took place during the
pendency of the Appeal before the ITAT . By Application
dated 07.02.2001, the Revenue, invoking Section 154 of
the Act, sought rectification of the Order dated
15.09.2000. This Application came to be allowed by
Order dated 31.05.2001. It is, at once, noticed:
“It is also seen that although my learned
predecessor on page 4 of the appellate
order has noted that "the Assistant
Commissioner of Income Tax also stated that
only those Junior Engineers had accepted
that they had received the Bitumen in which
cases the E xecutive Engineer of the
division and Engineer in Chief had also
shown that Bitumen had been received. But
while giving the finding on pages 7 and 8
of 'the appellate order he has missed this
fact while presuming that the Junior
Engineers had confirmed the receipt of
7
4064.28 MT of Bitumen out of total short
supply of 4443.80 MT of Bitumen as reported
by engineer in chief… A careful reading of
the relevant para as reproduced above makes
it clear that while giving this finding the
CIT(A) was under the impress ion that in
respect of total short supply of 4443.01 MT
as reported by Engineer in Chief and the
Jr. Engineer had accepted the receipt of
Bitumen barring two namely -I) Mr. Madan
Prasad and II) Mr. Ahiya Ansari during the
course of independent enquiries held by the
A.O through issue of summons. Thus, I hold
that my predecessor has given relief of Rs.
2,01,14,659/- in respect of 40.64.28 MT. Of
Bitumen under the wrong presumption of fact
that the Jr. Engineers had confirmed the
receipt of 4064.98 MT. Of Bitumen in their
statements before the A.O. Since in the
cases Shri Madan Pd. and Mr. Ahiya Ansari
who had denied to have received the
Bitumen, my ld. Predecessor had set aside
the matter to the file of the A.O. with the
direction to re -decide the matter after
allowing the appellant an opportunity to
cross- examine these two Jr. Engineers and
after making further enquiries to establish
the genuineness or otherwise of their
signatures on the challans, I deem it
proper to set aside this addition of
Rs.2,01,14,659/- in respect of 4064.98 MT
of Bitumen also to the file of the A.O.
with the direction that he shall issue
summons to the concerned Jr. Engineers who
have received 4064.98 MT of Bitumen as per
challans furnished by the appellant, record
their statements, allow the appellant an
opportunity to cross examine them and, if
necessary, refer their signatures to the
hand writing experts to establish the
genuineness of otherwise of such
signatures. In view of these directions, in
order the substitution o f last para on page
-7 extending up to 1st as page 8 of CIT(A)
8
is or which has already been reproduced
above by the following para:
I have carefully considered the above
submissions in the course of independent
enquiries made by the A.O. by issue summons
only 2 Jr. Engineers namely, l. Mr. Madan
Prasad, 2. Mr. Ahiya Ansari have been
examined in respect of reported short
supply of Bitumen of 4443.01 MT. Sri Madan
Prasad and Mr. Ahiya Ansari have denied
receipt of Bitumen to the extent of 204.45
MT and 174.37 MT, respectively. In respect
of remaining quantity of reported short
supply of Bitumen i.e. 4064.28 MT. ( -)
378.82=4064. 28 MT of Bitumen no
independent enquiries have been made by the
A.O. barring the report received from
Engineer in Chief/ Executive Engineer
regarding this short supply. On the basis
of such report of Engineer in
Chief/Executive Engineers alone; the A.O.
is not justified in making the addition on
account of short supply of 4064.28 MT of
Bitumen valued at Rs.2,01,14,659/-, I deem
it proper to set aside this addition of
Rs.2,01,14,659/- to the file of the A.O.
with the direction that he shall issue
summons to the concerned Jr. Engineers, who
have received 4064.28 MT of Bitumen as per
challans furnished by the appellant, record
their statement, allow the appellant an
opportunity to cross- examine them and, if
necessary, refer their signatures to the
hand writing experts to establish the
genuineness or otherwise of such
signatures, after carrying out these
directions any addition, if called for
shall be made.”
11. As noticed, the Revenue ha d filed an Appeal before
the ITAT for the Assessment Year 1995 -1996 (ITA 358
9
Patna/2000). The appellant had filed cross -objection
(2/2001) in the said Appeal. The appellant also filed
ITA 319 (Patna/2001) before the ITAT. The cross-
objection of the appellant purported to support the
deletion of the addition of Rs.20114559/ -. It also
purported to ventilate the objection of the appellant
in regard to other matters. The Appeal filed by the
appellant was directed against the Order of
Rectification passed under Section 154 of the Act. The
ITAT dismissed the Appeals filed by the Revenue and the
appellant. The cross-objection came to be disposed of.
This Order is dated 11.01.2002.
12. For the Assessment Year 1996 -1997, the ITAT
disposed of the Appeal filed by the Revenue and also
the cross-objection filed against the Order dated
18.12.2000. The Appeal filed by the Revenue [ITA 240
(Patna/2001)] was allowed. The Tribunal finds that the
appellant had not disputed the lifting of the bitumen.
The claim made by the appellant that full supply was
made, stood demolished, when photocopies of delivery
challans were found to be false and fabricated. The
Executive Engineers, it was further found, h ad
10
confirmed non-delivery to the tune of 2090.40 metric
tonnes. The Commissioner Appeals, it was found, reached
a wrong conclusion, as he did not address himself to
the explanation offered by the Junior Engineers. It was
found that all Executive Engineers of the Consignee
Divisions presented a case of non -delivery before the
Assessing Officer. Thus, on the same day, i.e., on
11.01.2002, the ITAT allowed the Appeal filed by the
Revenue and sustained the Order of the Assessing
Officer relating to addition on account of short supply
of bitumen for the Assessment Year 1996 -1997, whereas,
for the Assessment Year 1995 -1996, taking note of the
Order of the Commissioner Appeals, passed under Section
154 of the Act, by which, the matter stood remitted
back, the Appeal of the Revenue and the Appeal of the
appellant, challenging the Rectification Order, came
to be dismissed.
13. This, in turn, triggered the Appeal, i.e., M.A.
214 of 2002 before the High Court by the appellant
under Section 260A of the Act. The High Court, inter
alia, refers to the appellant filing Return for the
11
Assessment Year 1996 -1997, disclosing total income of
Rs.576133/-.
14. Reference is made to the addition of
Rs.1,04,72,720.30 on the basis of short supply of
bitumen. After referring to the submissions, the court
focussed on the scope of Section 69A of the Act. The
High Court found that the word ‘owner’ has different
meaning in different context s and when a transporter
sells the goods and receives money for that not on
behalf of the real owner, it became the owner for the
purpose of tax. Having lifted bitumen and not supplied
to the Road Construction Department to which it was to
be supplied, the appellant would be liable to pay tax
on the bitumen lifted and not delivered. The High
Court distinguished the Judgment in Dhirajlal Haridas
v. Commissioner of Income Tax (Central), Bombay
1
by
noting that for determining the person liable to pay
tax, the test laid down by this Court was to find out
the person entitled to that income. The Court also went
on to distinguish the judgment in Commissioner of
1
(1982) 138 ITR 570
12
Income Tax v. Amrit lal Chunilal
2
It was found that in
the said case the assessee therein was not found to be
the owner whereas the ITAT found the appellant to be
the owner. The High court agreed with the said finding.
Thereafter, the High Court went on to deal with the
argument that the words ‘other valuable articles’ in
Section 69A could not include ‘bitumen’. The argument
of the appellant which is noted is that for applying
Section 69A bitumen should have some nexus with money,
bullion or jewellery. It was found that any article
which has value would come under the expression
‘valuable article’ under Article 69A and the value of
such article can be deemed to be the income of the
assessee, should the assessee fail to offer any
explanation or the explanation offered be
unsatisfactory. The argument that Section 69A would
not apply as the appellant had offered an explanation
was not accepted as it was found that an explanation
though offered, being not accepted, would lead to the
invocation of Section 69A , if the explanation was not
satisfactory. In other words, Section 69A applied.
2
(1984) 40 CTR Bombay 387.
13
Lastly, in regard to the argument of the appellant that
the cost of the bitumen and not the value thereof was
added as income , the High Court finds that the
appellant did not have a case that it had sold the
bitumen at the price lower than the cost. The appellant
was found to be the owner of the bitumen and the
addition was sustained. This order was passed on
05.03.2009.
15. Thereupon, the appellant filed Review Petition No.
102 of 2009. The appellant purported to point out that
in separate appeals filed for assessment year 1995 -96
and 1996-97 on the same set of facts , the ITAT had
allowed the appeal of the Revenue for the year 1996 -
97, but for the assessment year 1995 -96, the matter was
remanded back. This argument was rejected by the High
court in the review on the following reasoning:
“However, the question would be whether the
fact that the appellate tribunal had passed
another order correctly or incorrectly, the
same may have any effect rendering the
judgment of the tribunal passed in present
matter to be erroneous despite the same
having been upheld in appeal by t his Court?
Answer has to be in negative. For the
assessment year 1995 -96, the matter has
attained finality as the Division Bench has
already accepted the view of the appellate
14
tribunal to be correct in M.A. No.214 of
2002. The view of the same Tribunal or the
same Bench of the Tribunal was correct or
incorrect for a different assessment year was
not the subject matter of the appeal. If one
of the views of the appellate tribunal is in
favour of the assessee that does not mean
that the said view would be correct and the
view taken in the present case was incorrect.
The view formed by the revenue in the present
case for the assessment year 1995 -96 has been
scrutinized not only by the appellate
tribunal but also by the Division Bench of
this Court and the same has been found to be
correct.”
16. The court found that there was no patent error.
The fact that for the same assessee but for the
different assessment year , the same Bench of the ITAT
had accepted their plea of short supply of bitumen as
it was not within its knowledge as to whether the case
travelled in appeal before the High Court or not ,
whereas the decision rendered by the Tribunal for the
assessment year 1995-96 had “travelled upto this Court
in M.A. 214 OF 2002”. It is against the order dated
05.03.2009 in M.A. 214 of 2002 and the order dated
18.12.2017 in the Review Petition 102 of 2009 that the
appellant is before this Court.
15
B. SUBMISSIONS OF PARTIES
17. The Court heard Shri Ramesh P. Bhat, learned Senior
Advocate on behalf of the appellant and Shri N.
Venkatraman, learned Additional Solicitor General on
behalf of the Revenue.
18. Shri Ramesh P Bhat strenuously urged before us that
impugned Orders betray palpable errors. When the error
was pointed out in Review though it is taken note of ,
the High Court has failed to rectify the fallacy. In
short, the error on facts is as follows:
“There are two assessment years involved
namely 1995-96 and 1996-97. In the assessment
year 1995-96, an addition was made in a sum of
Rs.20114659/- towards short delivery of bitumen
which the appellant as carrier was obliged to
transport and deliver to the Department in
Bihar. In the assessment year 1996 -97, likewise
the appellant was multed with an addition in a
sum of Rs.10471720/-.”
19. It is pointed out that for the Assessment Year
1995-1996, as noticed earlier, by virtue of the Order
of Rectification dated 31.05.2001, on the basis of
which, the Appeal filed by the Revenue, was dismissed
by the ITAT and Appeal filed by the appellant, aga inst
which, Order came to be dismissed, the matter was to
16
be considered by the Assessing Officer. The same
Tribunal, on the same day, i.e., 11.01.2002, on the
other hand, allowed the Appeal of the Revenue and set
aside the Order dated 18.12.2000, by which, the
Commissioner Appeals had ordered the deletion based on
the alleged non-delivery of bitumen. In fact, it is
pointed out that the High Court notes in the Order
dated 05.03.2009, as if the Appeal was filed by the
appellant against the Assessment Year 199 5-1996. Even
when the conflicting views taken by the Tribunal was
pointed out in the Review Petition, despite noticing
the argument, the High Court has rejected the same
without just cause. In the Order, it is pointed out
that the Court observed that the m atter for the year
1995-1996 had travelled to the Court in M.A. 214 of
2012, when it actually related to 1996 -1997. More
importantly, the learned Senior Counsel would contend
that bitumen cannot be treated as other valuable
article within the meaning of Se ction 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
17
addition illegal. It was also canvassed before us that
the appellant cannot be treated as the owner, as
appellant was a carrier. It fulfil led its obligations
by lifting the goods in question and deliver ed the
same. In fact, it is the contention of the appellant
that the goods had been delivered and there was no
misappropriation. The re 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. The right to cross -
examination should have been offered. The burden
shifted to the Department to prove its case. The
learned Senior Counsel would draw support from the
following case law:
i. (1984) Vol 147 ITR 251; Addl. Commissioner of
Income Tax v. S. Pichaimanickan Chettiar .
ii. (1993) Vol 199 ITR 370; Mohan B. Samtani v.
Commissioner of Income-Tax.
20. The appellant would contend that the finding that
the photocopies of the delivery challans were
fabricated was a gross error. The appellant has a case
18
that this is more so as the two Junior Engineers had
failed to appear for cross -examination.
21. The appellant also relied upon Judgment of this
Court in Kotak Mahindra Bank Ltd. v. A. Balakrishnan
and another
3
. He further drew our attention to the
Judgment of this Court in Kishinchand Chellaram v.
Commissioner of Income Tax, Bombay City II, Bombay
4
.
22. Shri N. Venkatraman, learned Additional Solicitor
General countered the submissions and submitted that
no case was made out. He would rely upon Chuharmal
(supra). The view taken by the High Court represents
the correct position in law.
C. ANALYSIS
23. Section 69 deals with unexplained investments. It
reads as follows:
“69. Unexplained investments Where in the
financial year immediately preceding the
assessment year th e 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
3
(2022) 9 SCC 186
4
(1980) Suppl. SCC 660
19
source of the investments or the
explanation offered by him is n ot, in the
opinion of the
2
Assessing] Officer,
satisfactory, the value of the investments
may be deemed to be the income of the
assessee of such financial year.”
24. Section 69A came to be inserted by Finance Act,
1964 (Act 5 of 1964) w.e.f. 01.05.1964. It 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, bul lion,
jewellery or other valuable article, or the
explanation offered by him is not, in the
opinion of the
4
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.”
25. Section 69B provides for power with the Assessing
Officer to deal with investments made by an assessee
in bullion, jewellery and other valuable article , when
such assets are found to be owned by the assessee and
he finds a mismatch between the amount spent for
acquiring them or investing in them and the amount
20
recorded in the Books of Accounts for any source of
income and no explanation is offered or the explanation
offered is not found satisfactory, the excess amount
can be brought to tax. Section 69C, inserted w.e.f.
01.04.1976, deals with unexplained expenditure, being
deemed to be the income of the assessee.
26. Section 69 and Section 69A, apart from being close
neighbours, do bear resemblance with one another.
Section 69 deals with unexplained investment. Section
69A deals with unexplained money, bullion, jewellery
or other valuable article s. Section 69A was inserted
by Amending Act 5 of 1964 and it came into effect w.e.f.
01.04.1964. Both Sections require that the subject
matter of the provisions, viz., investments in the case
of Section 69 and money, bullion, jewellery or other
valuable articles in the case of Section 69A are not
recorded in the Books of Account. That is, in a case
where Books of Accounts are maintained. In the case of
investments under Section 69, necessarily, the Law -
Giver contemplates the Assessing Officer finding that
the assessee had made the investments. In the case of
Section 69A, the assessee must be found to be the owner
21
of the money, bullion, jewellery or other valuable
articles. In both cases, if the assessee is able to
offer an explanation for the nature and the so urce for
the investments and money, bullion, jewellery or other
valuable articles, respectively, and it is not found
unsatisfactory, there can be no deemed income under
either Section.
27. Turning more to Section 69A, it may be broken down
into the following 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
22
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;
28. Applying the provision to the facts of the case,
it is noticed that the points that arise are as follows:
I. The question would arise, as to whether the
appellant could be treated as the owner of the
bitumen;
II. The further question would arise, as to whether
bitumen could be treated as other valuable
articles;
III. Thirdly, the question arises, as to how the value
of the bitumen is to be ascertained;
IV. Whether the ITAT erred in passing contradictory
Orders qua the Assessment Years 1995 -1996 and
1996-1997, by Orders passed on the same day and
whether the facts were the same?
29. As regards the first question, viz., whether the
appellant could be treated as the owner of the bitumen
23
is concerned, it is indisputable th at the appellant was
engaged as a carrier to deliver the bitumen, after
having lifted the same from the Oil Compan ies to the
various Divisions of the Road Construction Department
of the Government of Bihar. Before the Court proceeds
to deal with this aspec t, we may bear in mind, what
this Court held in the decision reported in Chuharmal
S/O Takarmal Moh nani v. Commissioner of Income Tax,
M.P., Bhopal
5
. In the said case, the Court was dealing
with wrist watches being seized from the assessee
during a search conducted by the Customs Authorities
from the bedroom of the assessee. The question fel l for
consideration, as to whether the principles underlying
Section 110 of the Evidence Act, 1872, would assist the
Revenue to conclude that a person , in possession, could
be treated as the owner. This Court held, inter alia,
as follows:
“6. … In other words, it follows from
well settled principle of law that
normally, unless contrary is established,
title always follows possession. In the
facts of this case, indubitably, possession
of the wrist-watches was found with the
petitioner. The petitioner did not adduce
5
(1988) 3 SCC 588
24
any evidence, far less discharged the onus
of proving that the wrist -watches in
question did not belong to the petitioner.
Hence, the High Co urt held, and in our
opinion rightly, that the value of the
wrist-watches is the income of the
assessee.”
30. After referring to the Judgment of the High Court
of Bombay reported in J.S. Parkar v. V.B. Palekar
6
,
which dealt with seizure of gold, the Court, held as
follows:
“6. … There a contention was raised that
the provision in Section 110 of the
Evidence Act where a person was found in
possession of anything, the onus of proving
that he was not the owner was on the person
who affirmed that he was not the owner, was
incorrect and inapplicable to taxation
proceedings. This contention was rejected.
The High Court of Bombay held that what was
meant by saying that the Evidence Act did
not apply to the proceedings under the Act
was that the rigour of the rules of evidence
contained in the Evidence Act, was not
applicable but that did not mean that the
taxing authorities were desirous in
invoking the principles of the Act in
proceedings before them, they were
prevented from doing so. Secondly, all that
Section 110 of the Evidence Act does is
that it embodies a salutary principle of
common law jurisprudence which could be
attracted to a set of circumstances that
satisfy its condition. ”
6
(1974) 94 ITR 616 (Bom HC)
25
31. The said view has been followed by this Court in
Commissoiner of Income Tax, Salem v. K. Chinnathamban
7
.
Therein the Court inter alia held:
“8. … The High Court has rightly held
that the expression “income” as used in
Section 69-A of the Act, has wide
meaning which meant anything which came
in or resulted in gain.”
32. It may be noticed that Section 15 of the Carriage
by Road Act, 2007, which repealed the Carriers Act,
1865, provides as follows:
“15 Right of common carrier in case of
consignee's default.
(1) If the consignee fails to take delivery
of any consignment of goods within a period
of thirty days from the date of notice given
by the common carrier, such consignment may
be deemed as unclaimed: Provided that in
case of perishable consignment, the period
of thirty days shall not apply and the
consignment shall be deemed unclaimed after
a period of twenty-four hours of service of
notice or any lesser period as may be
mutually agreed to by and between the
common carrier and the consignor.
(2) In the case of an unclaimed consignment
under sub-section (1), the common carrier
may,
7
(2007) 7 SCC 390
26
(a) if such consignment is perishable
in nature, have the right to sell the
consignment; or
(b) if such consignment is not
perishable in nature, cause a notice
to be served upon the consignee or upon
the consignor if the consignee is not
available, requiring him to remove the
goods within a period of fifteen days
from the date of receipt of the notice
and in case of failure to comply with
the notice, the common carrier shall
have the right to sell such consignment
without any further notice to the
consignee or the consignor, as the case
may be.
(3) The common carrier shall, out of the
sale proceeds received under sub -section
(2), retain a sum equal to the freight,
storage and other charges due including
expenses incurred for the sale, and the
surplus, if any, from such sale proceeds
shall be returned to the consignee or the
consignor, as the case may be.
(4) Unless otherwise agreed upon between
the common carr ier and consignor, the
common carrier shall be entitled to detain
or dispose off the consignment in part or
full to recover his dues in the event of
the consignee failing to make payment of
the freight and other charges payable to
the common carrier at the time of taking
delivery.”
33. Therefore, under Section 15, if the consignee fails
to take delivery of any consignment of goods within
thirty days, the consignment is to be treated as
27
unclaimed. The period of thirty days is declared
inapplicable to perishable consignments, in which case,
a period of twenty -four hours’ notice or any lesser
period, as may be agreed between the consignor and the
common carrier, suffices. In the case of per ishable
consignment, following such notice, the consignment can
be sold. In a case where the goods are not perishable ,
if there is failure by the consignee to remove the
goods after the receipt of a notice of fifteen days
from the carrier, the common carrier is given a right
to sell the consignment without further notice. Section
15(3) enables the carrier to retain a sum equal to the
freights, storage and other charges, due, including
expenses incurred for the sale. The surplus from the
sale proceeds is to be returned to the consigner or the
consignee. Section 15(4) clothes the carrier with a
right to sell in the event of failure by the consignee
to make payment of the freight and other charges, at
the time of taking delivery.
34. This Court, in this case, is dealing with the
assessment years 1996 -1997. The law applicable was
contained in the Carriers Act, 1865. It is unnecessary
28
for us to dwell further, as 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.
35. In Mohan B. Samtani v. Commissioner of Income -Tax
8
,
the appellant, who was found in possession of a
package, which, when opened at the airport, contained
a bronze idle of Nataraja and its pedestal, was sought
to be roped in as owner with the aid of Section 69A of
the Act:
“6. From the facts on record, there cannot
be any dispute that the consignor was the
State Trading Corporation of Sikkim and th e
consignee was the Chogyal of Sikkim and the
assessee was a representative of the State
Trading Corporation of Sikkim. The assessee
also claimed that the Chogyal of Sikkim was
the owner and, under his verbal instruction
conveyed through his A.D.C., he arr anged
for despatch thereof by signing the papers.
In fact, the Chogyal also claimed ownership
8
1993 Vol. 199 ITR 370 Calcutta
29
of the said packages on the basis of the
letter by the Under Secretary of the
Chogyal of Sikkim addressed to the
Assistant Collector of Customs dated May
30, 1973. The Chogyal was the head of an
independent State at the relevant time and
it was necessary, if the claim for
ownership of the Chogyal is to be disputed,
to have the said letter verified by
obtaining the original from the customs
authorities. Merely becau se the packages
were presented before the customs
authority, it does not ipso facto prove the
ownership of the assessee of the goods.
7. In our view, it has not been established
or found that the assessee is the owner of
the said idol and pedestal. On the
contrary, the said letter dated May 30,
1973, addressed to the Assistant Collector
of Customs shows that the Chogyal is the
owner of the said articles. Under such
circumstances, there is no reason to hold
the assessee liable and to add Rs. 80,000
being the value of the said articles to his
income.
36. The High Court went on t o distinguish Chuharmal
(supra) by holding that in the case before the High
Court, the assessee had produced the evidence to
substantiate that the article found in his possession
belonged to the Chogyal of Sikkim.
30
D. A CARRIER, A BAILEE?
37. 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.
[See Pullock and Mulla in the Indi an Contract and
Specific Relief Act]. 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. In Patel Roadways Ltd. v.
31
Birla Yamaha Ltd.
9
, the Court held inter alia as
follows: -
“31. Coming to the question of liability of a
common carrier for loss of or damage to goods,
the position of law has to be taken as fairly
well settled that the liability of a carrier
in India, as in England, is more extensive and
the liability is that of an insurer. The
absolute liability of the carrier is subject
to two exceptions: an act of God and a special
contract which the carrier may choose to enter
with the customer.”
38. In the same year , and what is more , in the same
volume, this Court spoke on the subject in the decision
reported in Nath Bros. Exim International Ltd. v. Best
Roadways Ltd.
10
. The Court held, inter alia, as follows:
-
“14. These provisions, in effect, embody the
English common law rule as to the liability of
the bailee. Under the English common law rule,
the measure of care required of the person to
whom the goods were bailed, was the same as a
man of ordinary prudence would take of his own
goods. In other words, it was a mere matter of
negligence on which the liability was founded.
If a person was negligent and did not take as
much care as he would have taken of his own
goods, he would be liable in damages. These
principles of the English common law rule were
also applied in this country as indicated in
9
(2000) 4 SCC 91
10
(2000) 4 SCC 553
32
the decision of the Privy Council in Irrawaddy
Flotilla Co. Ltd. v. Bugwandass in which, it
was, inter alia, observed as under:
“For the present purpose it is not materia l
to inquire how it was that the common law
of England came to govern the duties and
liabilities of common carriers throughout
India. The fact itself is beyond dispute.
It is recognised by the Indian Legislature
in the Carriers Act, 1865, an Act framed on
the lines of the English Carriers Act of
1830.”
“15. In the meantime, Parliament intervened and
the Carriers Act, 1865 was enacted with the
result that the liability of a common carrier
came to be considered in the light of the
provisions contained in tha t Act. It is true
that Section 158 of the Indian Contract Act
speaks of bailment of the goods for being
carried on behalf of that bailor, but it is
also to be noticed that the bailment spoken of
in that section is gratuitous as it is
specifically provided “bailment” as set out in
Section 148 of the Indian Contract Act may be
said to be wide enough so as to cover
“entrustment of goods” to a carrier for
carriage. But as pointed out above, with the
enactment of the Carriers Act, 1865, the extent
of liability of the carrier has to be found in
that Act.”
“25. We have already reproduced the provisions
of Section 6, 8 and 9 above. Section 6 enables
the common carrier to limit his liability by a
special contract. But the special contract will
not absolve the carrier if the damage or loss
to the goods, entrusted to him, has been caused
by his own negligence or criminal act or that
of his agents or servants. In that situation,
the carrier would be liable for the damage to
or loss or non -delivery of goods. In this
situation, if a suit is filed for recovery of
damages, the burden of proof will not be on
33
the owner or the plaintiff to show that the
loss or damage was caused owing to the
negligence or criminal act of the carrier as
provided by Section 9. The carrier can escape
his liability only if it is established t hat
the loss or damage was due to an act of God or
enemies of the State (or the enemies of King,
a phrase used by the Privy Council). The
Calcutta decision in British & Foreign Marine
Insurance Co. v. India General Navigation and
Rly. Co. Ltd., the Assam d ecision in River
steam Navigation Co. Ltd. v. Syam Sunder Tea
Co. Ltd., the Rajasthan decision in Vidya Ratan
v. Kota Transport Co. Ltd. and the Kerala
decision in Kerala Transport Co. v. Kunnath
Textiles which have already been referred to
above, have considered the effect of special
contract within the meaning of Sections 6 and
8 of the Carriers Act, 1865 and in, our
opinion, they lay down the correct law.”
39. 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
34
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.
E. THE CARRIAGE BY ROAD ACT, 2007
40. Under Section 15 of the Carriage by Road Act, 2007,
the carrier can, after issuing notice as provided , when
there is a failure by the consignee to take delivery ,
sell the goods in the case of a sale which is so
authorised by a statu te. The buyer from the carrier
would acquire a good title even as against the
consignee. It may be true that as far as the sale
proceeds received by the common carrier from the sale,
he would be accountable to the consignee as provided
in Section 15 of the Act. Likewise, in a case covered
under Section 15 (4), the common carrier would have the
power to dispose of the consignment for recovery of
dues from the consignee. In such cases if t he other
ingredients of Section 69A are satisfied, there may be
no fallacy involved if an assessee is found to be the
35
owner of the goods which he disposes of under the
authority of law.
F. CRIMINAL BREACH OF TRUST
41. Section 405 of the Indian Penal Code, 1860 r eads
as follows:
“405. Criminal Breach of Trust
Whoever, being in any manner entrusted with
property, or with any dominion over
property, dishonestly misappropriates or
converts to his own use that property, or
dishonestly uses or disposes of that
property in violation of any direction of
law prescribing the mode in which such
trust is to be discharged, or of any legal
contract, express or implied, which he has
made touching the discharge of such trust,
or wilfully suffers any other person so to
do, commits "criminal breach of trust".
Illustration (f) under Section 405 is apposite and
it reads as follows: -
“Illustration f. A, a carrier, is entrusted by
Z with property to be carried by land or by
water. A dishonestly misappropriates the
property. A has committed a criminal breach of
trust.”
36
G. THE SALE OF GOODS ACT, 1930
42. Section 39 of the Sale of Goods Act, 1930, inter
alia, 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.
Section 27 of the Sale of Goods Act deals with sale by
a person who is not the owner. It reads as follows : -
“27. Sale by person not the owner. —
Subject to the provi sions of this Act and of
any other law for the time being in force,
where goods are sold by a person who is not
the owner thereof and who does not sell them
under the authority or with the consent of the
owner, the buyer acquires no better title to
the goods than the seller had, unless the owner
of the goods is by his conduct precluded from
denying the seller’s authority to sell:
Provided that, where a mercantile agent is,
with the consent of the owner, in possession
of the goods or of a document of title to the
goods, any sale made by him, when acting in
the ordinary course of business of a mercantile
agent, shall be as valid as if he were
expressly authorised by the owner of the goods
to make the same; provided that the buyer acts
in good faith and has n ot at the time of the
37
contract of sale notice that the seller has not
authority to sell.”
43. 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. Under Section 15 of the Carriage
by Road Act, 2007, a sale by a carrier is permitted and
it can convey good title to the buyer.
H. IS A THIEF AN OWNER? OWNERSHIP BEING ILLEGAL.
44. Can a thief be treated as the owner of the goods ?
In this regard, this Court notices the following
discussion in the commentary on Sampath Iyengar’s, Law
of Income Tax.
”12. Sine qua non is “ownership”. - The words
“is found to be the owner” appearing in this
section clearly show that the mere fact that,
on a search, certain articles are found in the
possession of a person cannot be said to
attract the provisions of this section unless
it is established th at the person in whose
possession articles were found is the owner
thereof. An assessee is to be the owner before
anything in his possession can be deemed to be
his income. It cannot be said in the case of
stolen property that the thief is the owner
thereof. Section 69A was enacted to treat the
value of certain items as income by a deeming
provision but facts must be found to bring a
case within that deeming provision. In the case
38
of a deeming provision the court has to assume
an unreal state of things to b e real.”
45. In Commissioner of Income Tax v. K.I. Pavunny
11
, a
Division Bench was dealing with the case where excise
authorities found articles covered by Section 69A in a
box. The assessee sought to attribute ownership to
another person with whom he was on inimical terms. The
High Court of Kerala found tha t the assessee did not
discharge his o nus to establish that the articles
belonged to someone else. What is of interest to this
Court is the following discussion :
“13. …But for the prohibitory law, any article
being a property can be owned by a person.
Simply because the law prohibits retention of
a property that does not mean that such
property is without ownership. Even contraband
or prohibited articles can be owned and
possessed unlawfully. It is entirely a
different thing that the law may not permit the
owner of given articles to retain possession
of them or the articles may be liable under
law to be confiscated.”
46. Appellant places reliance on judgment in Addl.
Commissioner of Income Tax vs. S. Pichaimanickan
Chettiar reported in 1984 (147) ITR 251. In the said
11
(1998) 232 ITR 837
39
case, it is noted that Section 69A of the Act was
invoked after finding the assessee and one Ameen were
found to be in possession of gold at railway station
and were convicted under Section 135(b)(ii) of the
Customs Act. The Court held against the revenue after
holding as follows:
“In this case, the assessee has been convicted
only as a carrier by the Chief P residency
Magistrate and not as the owner of the gold. The
Chief Presidency Magistrate has specifically
observed that the actual owners of the goods or
financial magnates are underground. Therefore,
merely on the basis of s. 110 of the Evidence
Act, the value of the gold cannot be taken to be
his income. Merely because the assessee has kept
silent and has not disclosed the name of the
owners of the gold, he cannot be assessed under
s. 69A of the I.T. Act. Liability to be taxed
under s. 69A can arise only if he is shown to be
the owner of the goods. ”
47. Both views can be reconciled . No doubt, it may be
true that 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 offic er 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
40
obvious that someone else is the owner, a person found
in possession, which is illegal, can be found to be the
owner under Se ction 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 pos session
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,
41
then to describe him as the owner may produce results
which are most illegal apart from being unjust.
I. THE CIRCULAR DATED 07.07.1964
48. In this regard, the following are the contents of
the Circular issued by the Board, dated 7
th
July 1964,
namely, Circular No. 20 of 1964 . It reads as follows:
“86. This provision is complementary to the
provisions in Section 69 which enables the
assessment of the value of investments which have
not been recorded in the books of account of the
assessee and the source of which has not been
explained by him satisfa ctorily.
87. It has to be carefully noted that the
conditions precedent to the application of the
provisions of Section 69A are that (i) the money,
bullion, jewellery or other valuable articles in
question are not recorded in the books of
account, if any, maintained by the assessee
concerned for any source of income; and (ii) that
the assessee either offers no explanation as to
the nature and source of acquisition thereof or
the explanation offered by him is, in the opinion
of the Income -tax Officer (now A ssessing
Officer), not satisfactory. In coming to the
conclusions that the explanation offered by the
assessee in support of his case is not
satisfactory, all the facts, circumstances and
the evidence in the case have to be considered
very carefully, and f or this purpose, the
assessee should be given due opportunity to
adduce evidence in support of his explanations.
42
88. In this connection, the following statement
made by the Minister of Finance in the Lok Sabha
on 18
th
April, 1964 in reply to some criticis m
that the provisions of this section might result
in hardship to persons whose ornaments or
jewellery were given to them by their
forefathers, have to be borne in mind:
“Often times, people convert their black money
into gold. They make gold jewellery or gold
vessels and then say it is heirloom. This is the
common way of bringing unaccounted money into
something which is reputable and can be cashed…..
Any way this (Section 69A) is not intended to
hurt the middle class persons. Generally, it will
be used in dealing with cases of persons who pay
wealth-tax, who probably have declared Rs.25,000
as jewels, and we could ask them ‘How did you get
more jewels?’…. I can promise that this
department shall not go and hurt any lower middle
class man at all in this way , because we will get
what is our due in other ways. They are not paying
the taxes at all….. we will give them notice…..
we shall bring them on the tax rolls. But big
assesses as are contemplated in this provision
cannot be allowed to escape.”
J. THE DEPARTM ENTAL INSTRUCTIONS DATED
11.05.1994
49. This Court notices Departmental Instruction No.
1916 dated 11
th
May, 1994.
“2. Departmental instructions. – Instruction read
as under:
“Seizure of Jewellery and Ornaments in Course
of Search Operations - Guidelines for. -
Instances of seizure of jewellery of small
quantity in course of operations under section
132 have come to the notice to the Board. The
43
question of a common approach to si tuations
where search parties come across items of
jewellery, has been examined by the Board and
following guidelines are issued for strict
compliance:-
(i) In the case of a wealth -tax assessee, gold
jewellery and ornaments found in excess of the
gross weight declared in the wealth -tax return
only need be seized.
(ii) In the case of a person not assessed
to wealth-tax, gold jewellery and ornaments to
the extent of 500 gms. Per married lady, 250
gms. Per unmarried lady and 100 gms. Per male
member of the family, need not be seized.
(iii) The authorised officer may, having
regard to the status of the family and the
custom and practices of the community to which
the family belongs and other circumstances of
the case, decide to exclude a larger quantity
of jewellery and orname nts from seizure. This
should be reported to the Director of Income -
tax/Commissioner authorising the search at the
time of furnishing the search report.
In all cases, a detailed inventory of the
jewellery and ornaments found must be prepared
to be used for assessment purposes. ”
K. R. B. JODHA MAL DISTINGUISHED BY HIGH COURT
50. The High Court has distinguished the judgment of
this Court in R.B. Jodha Mal Kuthiala Vs. Commissioner
of Income Tax, Punjab, Jammu and Kashmir, Himachal
Pradesh and Patiala
12
. In the said case, the appellant
12
(1971) 3 SCC 369
44
claimed losses for three assessment years. The losses
were claimed on account of interest payable to the
bank. The appellant asses see had availed the loan in
connection with his business which was being conducted
in erstwhile Pakistan. With the creation of Pakistan,
the hotel which was a part of the appellant’s business
came to be declared as evacuee property and vested in
the custodian in Pakistan. The claim of the appellant
assessee in the said case was resisted by the Assessing
Officer on the basis of that no income or loss from
that hotel could be considered as the property stood
vested with the custodian. In other words, since the
appellant was resting his claim made under Section 9
of the Income Tax act, 1922 (which corresponds to
Section 22 of the Act) as the appellant was not the
owner, no relief could be granted to the appellant. The
contention of the appellant was that the prope rty
vested in the custodian wholly for the purpose of
administration and the assessee continued to an owner.
This Court, inter alia, held as under:
“9. The question is who is the “owner”
referred to in this section? Is it the person
in whom the property v ests or is it he who is
45
entitled to some beneficial interest in the
property? It must be remembered that Section
9 brings to tax the income from property and
not the interest of a person in the property.
A property cannot be owned by two persons,
each one having independent and exclusive
right over it. Hence for the purpose of
Section 9, the owner must be that person who
can exercise the rights of the owner, not on
behalf of the owner but in his own right.
10. For a minute, let us look at things
from the practical point of view. If the
thousands of evacuees who left practically all
their properties as well as businesses in
Pakistan had been considered as the owners of
those properties and businesses as long as the
“Ordinance” was in force then those
unfortunate persons would have had to pay
income tax on the basis of the annual letting
value of their properties and on the income,
gains and profits of the businesses left by
them in Pakistan though they did not get a
paisa out of those properties and businesses .
Fortunately no one in the past interpreted the
law in the manner Mr Mahajan wants us to
interpret. It is true that equitable
considerations are irrelevant in interpreting
tax laws. But those laws, like all other laws
have to be interpreted reasonably and in
consonance with justice.
14. For determining the person liable to
pay tax, the test laid down by the court was
to find out the person entitled to that
income. An attempt was made by Mr Mahajan to
distinguish this case on the ground that under
the corre sponding English statute the
liability to tax in respect of income from
property is not laid on the owner of the
property. It is true that Section 82 of the
46
English Income Tax Act, 1952, is worded
differently. But the principles underlying
the two statutes are identical. This is clear
from the various provisions in that Act.
17. Those observations have to be
understood in the context in which they were
made. Therein, Their Lordships were
considering whether the right of an evacuee
in respect of the property left by him in the
country from which he migrated was property
right for the purpose of Article 19(1)( f) of
the Constitution. No one denies that an
evacuee from Pakistan has a residual right in
the property that he left in Pakistan. But the
real question is, can that right be considered
as ownership within the meaning of Section 9
of the Act. As mentioned earlier that section
seeks to bring to tax income of the property
in the hands of the owner. Hence the focus of
that section is on the receipt of the inc ome.
The word “owner” has different meanings in
different contexts. Under certain
circumstances a lessee may be considered as
the owner of the property leased to him .
In Stroud's Judicial Dictionary (3rd Edn.),
various meanings of the word “owner” are
given. It is not necessary for our present
purpose to examine what the word “owner” means
in different contexts. The meaning that we
give to the word “owner” in Section 9 must not
be such as to make that provision capable of
being made an instrument of oppress ion. It
must be in consonance with the principles
underlying the Act.
18. Mr Mahajan next invited our attention
to the observations in Pollock on
Jurisprudence (6th Edn. 1929) pp. 178 -80:
“Ownership may be described as the entirety
47
of the powers of use and disposal allowed by
law .... The owner of a thing is not
necessarily the person who at a given time has
the whole power of use and disposal; very
often there is no such person. We must lo ok
for the person having the residue of all such
power when we have accounted for every
detached and limited portion of it; and he
will be the owner even if the immediate power
of control and use is elsewhere ”.
[Emphasis supplied]
51. This Court formed the view that since Section 9 of
the Income Tax Act, 1922 required that in order that a
person be assessed to tax in the form of income from
house property, he should be the owner and as the
custodian in Pakistan was the owner, the High C ourt was
right in the view it took.
52. In Late Nawab Sir Mir Osman Ali Khan v.
Commissioner of Wealth Tax, Hyderabad
13
; the matter
arose under the Wealth Tax Act, 1957. Section 2(m) of
the said Act defined net wealth as being predicated
with reference to assets “belonging to” the assessee.
The assessee in the said case had sold out the property
without executing the sale deed. The possession was
13
1986 (supp.) SCC 700
48
handed over to the buyer after receiving full
consideration. The Court notices the following
statement:
“11. The material expression with which we
are concerned in this appeal is ‘belonging to
the assessee on the valuation date’. D id the
assets in the circumstances mentioned
hereinbefore namely, the properties in respect
of which registered sale deeds had not been
executed but consideration for sale of which had
been received and possession in respect of which
had been handed over t o the purchasers belonged
to the assessee for the purpose of inclusion in
his net wealth? Section 53 -A of the Transfer of
Property Act gives the party in possession in
those circumstances the right to retain
possession. Where a contract has been executed
in terms mentioned hereinbefore and full
consideration has been paid by the purchasers to
the vendor and where the purchasers have been
put in the possession by the vendor, the vendees
have right to retain that possession and resist
suit for specific perfor mance. The purchasers
can also enforce suit for specific performance
for execution of formal registered deed if the
vendor was unwilling to do so. But in the eye of
law, the purchasers cannot and are not treated
as legal owners of the property in question. It
is not necessary, in our opinion, for the purpose
of this case to be tied down with the controversy
whether in India there is any concept of legal
ownership apart from equitable ownership or not
or whether under Sections 9 and 10 of the Indian
Income Tax Act, 1922 and Sections 22 to 24 of
the Indian income Tax Act, 1961, where ‘owner’
is spoken in respect of the house properties,
the legal owner is meant and not the equitable
or beneficial owner. Salmond On Jurisprudence,
12
th
edn., discusses the differ ent ingredients of
‘ownership’ from pages 246 to 264. ‘Ownership’,
49
according to Salmond, denotes the relation
between a person and an object forming the
subject-matter of his ownership. It consists of
a complex of rights, all of which are rights in
rem, being good against all the world and not
merely against specific persons. Firstly,
Salmond says, the owner will have a right to
possess the thing which he owns. He may not
necessarily have possession. Secondly, the owner
normally has the right to use and enj oy the thing
owned: the right to manage it, i.e., the right
to decide how it shall be used; and the right to
the income from it. Thirdly, the owner has the
right to consume, destroy or alienate the thing.
Fourthly, ownership has the characteristic of
being indeterminate in duration. The position of
an owner differs from that of a non -owner in
possession in that the latter’s interest is
subject to be determined at some future time.
Fifthly, ownership has a residuary character.
Salmond also notes the distinct ion between legal
and equitable ownership. Legal ownership is that
which has its origin in the rules of the common
law, while equitable ownership is that which
proceeds from rules of equity different from the
common law. The courts of common law in England
refused to recognise equitable ownership and
denied the equitable owner as an owner at all.”
53. The Court further took the view that it was not
concerned with the expression ‘owner’ but it was
dealing with the issue as to whether the assets
belonged to the assessee anymore . It was found that
“mere possession or joint possession unaccompanied by
the right of possession or ownership of property would
not bring the property within the d efinition of net
50
wealth for it would not be an asset belonging to “the
assessee”. The decisions under the Income Tax Act were
distinguished. In regard to R.B. Jodha Mal (supra),
this Court finds the following discussion :
“17. This Court had occasion to dis cuss
Section 9 of the Income Tax Act, 1922 and the
meaning of the expression “owner” in the case
of R.B. Jodha Mal Kuthiala v. CIT [(1971) 3
SCC 369 : AIR 1972 SC 126 : (1971) 82 ITR 570]
. There it was held that for the purpose of
Section 9 of the Indian Income Tax Act, 1922,
the owner must be the person who can exercise
the rights of the owner, not on behalf of the
owner but in his own right. An assessee whose
property remained vested in the Custodian of
Evacuee Property was not the owner of the
property. This again as observed dealt with
the expression of Section 9 of the Indian
Income Tax Act, 1922. At p. 575 (SCC p. 373,
para 11) of the report certain observations
were relied upon in order to stress the point
that these observations were in consonance
with the observations of the Gujarat High
Court which we shall presently note. We are,
however, not concerned in this controversy at
the present moment. It has to be borne in mind
that in interpreting the liability for wealth
tax normally the equitable cons iderations are
irrelevant. But it is well to remember that
in the scheme of the administration of
justice, tax law like any other laws will have
to be interpreted reasonably and whenever
possible in consonance with equity and
justice. Therefore, specially in view of the
fact that the expression used by the
51
legislature has deliberately and
significantly not used the expression “assets
owned by the assessee” but assets “belonging
to the assessee”, in our opinion, is an aspect
which has to be borne in mind .”
The question was, therefore, answered in favour of
the revenue and it was found that the asset continued
to belong to the assessee for the purpose of Wealth
Tax.
54. In Commissioner of Income Tax, Bombay & Ors. v.
Podar Cement Pvt. Ltd. & Ors .
14
, a Bench of three
learned Judges had occasion to revisit the issue in the
following set of facts. The matter arose by way of
reference under Section 257 of the Act to the Supreme
Court in view of the conflicting judgment of the High
Courts. The assessee in one of the cases claimed that
the rental income was assessable as income from other
sources in as much as the assessee company was not the
legal owner of the flats. This was for the reason that
the title of the property had not been conveyed to the
cooperative society which was formed by the purchaser
of the flats. In one of the appeals, the assessee
14
(1997) 5 SCC 482
52
claimed that the income must be assessed under Section
22. The claim was rejected on the ground that assessee
was only a lessee and had only tenancy rights. T he
common question which arose in all the cases was the
scope of Section 22 of the Act vis-a-vis Section 56 of
the Act. Section 22 of the Act brings to tax income
from house property and the section expressly declares
that the assessee must be the owner of the building or
lands. Section 27 purports to define the expression
owner of house property , inter alia, for the purpose
of Sections 22 to 26. It includes a person who is
allowed to take or retain possession of any building
or part thereof, in part performance of a contract of
the nature referred to in Section 53(A)of the Transfer
of Property Act. The Court distinguished Jodha Mal
(supra). This Court further referred to in great detail
the judgment of the Patna High Court in Additional
Commissioner of Inco me Tax, Bihar v. M/s. Sahay
Properties and Investment Co.(P) Ltd.
15
. Since this
Court has approved the reasoning adopted by the Patna
15
1983 (144) ITR 357
53
High Court, it is deemed appropriate to refer to the
same:
”32. The learned Judges observed at page
361:
“The emphasis, therefore, in this statutory
provision is that the tax under the section
is in respect of ownership. But this matter
is not as simple as it looks. This leaves us
to a more vexed question as to what is
ownership. Should the assessment be made at
the hands of the person who has the bare husk
of the legal title or at the hands of the
person who has the rights of an owner of a
property in a practical sense? Enjoyment as
an owner only in a practical sense can be
attributed to the term ‘owner’ in the co ntext
of this section — a person who can exercise
the rights of the owner and is entitled to the
income from the property for his own benefit.
It is well settled, and learned counsel for
either side were not at loggerheads, that the
section cannot be so co nstrued as to make it
an instrument of oppression, to use the
language of Hegde, J., in the case of Jodha
Mal [(1971) 3 SCC 369 : (1971) 82 ITR 570] .
We are very much alive to the legal position
that it is true that there is no equity about
a tax, there is no presumption as to a tax.
Nothing is to be read in — nothing is to be
implied. We can look only fairly at the
language used. Nonetheless, the tax l aws have
to be interpreted reasonably and in consonance
with justice. This is well settled by numerous
decisions of the Supreme Court itself.
We have, therefore, to judge and interpret
the language of Section 22 of the Act in the
context of that particular section, and that
context we shall come back to hereinafter at
a more appropriate place.
In the meantime, it would not be irrelevant
to go into the concept of ‘ownership’. What
54
is ownership after all? Read from the Roman
law up to the English law at the p resent
stage, medieval stage having been
interspersed with different formulae, the
position that now juristically emerges is
this. The full rights of an owner as now
recognised are:
‘(a) The power of enjoyment (e.g., the
determination of the use to which t he res is
to be put, the power to deal with produce as
he pleases, the power to destroy);
(b) possession which includes the right to
exclude others;
(c) power to alienate inter vivos, or to
charge as security;
(d) power to leave the res by will.’
One of the most important of these powers
is the right to exclude others. The property
right is essentially a guarantee of the
exclusion of other persons from the use or
handling of the thing…. But every owner does
not possess all the rights set out above — a
particular owner's powers may be restricted
by law or by an agreement he has made with
another.' (Refer to G.W. Paton
on Jurisprudence, 4th Edn., pp. 517-18.)
While dealing with the concept of
possession and enumerating the illustrative
cases and rules in this respect, Paton says
at p. 577 in clause ( x):
‘To acquire possession of a thing it is
necessary to exercise such physical control
over the thing as the thing is capable of, and
to evince an intention to exclude others:….’
Reference in this connection h as been made
to the case of Tubantia: Young v. Hichens and
of Pierson v. Post [(1805) 3 Caines 175
(Supreme Court of New York)] .
It would thus be seen that where the
possession of a property is acquired, with a
right to exercise such necessary control ove r
the property acquired which it is capable of,
55
it is the intention to exclude others which
evinces an element of ownership.
To the same effect and with a more vigorous
impact is the subject dealt with by Dias on
Jurisprudence, (4th Edn., at p. 400):
‘The position, therefore, seems to be that
the idea of ownership of land is essentially
one of the ‘better right’ to be in possession
and to obtain it, whereas with chattels the
concept is a more absolute one. Actual
possession implies a right to retain it unti l
the contrary is proved, and to that extent a
possessor is presumed to be owner.'
“Again, at p. 404, the learned author says:
‘Special attention should also be drawn to
the distinction between “legal” ownership
recognised at common law and “equitable”
ownership recognised at equity. This occurs
principally when there is a trust, which is
purely the result of the peculiar historical
development of English law. A trust implies
the existence of two kinds of concurrent
ownerships, that of the tr ustee at law and
that of the beneficiary at equity.’
We are not concerned in this case with any
case of trust either under the equitable
principles or under the law as engrafted in
the Indian Trusts Act. Because, the
‘beneficiary might himself be a trustee of his
interest for a third person, in which case his
equitable ownership is as devoid of advantage
to him as the legal ownership is to the
trustee. So, when described in terms of
ownership, the distinction between legal and
equitable ownership lies in th e historical
factors that govern their creation and
function; in terms of advantage, the
distinction is between the bare right, whether
legal or equitable, and the beneficial right’
(vide pp. 404-405 of Dias on Jurisprudence ,
4th Edn.).
56
We, therefore, need not go into the
questions involving trusts where a person
holds the property and receives the income in
trust for others who are the legal
beneficiaries. The crux of the matter is as
to whether, as already stated above, the
actual possession in a given pa rticular case
gives a right to retain such a possession
until the contrary is proved and so long as
that is not done, to that extent a possessor
is presumed to be the owner.
Incidentally, although the Supreme Court in
the case of Jodha Mal [(1971) 3 SCC 36 9 :
(1971) 82 ITR 570] merely mentioned
that Stroud's Judicial Dictionary had given
several definitions and illustrations of
ownership, it refrained from going into the
details on account of the practical approach
that was made in that case, to which we sh all
hereinafter refer and dilate upon. We think
it worthwhile, the matter having been
canvassed at length at the Bar, to give a full
illustration of the definitions of
‘ownership’ as Stroud puts it. One such
definition is that the ‘owner’ or ‘proprietor’
of a property is the person in whom (with his
or her assent) it is for the time being
beneficially vested, and who has the
occupation, or control, or usufruct, of it,
e.g., a lessee is, during the term, the owner
of the property demised. Yet another
definition that has been given by Stroud is
that:
‘“Owner” applies to every person in
possession or receipt either of the whole, or
of any part, of the rents or profits of any
land or tenement; or in the occupation of such
land or tenement, other than as a tenant from
year to year or for any less term or as a
tenant at will.’ (Stroud's Judicial
Dictionary, 3rd Edn., Vol. 3, p. 2060)
Thus the juristic principle from the
viewpoint of each one is to determine the true
57
connotation of the term ‘owner’ within the
meaning of Section 22 of the Act in its
practical sense, leaving the husk of the legal
title beyond the domain of ownership for the
purpose of this statutory provision. The
reason is obvious. After all, who is to be
taxed or assessed to be taxed more accurately
— a person in receipt of money having actual
control over the property with no person
having better right to defeat his claim o f
possession or a person in legal parlance who
may remain a remainder man, say, at the end
or extinction of the period of occupation
after, again say, a thousand years? The answer
to this question in favour of the assessee
would not merely be doing palpabl e injustice
but would cause absurd inconvenience and would
make the legislature to be dubbed as being a
party to a nonsensical legislation. One cannot
reasonably and logically visualise as to when
a person in actual physical control of the
property realisi ng the entire income and
usufructs of the property for his own use and
not for the use of any other person, having
the absolute power of disposal of the income
so received, should be held not liable to tax
merely because a vestige of legal ownership
or a husk of title in the long run may yet
clothe another person with the power of a
residual ownership when such contingency
arises which is not a case even here. A plain
reading of clause 4 of the agreement, as
extracted above, clearly goes to show that the
physical possession of the properties has
passed on or is deemed to have passed on to
the assessee to have and to hold for ever and
absolutely with the power to use the same in
whatsoever manner it thinks best and the
assessee shall derive all income and ben efits
together with full power of disposal of the
properties as well as the income thereof. Can
it then be said that the recipient of the
income being the assessee only having an
absolute and exclusive control over the
58
property without any let or hindrance on the
part of the so-called vendor which, indeed,
under law it was not entitled to do, as we
shall presently show, shall be immune from the
taxing provision in Section 22 of the Act? The
answer in our view is clearly in the negative.
The reason is simple. The consideration money
has been paid in full. The assessee has been
put in exclusive and absolute possession of
the property. It has been empowered to deal
with the income as it likes. It has been
empowered to dispose of and even to alienate
the property. Reference to Section 54 or, for
that matter, Section 55 of the Transfer of
Property Act by the Tribunal merely emphasises
the fact that the legal title does not pass
unless there is a deed of conveyance duly
registered. The agreement is in writing and
the value of the property is admittedly worth
more than hundred rupees. Section 54 of the
Transfer of Property Act would, therefore,
exclude the conferment of absolute title by
transfer to the assessee. That, however, would
not take away the right of the as sessee to
remain in possession of the property, to
realise and receive the rents and profits
therefrom and to appropriate the entire income
for its own use. The so -called vendor is not
permitted in law to dispossess or to question
the title of the assessee (the so-called
vendee). It was for this very practical
purpose that the doctrine of the equity of
part performance was introduced in the
Transfer of Property Act, 1882, by inserting
Section 53 -A therein. The section
specifically allows the doctrine of par t
performance to be applied to the agreements
which, though required to be registered, are
not registered and to transfers not completed
in the manner prescribed therefor by any law.
The section is, therefore, applicable to cases
where the transfer is not completed in a
manner required by law unless such a non -
compliance with the procedure results in the
59
transfer being void. There is, however, a
distinction between an agreement void as such
and an agreement void in the absence of
something which the vendor could do and had
expressly or impliedly contracted to do, and
where a vendor agrees to sell his share of
property, including sir land, there is an
implied term in the contract that he will
apply for sanction to the revenue authorities
necessary for such tr ansfers and the court
will direct him to do so. It cannot be said
that such an agreement is void because no
sanction has been obtained. In the instant
case, having reference to clause 5 of the
agreement it would be seen that the option was
given to the ass essee to demand at its
pleasure a conveyance duly registered being
executed in its favour by the Sahay family
(the vendor) and to get its name mutated in
the official records. The assessee has not
exercised its option for reasons best known
to it — presumably to have a double weapon in
its hands to be used as and when circumstances
so demanded. Can it yet be said that for the
default on the part of the assessee itself it
would be entitled to say that it is not the
owner of the property for all practical
purposes, receiving the rent all the time,
appropriating the usufructs for its own
purposes all the time and having no
interference at the instance of the vendor?
Can that be a practical and logical approach
to the true construction and purport of the
substance and spirit of Section 22 of the Act?
The answer, in our view, is clearly in the
negative and against the assessee. Having
taken all the advantages and still taking all
the advantages under the contract without any
hindrance or obstruction on the part of anyone
including the vendor which the vendor could
not do in view of Section 53 -A of the Transfer
of Property Act, the assessee cannot now turn
back and say that because of its default in
having a deed registered at its sweet will it
60
was not an owner within the meaning of Section
22 of the Act. It may bear repetition to say
that it was on account of these facts that
juristic principles have now emerged saying
that one of the most important of the powers
of ownership is the right to exclude others
from possession and the property right is
essentially a guarantee of the exclusion of
other persons from the use or handling of the
thing. In that sense, therefore, the assessee
itself became the owner of the property in
question. In our view, any decision to the
contrary would not be in consonance with the
juristic principle either at common law or in
equity. In either case, it would not be
subservient to the intent and purpose of
Section 22 of the Act, with regard to which,
as we have already stated, we can fairly look
at the language used and the tax laws have to
be interpreted reasonably and in consonance
with justice. So far we have dealt with the
case in this respect on juristic principles
as if it were a matter of first impression.
We have, therefore, now to r efer to the case-
law on the subject.”
(Emphasis supplied)
Further, it is found that the Court also noticed
the memorandum explaining provisions in Finance Bill
1987 concerning Section 27 and found that the amendment
was intended to supply an obvious omiss ion or clear up
the doubts surrounding the word owner in Section 22 of
the Act. The Court answered the reference in favour of
the Revenue by holding that “in the context of Section
22 of the Act having regard to the ground realities and
61
to the object of the Act, namely, to tax the income of
the “owner as a person who is entitled to receive income
from the property in his own right .”
55. In Mysore Minerals Ltd. M.G. Road, Bangalore v.
Commissioners of Income Tax, Karnataka, Bangalore
16
the
assessee company though allotted houses by delivery of
possession by the Housing Board, an actual deed of
conveyance had not been executed in its favour. The
houses so allotted were for the use of its staff.
Assessee claimed depreciation under Section 32 of the
Act. Section 32 of the Act also contemplates ownership
of the asset as a condition for claiming the benefit
of depreciation. The Court, inter alia, held as
follows:
“4. Section 32 of the Income Tax Act confers
a benefit on the assessee. The provision should
be so interpreted and the words used therein
should be assigned such meaning as would enable
the assessee to secure the benefit intended to
be given by the legislat ure to the assessee.
It is also well settled that where there are
two possible interpretations of a taxing
provision the one which is favourable to the
assessee should be preferred.
16
(1999) 7 SCC 106
62
5. What is ownership? The terms “own”,
“ownership”, “owned” are generic an d relative
terms. They have a wide and also a narrow
connotation. The meaning would depend on the
context in which the terms are used. Black's
Law Dictionary (6th Edn.) defines “owner” as
under:
“Owner.—The person in whom is vested the
ownership, dominion, or title of property;
proprietor. He who has dominion of a thing,
real or personal, corporeal or incorporeal,
which he has a right to enjoy and do with as
he pleases, even to spoil or destroy it, as
far as the law permits, unless he be prevented
by some agreement or covenant which restrains
his right.
The term is, however, a nomen generalissimum,
and its meaning is to be gathered from the
connection in which it is used, and from the
subject-matter to which it is applied. The
primary meaning of the word as applied to land
is one who owns the fee and who has the right
to dispose of the property, but the term also
includes one having a possessory right to land
or the person occupying or cultivating it.
The term ‘owner’ is used to indicate a person
in whom one or more interests are vested for
his own benefit.”
6. In the same dictionary, the term
“ownership” has been defined to mean, inter
alia, as—
“Collection of rights to use and enjoy
property, including right to transmit it to
others. … The right of one o r more persons to
possess or use a thing to the exclusion of
others. The right by which a thing belongs to
someone in particular, to the exclusion of all
other persons. The exclusive right of
63
possession, enjoyment, and disposal; involving
as an essential attribute the right to control,
handle, and dispose.”
7.Dias on Jurisprudence (4th Edn., at p. 400)
states:
“The position, therefore, seems to be that
the idea of ownership of land is essentially
one of the ‘better right’ to be in possession
and to obtain i t, whereas with chattels the
concept is a more absolute one. Actual
possession implies a right to retain it until
the contrary is proved, and to that extent a
possessor is presumed to be owner.”
8.Stroud's Judicial Dictionary gives several
definitions and illustrations of ownership.
One such definition is that the “owner” or
“proprietor” of a property is the person in
whom (with his or her assent) it is for the
time being beneficially vested, and who has the
occupation, or control, or usufruct, of it;
e.g., a lessee is, during the term, the owner
of the property demised. Yet another definition
that has been given by Stroud is:
“ ‘owner’ applies ‘to every person in
possession or receipt either of the whole, or
of any part, of the rents or profits of any
land or tenement; or in the occupation of such
land or tenement, other than as a tenant from
year to year or for any less term or as a tenant
at will’.”
19. It is well settled that there cannot be
two owners of the property simultaneously and
in the same sense of the term. The intention
of the legislature in enacting Section 32 of
the Act would be best fulfilled by allowing
deduction in respect of depreciation to the
person in whom for the time being vests the
dominion over the building and who is entitled
64
to use it in his own right and is using the
same for the purposes of his business or
profession. Assigning any different meaning
would not subserve the legislative intent. To
take the case at hand it is the appellant
assessee who having paid part of the p rice, has
been placed in possession of the houses as an
owner and is using the buildings for the
purpose of its business in its own right. Still
the assessee has been denied the benefit of
Section 32. On the other hand, the Housing
Board would be denied th e benefit of Section
32 because in spite of its being the legal
owner it was not using the building for its
business or profession. We do not think such a
benefit-to-none situation could have been
intended by the legislature. The finding of
fact arrived at in the case at hand is that
though a document of title was not executed by
the Housing Board in favour of the assessee,
but the houses were allotted to the assessee
by the Housing Board, part-payment received and
possession delivered so as to confer domin ion
over the property on the assessee whereafter
the assessee had in its own right allotted the
quarters to the staff and they were being
actually used by the staff of the assessee. It
is common knowledge, under the various schemes
floated by bodies like H ousing Boards, houses
are constructed on a large scale and allotted
on part-payment to those who have booked them.
Possession is also delivered to the allottee
so as to enable enjoyment of the property.
Execution of document transferring title
necessarily follows if the schedule of payment
is observed by the allottee. If only the
allottee may default the property may revert
back to the Board. That is a matter only
65
between the Housing Board and the allottee. No
third person intervenes. The part -payments
made by the allottee are with the intention of
acquiring title. The delivery of possession by
the Housing Board to the allottee is also a
step towards conferring ownership.
Documentation is delayed only with the idea of
compelling the allottee to observe the s chedule
of payment.”
(Emphasis supplied)
56. Lastly, there is the judgment of this Court in
Industrial Credit and Development Syndicate Ltd. v.
Commissioner of Income Tax, Mysore & Anr.
17
. The
assessee was engaged in the business of hire purchase,
leasing and real estate etc. As part of its business,
it leased out vehicles to its customers, and
thereafter, had no physical connection with the
vehicles. What is more, the lessees were registered as
the owners of the vehicles in the Certificate of
Registration under the Motor Vehicles Act. The claim
of depreciation made under Section 32 of the Act was
rejected on the basis that the assessee was not the
owner of the vehicles. The Court found from the lease
agreement that it was agreed that the assessee was to
17
(2013) 3 SCC 541
66
be the exclusive owner of the vehicle at all points of
time. The argument of the Revenue that the name of the
lessee was entered in the Certificate of Registration
under Motor Vehicle Act, and therefore, it must be
treated as the owner under Section 2(30) was rejected.
It was further found that if the lessee was in fact the
owner, he would have claimed depreciation, which was
not done. It was also found that the entire lease rent
was assessed as business i ncome in the hands of the
assessee. The Court went on to hold that in the facts
it was the appellant -assessee which could be treated
as the owner of the vehicles entitling it to claim the
benefit of depreciation under Section 32.
57. This Court is called upon to decide the ambit of
the word ‘owner’ in section 69A in the facts before us.
This Court agrees with the High Court that the concept
of ‘owner’ cannot be divorced from the context in which
the expression is employed. In the case of Jodha Mal
(supra), the property undoubtedly stood vested as
evacuee property with the custodian in Pakistan. The
assessee wanted to claim the benefit of the losses it
had made at a time when he had ceased to be the owner.
67
This Court bore in mind the effect of the Act under
which the custodian in Pakistan became the owner. The
claim of the assessee in the said case was that the
custodian was owner only for the purpose of
administration and that the assessee still continued
to be the owner in the sense that he had the ultimate
right to the property. This Court took a practical view
as well noticing that thousands of evacuees who had
left all the properties in Pakistan would be visited
with tax even though they had left Pakistan and they
did not get a paisa out of those properties a nd
businesses. It was found that for the purpose of
Section 9, the owner must be that person who can
exercise the rights of the owner, not on behalf of the
owner, but in his own right . The Court also accepted
that an evacuee from Pakistan had a residual ri ght in
the property. It was in this context that the Court
considered as to whether that residual right can be
considered as ownership for the purposes of Section 9
of the earlier Act. It was still further in the said
context that the Court held that the f ocus of the
Section is on the receipt of the income and that the
68
word owner had different meanings in different
contexts.
58. When it came to the Podar Cement Pvt. Ltd.(supra),
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. The full righ ts 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.
59. This Court may at this juncture observe that a
carrier has none of these rights o r 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
69
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 actua l 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 f inding
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’.
60. Let us apply these tests and ascertain whether the
appellant can be treated as the owner in any sense of
70
the expression. 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
71
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.
61. 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 intent s and
purposes, and in his own right, earns income from house
property, lawfully otherwise, and fall s short of
ownership only for want of a formal conveyance as
72
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 possession of the carrier
who deliberately refuses to act under the contract but
contrary to it, is not only wrongful, but more
importantly, makes it a case where the possession
itself is without any right with the carrier to justify
his possession. Recognising any right with the ca rrier
in law would involve negation of the right of the actual
owner which if the property in the goods under the
contract has passed on to the consignee is the
consignee and if not the consignor. This Court has
already found that the appellant is bereft o f 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.
62. The Court is conscious of the fact that income
derived from an illegal business can be legitimately
73
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.
63. This Court may approach the issue from another
angle. Section 69A was inserte d in 1964 to get at income
which was sought to be screened from tax by purchasing
valuable articles such as bullion and gold and
jewellery besides keeping it in the form of money also.
The object of such assessee would also be achieved by
becoming the owners of other valuable articles. In this
case, is it a case where the appellant was attempting
to conceal taxable income by illegally possessing the
bitumen? Proceeding further and assuming again that the
assessee possessed the bitumen albeit illegally and
proceeded to dispose of the same. The rationale of the
Revenue involves ownership of the bitumen being
ascribed to the appellant based on possession of the
bitumen contrary to the contract of carriage and with
74
the intention to misappropriate the same , which further
involves the sale of the bitumen for which there is no
material as such. But this Court proceeds on the basis
that such a sale also took place. 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 d elivery 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 que stion. 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
75
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.
L. “OTHER VALUABLE ARTICLE ”
64. It is a case of the appellant that applying the
Principle of Ejusdem Generis, bitumen would stand out
as a strange bed fellow 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. Our attention is drawn to the
Circular No. 20D dated 07.07.1964 issued by Central
Board of Direct Taxes, which has been adverted to. {see
paragraph 48}
76
65. In Bhagwandas Narayandas v. Commissioner of Income
Tax, Ahmedabad and others
18
, the question, which, inter
alia, fell for consideration before a learned Single
Judge of High Court of Gujarat, was, whether fixed
deposit receipts and title deeds of immovable property
were ‘valuable things or articles’ , which required a
show-cause notice under Rule 112A of the Income -Tax
Rules, 1962. Section 132 if the Act also employs the
expression ‘other valuable articles’. The Court, inter
alia, held as follows:
“18. On close consideration of the scheme
of sub-section (5) of section 132, we find
that the above referred contention of
Shri Bhatt is not acceptable. As already
pointed out by us in the foregoing
discussion, it is evident from the scheme
of sub-section (5) of section 132 that
the "assets", which are seized during the
course of an authorised search under
section 132, are expected to be retained
only for the purpose of satisfying the
tax liability of an assessee as
ascertained from his undisclosed income.
Therefore, by using the words "valuable
article or thing", what the legislature
has intended to imply is that the assets
covered by these words should be such as
could be converted into cash so that the
tax liability of the assessee concerned,
as revealed from his undisclosed income,
could be duly satisfied. In other words,
18
1973 Vol. 98 ITR 194
77
the thing or article which can be retained
under sub-section (5) of section 132
should be the one which is carrying its
own intrinsic value in terms of money.
Therefore, the question is whether the
fixed deposit receipts and documents of
title relating to an immovable property
are the things or articles which can be
evaluated in terms of money. Obviously, a
document of title relating to an
immovable property or even a fixed
deposit receipt issued by a bank in favour
of a particular person are merely the
documents of title which, though
possessing much evidentiary value, do not
passes any intrinsic market value. They
do supply evidence of assets which by
themselves are valuable but they bei ng
mere documents of title, they can neither
be negotiated nor be transferred for a
valuable consideration. Under the
circumstances, we are of the opinion that
documents of title, which have no greater
value than an evidentiary one, and which
do not carry any saleable interest, are
not the "valuable things or articles"
contemplated either by subsection (5) of
section 132 of the Act or by rule 112A of
the Rules. There is nothing in the record
to show that the fixed deposit receipts,
which are seized in this case, carry any
inherent market value with them. They are
merely the documents evidencing the debt
due to the assessee. Similarly, the
documents of title relating to an
immovable property also contain no more
value than an evidentiary one. Thus,
since none of those documents has got any
intrinsic value in terms of money, we are
of the opinion that they are not covered
by sub-section (5) of section 132 of the
Act or rule 112A of the Rules.”
(Emphasis supplied)
78
66. 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. In Commissioner of Income
Tax v. M.K. Gabrial Babu and others
19
, the High Court
of Kerala was dealing with the question, as to whether
immovable property would be covered within the
expression ‘other value article or thing’ within the
meaning of Section 132(1) of the Act. The Court held:
“4. … A word in a statue is quite often
judged by the company its keeps. The
preceding words of Section 132(1), cannot
be ignored or overlooked. Money, bullion,
jewellery, which precede “other valuable
article or thing” forge a genus and,
consequently, the words “other valuable
article or thing” assume a constricted
meaning and interpretation in that context.
The general principles of interpretation of
a restricted meaning being given to certain
words, whether it be by applying the
principles of ejusdem generis or otherwise
restricting it, had be en followed by
judicial decisions covering much area and
many topics. They are not necessarily
confined to Income Tax legislation. Those
connected with the terms under the Income
Tax enactment have been referred to by the
learned judge in support of his co nclusion.
19
(1991) 188 ITR 464 Kerala
79
We concur with that view. It is
unnecessary, therefore, to supplement it by
adventitious decisions available from other
jurisdictions as well. We affirm the
judgment of the learned Single Judge (M.K.
Gabriel Babu v. Asst. Director of I.T.
(Investigation) [(1990) 186 ITR 435
(Ker.).]”
67. In contrast to the view taken in the impugned order
before us, in Dhanush General Stores v. Commissioner
of Income Tax
20
, the Court, inter alia, on facts, held
as follows:
“13. If there is undisclosed investment in
bullion, jewellery o r other valuable
articles, which are not fully disclosed in
the books of account the case would fall
under the ambit of s. 69B of the Act, 1961.
In the case on hand, there was excess stock,
which can be held as unexplained
investment, not investment in bull ion,
jewellery or other valuable articles. In
the entire survey, it was not found that
any bullion, jewellery or other valuable
articles has been found. The Kirana
articles cannot be held as other valuable
articles.
14. “Valuable article” means an article
which is valuable and having a high price,
not other ordinary articles, as in the
instant case.
15. The surrendered income ought to have
been treated as deemed income under the
provisions of s.69 of the Act, 1961,
however, on the wrong provision applied in
the assessment order though the effect is
one and the same the surrendered income
20
(2011) 339 ITR 651 Chhattisgarh
80
cannot be held that it was not an income
under the provisions of s.69 of the Act,
1961. As such, the substantial question of
law, i.e., (i) and (iii) are answered
accordingly.”
(Emphasis supplied)
68. The word ‘valuable’ has been defined in Black’s
Law Dictionary as follows: -
“Valuable adjective. Worth a good price; having
financial or market value.”
69. The word ‘valuable’ has been defined in the Concise
Oxford Dictionary as follows: -
The word ‘valuable’ has been defined as again an
adjective. “worth a great deal of money . Very
useful or important.”
70. The word ‘money’ has been described in Black ’s Law
Dictionary as follows: -
“money. 1. The medium of exchange authorized or
adopted by a government as part of its currency;
esp. domestic currency <coins and currency are
money>.2. Assets that can be easily converted to
cash <demand deposits are money>. 3. Capital that
is invested or traded as a commodity <the money
market>. 4. Funds; sums of money <investment
moneys>. – Also spelled (in sense4) monies. See
Medium of Exchange; Legal Tender.”
81
71. The word ‘article’ has been defined in Black’s Law
Dictionary as “Generally, a particular item or thing
<article of clothing> .
72. The Word ‘bullion’ has been defined in the Concise
Oxford Dictionary as ‘gold or silver in bulk before
coining, or valued by weight’
M. PRINCIPLE OF EJUSDEM GENERIS ; NOSCITUR A
SOCIIS
73. 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, 14
th
Edition]:
“(1) the statue contains an enumeration of
specific words ; (2) the subjects of
enumeration constitutes a class or
category; (3) that class or cate gory 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 n o
82
principle that the general words should be
confined to the narrower genus.”
74. In the context of Explanation 3(b) to Section 32(1)
of the Act, this Court in Commissioner of Income Tax,
Kolkata v. SMIFS Securities Limited
21
, held as follows:
“8. We quote hereinbelow Explanation 3 to
Section 32(1) of the Act:
“Explanation 3.—For the purposes of this
sub-section, the expressions ‘assets’ and
‘block of assets’ shall mean —
(a) tangible assets, being buildings,
machinery, plant or furniture;
(b) intangible assets, being know -how,
patents, copyrights, trademarks,
licences, franchises or any other
business or commercial rights of similar
nature.”
Explanation 3 states that the expression
“asset” shall mean an intangible asset, being
know-how, patents, copyrights, trademarks,
licences, franchises or any other business or
commercial rights of similar nature. A
reading of the words “any other business or
commercial rights of similar nature” in
clause (b) of Explanation 3 indicates that
goodwill would fall under the expression “any
other business or commercial right of a
similar nature”. The principle of ejusdem
generis would strictly apply while
interpreting the said expression which finds
place in Explanation 3( b).
21
(2012) 13 SCC 488
83
9. In the circumstances, we are of the view
that “goodwill” is an asset under Explanation
3(b) to Section 32(1) of the Act. ”
75. In Rohit Pulp and Paper Mills Limited v. Collector
of Central Excise, Baroda
22
, the Court was dealing with
an exception clause in an exemption notification and
considered the applicability of the Principle of
Noscitur a Sociis, to the facts:
“12. The principle of statutory
interpretation by which a generic word
receives a limited interpretation by reason
of its context is well established. In the
context with which we are concerned, we can
legitimately draw upon the “ noscitur a
sociis” principle. This expression simply
means that “the meaning of a word is to be
judged by th e company it keeps.”
Gajendragadkar, J. explained the scope of the
rule in State of Bombay v. Hosptial Mazdoor
Sabha [(1960) 2 SCR 866 : AIR 1960 SC 610 :
(1960) 1 LLJ 251] in the following words: (SCR
pp. 873-74)
“This rule, according to Maxwell, means
that, when two or more words which are
susceptible of analogous meaning are
coupled together they are understood to be
used in their cognate sense. They take as
it were their colour from each other, that
is, the more general is restricted to a
sense analogous to a less general. The same
rule is thus interpreted in “ Words and
Phrases” (Vol. XIV, p. 207): “Associated
words take their meaning from one another
under the doctrine of noscitur a sociis ,
22
(1990) 3 SCC 447
84
the philosophy of which is that the meaning
of a doubtful word may be ascertained by
reference to the meaning of words
associated with it; such doctrine is
broader than the maxim ejusdem generis”. In
fact the latter maxim “is only an
illustration or specific application of the
broader maxim noscitur a sociis ”. The
argument is that certain essential features
of attributes are invariably associated
with the words “business and trade” as
understood in the popular and conventional
sense, and it is the colour of these
attributes which is taken by the other
words used in the definition though their
normal import may be much wider. We are not
impressed by this argument. It must be
borne in mind that noscitur a sociis is
merely a rule of construction and it cannot
prevail in cases where it is clear that the
wider words have been deliberately used in
order to make the scope of the defined word
correspondingly wider. It is only where the
intention of the legislature in associating
wider words with words of narrower
significance is doubtful, or otherwise not
clear that the present rule of construction
can be usefully applied. It can also be
applied where the meaning of the words of
wider import is doubtful; but, where the
object of the legislature in using wider
words is clear and free of ambiguity, the
rule of construction in qu estion cannot be
pressed into service.”
This principle has been applied in a number
of contexts in judicial decisions where the
court is clear in its mind that the larger
meaning of the word in question could not have
been intended in the context in which it has
been used. The cases are too numerous to need
discussion here. It should be sufficient to
refer to one of them by way of illustration.
85
In Rainbow Steels Ltd. v. CST [(1981) 2 SCC
141 : 1981 SCC (Tax) 90] this Court had to
understand the meaning of the word ‘old’ in
the context of an entry in a taxing traffic
which read thus:
“Old, discarded, unserviceable or
obsolete machinery, stores or vehicles
including waste products......”
Though the tariff item started with the use
of the wide word ‘old’, the court came to the
conclusion that “in order to fall within the
expression ‘old machinery’ occurring in the
entry, the machinery must be old machinery in
the sense that it has become non -functional
or non-usable”. In other words, not the mere
age of the machinery, which would be relevant
in the wider sense, but the condition of the
machinery analogous to that indicated by the
words following it, was considered relevant
for the purposes of the statute.”
76. About Noscitur a Sociis and how it compares with
ejusdem generis, the following statement in G.P. Singh
(supra) on Statutory Interpretation is apposite:
“It is a rule wider than the rule of ejusdem
generis; rather the latter rule is only an
application of the former.”
N. WHETHER BITUMEN IS ‘OTHER VALUABLE ARTICLE’
77. This Court has referred to the Principles of
Ejusdem Generis and Noscitur a Sociis, which
undoubtedly are rules of construction the latter being
86
described as having treacherous underpinnings and the
former requiring the existence of a genus which is not
exhausted by the categories catalogued in the statute.
This Court has also referred to the definition of the
words, money, bullion valuable and article . The Court
approves the view taken by the High Court of Gujarat
in Bhagwandas Narayandas (supra) that a document of
title to immovable property or a fixed deposit receipt
would not qualify as other valuable article. The
reasons which have been given appear to us to be sound.
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
87
‘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 be long 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 l akhs 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
88
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 f acts 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 article s on satisfying the
other tests.
78. 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
89
petroleum refineries and it is usually use d in road
construction which is also probabalised by the fact
that the appellant was to deliver the bitumen to the
Road Construction Department of the State. Bitumen is
sold in bulk ordinarily . In the Assessment Order, the
Officer has proceeded to take Rs. 4999.58 per metric
ton as taken in the AG Report on bitumen scam. Thus,
it is that the cost of bitumen for 2094.52 metric ton
has been arrived at as Rs. 1,04,71,720.30. This would
mean that for a kilogram of bitumen , the price would
be only Rs.5 in 1995-1996 (F.Y).
79. 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 Bla ck’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
90
not be valuable article. Thus, this Court would
conclude that ‘bitumen’ as such cann ot be treated as a
‘valuable article’. In view of these findings, this
Court need not pronounce on points III and IV. The
appeals are allowed. The impugned judgment will stand
set aside and though on different grounds, the order
by the Commissioner Appeals deleting the addition made
on the aforesaid basis will stand restored.
……………………………………….J.
[K.M. JOSEPH]
NEW DELHI;
DATED: MAY 16, 2023.
Page 1 of 19
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3738-3739 OF 2023
(Arising out of SLP(C)No. 10617-10618 OF 2023)
@ Diary No. 7803 of 2018
M/S. D.N. SINGH Appellant(s)
VERSUS
COMMISSIONER OF INCOME TAX,
CENTRAL, PATNA & ANR. Respondent(s)
J U D G M E N T
Hrishikesh Roy, J.
1. I have perused the erudite opinion of my esteemed
brother Justice KM Joseph. I am in accord with his
judgment that for the purposes of Section 69A of
the Income Tax Act, 1961- the deeming effect of
the provision will only apply, if the assessee is
the owner of the impugned goods and secondly, for
any article to be considered as ‘ valuable article’
under Section 69A, it must be intrinsically
Page 2 of 19
costly, and it will not be regarded as valuable if
huge mass of a non precious and common place
article is taken into account, for imputing high
value. I wish to add the following reasoning to
justify my opinion.
2. Two principal questions arise in this matter.
Firstly, whether the assessee herein can be
regarded as an ‘owner’ for the concerned goods,
and, secondly, whether ‘ bitumen’ can be covered
within the category of ‘ other valuable article’ ,
alongside money, bullion and jewellery, as
mentioned in Section 69A of the Income Tax Act,
1961.
3. In the general scheme of the Income Tax Act, 1961,
direct taxation, except in areas such as e-
commerce, is inextricably connected to the
ownership and not just possession of the
underlying asset, creating income. Section 22 of
the Act, which provides for taxation of income
from house property provides that the assessee
must be the owner of such property generating
Page 3 of 19
income. Section 45 provides for income tax on
capital gains to be imputed on owners of capital
assets who transfer such assets and those who
convert them for lawful gains. Likewise, section
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. Section 69B provides
that in cases of understated investments the
assessee should be the owner of money, bullion,
jewellery and other valuable article(s). Hence,
determining ownership of impugned 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 Section 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
Page 4 of 19
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
Section 69A.
4. To address the second question on whether bitumen
is a valuable article under Section 69A, we must
understand what sort of article is bitumen.
Commonly, bitumen is described as a sticky, black,
highly viscous, liquid or a semi-solid form of
petroleum and a crude oil by-product, which is
also known as asphalt. When crude oil is subjected
to refining- by fractional distillation, i.e.
before it is converted into industrially viable
finished petroleum products, midway, several
useful articles are obtained. In the process of
distillation of crude oil in the fractionating
column- top distillates like liquified petroleum
Page 5 of 19
gas(LPG), middle distillates like- kerosene,
diesel, jet fuel and paraffin are obtained and in
the lower column, distillates like lubricants and
greases, are collected. At the residual level at
the bottom of the column, bitumen and asphalt are
the offshoot of the distillation process. Bitumen,
the highly viscous complex of hydrocarbons is
mostly used for road surfacing, roofing and for
water and alkaline resistant painting. The
question is whether this residual offshoot from
crude oil refining, can be categorised as a
valuable article, in the context of Section 69A of
the Income Tax Act keeping in mind that the
section, specifically lists three items i.e.
money, jewellery and bullion. To provide more
clarity it is relevant to quote the section in
full. It 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
Page 6 of 19
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.”
5. The Patna High Court in the order challenged
before us- held that under Section 69A “any
article which has value will come under the
expression “valuable article” as mentioned in
Section 69A of the Act…”
1
According to the Division
Bench, for purposes of Section 69A, it will not be
relevant whether the article in question is
generally considered to be of high value and is a
precious item. It possibly could be a common place
and ordinary article but all that will be relevant
is that the considered item has some value. The
article can be a run-of-the-mill item or it can be
1
DN Singh Vs. Commissioner of Income Tax & Anr. (2010) 324 ITR 304
Page 7 of 19
a high priced one. According to the High Court the
nature of the article is immaterial so long as it
is of some value which may be accounted only by
volume. In this case, the addition to assessee’s
income related to Rs. 1.05 crores worth of
bitumen. In particular, the impugned judgement
also noted that in Section 69A the word ‘valuable
article’ is a ‘separate item’ from bullion, money
and jewellery and concluded that it may include
any article of value.
6. At this juncture, it is also relevant to consider,
the decision of the Chhattisgarh High Court in
Dhanush vs. CIT
2
under a related anti-avoidance
provision, i.e. Section 69B of the Act. However,
before adverting to the decision, it is pertinent
to note that on the question of interpretation of
the phrase ‘other valuable article’ in Section
69A, the findings, will also be applicable to
Section 69B. Although Section 69A deals with
2
Dhanush General Stores vs. Commissioner of Income Tax (2011) 339
ITR 651
Page 8 of 19
unexplained ownership of valuable articles, and
the provision in Section 69B covers cases of
understatement of expenditure incurred on
acquisition of valuable articles, both provisions
deal with the ownership of valuable articles.
Section 69B, inserted by virtue of the Finance
Act, 1965 (10 of 1965), reads as follows:
“69B. Amount of investments, etc., not
fully disclosed in books of account.
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.”
7. Now returning to the facts of Dhanush (supra), the
learned Division Bench, in contrast, held that the
stock in kirana store is not a valuable article
Page 9 of 19
for the purposes of Section 69B. The Court noted
that kirana store items are not valuable articles
having a high price and are rather in the nature
of ordinary articles. In that case the excess
stock worked out to around Rs. 87,000/-.
8. Between the two contrary opinions, on the
applicability of Section 69A/69B as mentioned
above, on the nature of the article for the purpose
of tax liability, I feel that the Chhattisgarh
High Court in Dhanush (supra) propagates the
correct view. I do not see any basis to give a
wide interpretation to Section 69A and include
within its ambit, any and every article of value .
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
Page 10 of 19
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.
9. At this point, it may also be useful to refer to
the Circular No. 20 of 1964- Dated 7.7.1964. In
this Circular the then Minister of Finance, while
defending the insertion of Section 69A- stated
that the 1964 Amendment is enacted not to subject
lower middle-class people to taxation by taxing
gold or jewellery inherited from forefathers, but
provision is mandated for ‘ big assessees’ who
convert their black money and unaccounted wealth
into gold jewellery and gold vessels and claim it
to be heirloom. This makes it clear that the
legislature never intended that any and every
article of value should be brought within the
ambit of Section 69A. It is only the high priced
precious items- that command a premium price and
are often used by high wealth individuals to park
Page 11 of 19
their unaccounted income- by converting it into
gold and bullion - that the Section 69A was
inserted to address and to make such articles
taxable under the Income Tax Act. Therefore, the
intent of the legislature, through the Amendment
– was to subject articles like gold, jewellery and
other valuable items, to income tax, where such
articles are typically owned with the intention
of avoiding income tax.
10. Conversely, 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
Page 12 of 19
‘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.
11. 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- the
residual offshoot material during processing of
Page 13 of 19
crude oil, excluding its valuable constituents
like petrol, diesel, LPG, aviation fuel etc.,
within the expression ‘other valuable article’ in
Section 69A, would in my opinion, result in
absurdities, that we need to eschew. The common
place items from kirana store and bitumen are
intrinsically dissimilar to the high value items
in Section 69A and through an interpretive
exercise, we should not categorise them with items
such as gold bars and jewellery.
12. At this stage it may also be beneficial to advert
to the principle- “absoluta sententia expositore
non indiget” i.e. (a simple proposition needs no
expositor). The maxim provides that if the
language employed by the legislature provides for
adequate comprehensibility, then nothing
additional is required. In New Shorrock Spinning
and Manufacturing Co. Ltd. vs. N.V. Raval
3
the
Division Bench of the Bombay High Court, dealt
with the construction of sub-section (10) of
3
New Shorrock Spinning and Manufacturing Co. Ltd. vs. N.V. Raval
(1959) 37 ITR 41
Page 14 of 19
section 35 of the Income Tax Act, 1922, introduced
by Amendment through the Finance Act, 1956. In
this regard the Court held that-
“One safe and infallible principle
which is of guidance in these matters
is to read the words through and see if
the rule is clearly stated. If the
language employed gives the rule in
words of sufficient clarity and
precision, no more requires to be
done.”
13. Furthermore, the principle that a fiscal statute
should be strictly construed is, well settled.
4
The
classical words of Justice Rowlatt in the 1920s case
of Cape Brandy Syndicate
5
would be of valuable
assistance here. Justice Rowlatt while interpreting
the phrase- ‘pre-war trade years’ in context of the
British Finance Act,1915-16, observed as follows:
“…….…in a taxing Act one has to look
merely at what is clearly said. There is
no room for any intendment. There is no
equity about a tax. There is no
presumption as to a tax. Nothing is to
be read in, nothing is to be implied.
One can only look fairly at the language
used………”
4
See CIT vs. Kasturi 237 ITR 24 (SC)
5
Capy Brandy Syndicate vs. Inland Revenue (1921) 1 KB 64
Page 15 of 19
14. The above opinion of Justice Rowlatt was
approvingly cited by former Chief Justice Koka
Subba Rao, writing for a three judge bench of
this Court in the case of Banarsi Debi vs. ITO.
6
The principle that provisions and exemptions
under taxation statutes are to be strictly
interpreted in accordance with legislative
intent was also upheld by one of us recently in
2022, in Augustan Textile Colours .
7
15. Following the aforesaid discussion, 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
6
Banarsi Debi vs. ITO (1964) 7 SCR 539- See paragraph 6.
7
Augustan Textile Colours Ltd. vs. Director of Industries & Anr.
(Civil Appeal No. 2830/2022) per Justice Hrishikesh Roy. See
paragraphs 13 & 14
Page 16 of 19
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. 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.
16. 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
Page 17 of 19
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.
17. Earlier, it is the high value, less bulky items
which were owned discreetly, that aided the
assessee in avoiding tax. The 1964 Amendment was
primarily enacted to address mischief of this
nature. The wisdom of the legislature as
reflected in the Amendment – was to subject to
income tax, articles like gold, jewellery and
other valuable items- typically owned with the
intention of avoiding income tax-by translating
income into buying and then hiding such precious
high value items. 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
Page 18 of 19
article’, under Section 69A of the Income Tax,
Act.
18. 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.
19. In conclusion, it is held that bitumen is not a
valuable article in the context of Section 69A
Page 19 of 19
and the assessee here was not the owner of the
concerned bitumen for the purpose of section 69A
of the Income Tax Act,1961. With the additional
reasoning in the preceding paragraphs, I concur
with the judgment delivered by my brother Justice
K.M. Joseph.
………………………………………………J.
[HRISHIKESH ROY]
NEW DELHI
MAY 16, 2023
Login with google
Legal Notes
Add a Note....