Supreme Court Rules Bitumen Not Covered Under ‘Other Valuable Article’ as per Section 69A of Income Tax Act

Supreme Court Rules Bitumen Not Covered Under ‘Other Valuable Article’ as per Section 69A of Income Tax Act

The Supreme Court delivered a landmark judgment on the interpretation of Section 69A of the Income Tax Act, 1961. The Court ruled that bitumen cannot be considered as an ‘other valuable article’ for the purpose of taxation under Section 69A of the Income Tax Act, 1961 (the Act).

The division bench of Justices K.M. Joseph and Hrishikesh Roy in separate but concurring judgment observed, “The Court is conscious of the fact that income derived from an illegal business can be legitimately brought to tax...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.”

In the present case, the assessee carried on business as carriage contractor for transporting bitumen from oil companies such as HPCL, IOCL, and BPCL and the goods were delivered to various divisions of the Road Construction Department of the Government of Bihar. A scam was widely reported in the media, that transporters of bitumen misappropriated the bitumen and did not deliver the correct quantity to the Road Construction Department of the Government of Bihar. The scam had repercussions for the assessee involved in the case.

The Patna High Court observed that the word ‘owner’ had different meanings in different contexts 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. The High Court opined that having lifted bitumen and not supplied to the Road Construction Department to which it was to be supplied, the assessee would be liable to pay tax on the bitumen lifted and not delivered.

The High Court had also addressed the argument raised by the assessee that bitumen did not fall under the category of ‘other valuable articles’ mentioned in section 69A of the Income Tax Act.

The assessee contended that for section 69A to apply, bitumen should be connected to money, bullion, or jewellery. However, the High Court held that any article with value would be considered a 'valuable article' under section 69A and the value of such an article could be deemed as the income of the assessee if they failed to provide a satisfactory explanation. Section 69A was found to be applicable in the present case.

Two primary issues were raised before the Apex Court, firstly, whether the assessee in the present could be regarded as an ‘owner’ for the concerned goods, and, secondly, whether ‘bitumen’ could be covered within the category of ‘other valuable article,’ alongside money, bullion, and jewelry, as mentioned in Section 69A of the Income Tax Act, 1961. The opinion of the bench was called upon to decide the ambit of the word ‘owner’ under the Act.

The Court analyzed the general scheme of the Income Tax Act, 1961, which establishes a connection between direct taxation and ownership of the underlying asset generating income. Sections 22 and 45 of the Act emphasize the requirement of ownership for taxation purposes. Similarly, Section 69A provides that the assessee must be the owner of money, bullion, jewelry, or other valuable articles when offering no satisfactory explanation regarding their nature and source of acquisition.

The bench observed that for the application of section 69A, it is crucial for the officer to establish that the valuable article in question is owned by the assessee. The bench further stated that a bailee, such as a common carrier, is not the owner of the goods. The role of a bailee, who is a common carrier, is to hold and transport the goods on behalf of the consignor to the consignee or as per the instructions given. During the subsistence of the contract of carriage of goods, the bailee would not become the owner of the goods.

It was noted that the assessee, as a carrier, held the goods as a bailee. Possessing the goods did not grant ownership rights to the assessee. The ownership of the goods stayed with the consignor until they were properly delivered to the consignee, in accordance with the Sale of Goods Act. The Court opined that it deemed implausible that any provision within the Sale of Goods Act would permit the transfer of ownership to the assessee, who acted solely as a carrier and not as the intended recipient of the goods.

Justice K.M. Joseph, concluded that the Assessing Officer had acted unlawfully in considering the assessee as the 'owner', determined that the assessee lacked the power of alienation and the right to assert ownership over the bitumen.

Justice Hrishikesh Roy, while agreeing with the judgment delivered by Justice K.M. Joseph, provided additional reasoning in support of the decision.

Observing that determining ownership of impugned goods is an important factor to impute tax liability and someone having mere possession and without legal ownership or title over the goods, will not be covered within the ambit of section 69A, Justice Hrishikesh Roy held that the assessee was certainly not the owner of the bitumen, but was the carrier who was supplying goods from the consignor, oil marketing companies to the consignee, Road Construction Department and therefore, the inevitable conclusion was that the assessee was not the owner, for the purposes of section 69A.

Regarding the first question, the Court concluded that the assessee, in this case, was not the owner of the bitumen but rather a carrier supplying goods from the consignor to the consignee. Possession of the goods, albeit unlawful due to short delivery, did not establish ownership for the purposes of Section 69A.

With respect to the second issue, the Court delved into the nature of bitumen. The bench described bitumen as a residual offshoot obtained during the process of crude oil refining, commonly used for road surfacing, roofing, and painting.

Further, the Court referred to the language of Section 69A, which specifically mentions money, bullion, and jewelry, and questioned whether bitumen could be considered a valuable article within the context of the section.

The Court examined the interpretation given by the Patna High Court, which held that any article with value would fall under the expression “valuable article” mentioned in Section 69A.

However, the Supreme Court disagreed and referred to the decision of the Chhattisgarh High Court in a related provision, Section 69B, which held that stock in a kirana store was not a valuable article. The Court reasoned that valuable article mentioned in Section 69A referred to high-priced and precious items, not ordinary articles of nominal value.

By referring to the Circular No. 20 of 1964-dated 7.7.1964, Justice Hrishikesh Roy observed 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 their unaccounted income, by converting it into gold and bullion, that section 69A was inserted to address and to make such articles taxable under the Income Tax Act.

The principle ‘absoluta sententia expositore non indiget’, was adverted to by Justice Hrishikesh Roy, noting that the maxim provides that if the language employed by the legislature provides for adequate comprehensibility, then nothing additional is required.

The Apex Court concluded by ruling that the assessee was not the owner of the bitumen for the purposes of Section 69A, and bitumen could not be classified as an ‘other valuable article’ under section 69A. The Court stressed the need to adhere to the ordinary and literal meaning of the words in the statute, as they were clear and unambiguous.