D.N. Singh vs Commissioner of Income Tax and Another

Chandramauli Kr. Prasad, Actg. C.J.

The assessee-appellant aggrieved by the order dated January 11, 2002, passed by the Income Tax Appellate Tribunal, Patna Bench, Patna in I.T.A. No. 240/Pat/2001 has preferred this appeal u/s 260A of the Income Tax Act.

By order dated October 11, 2006, the appeal has been admitted on the following substantial questions of law:

Whether on the facts and in the circumstances of the appellant''s case confirmation of addition u/s 69A amounting to Rs. 1,04,71,720 is legal and valid?

Whether the addition amounting to Rs. 1,04,71,720 could at all be sustained in the absence of condition precedent for invoking Section 69A of the Income Tax Act?

Whether the Tribunal is justified in sustaining the addition of Rs. 1,04,71,720 u/s 69A on account of short supply of bitumen in the hands of the appellant who is merely a transporter of the goods?

The facts necessary for the decision of the present appeal are that the assessee which derives income from carriage contract for the assessment year 1996-97, filed return on October 31, 1996, disclosing total income of Rs. 5,76,133. The case was selected for scrutiny and notices as contemplated u/s 143(2) and Section 142(1) of the Income Tax Act, hereinafter referred to as the Act, was issued. After hearing the assessee the Assessing Officer added a sum of Rs. 1,04,72,720.30 to its income being the value of bitumen short supplied by the assessee to the various divisions of the Road Construction Department of the Government of Bihar. Aggrieved by the same, the assessee preferred an appeal before the Commissioner (Appeals) who by order dated December 18, 2000, deleted the addition aforesaid, which led the Revenue to prefer appeal before the Patna Bench of the Income Tax Appellate Tribunal, hereinafter referred to as the Tribunal. It was contended before the Tribunal that deleting the addition of Rs. 1,04,71,720 towards value of bitumen short supplied is incorrect.

The assessee filed cross-objection supporting the order of the Commissioner (Appeals) and also claiming that sustaining certain disallowances were not justified. The Tribunal on appraisal of the opinion did not accept the plea of the assessee that it had delivered the bitumen. The Tribunal referred to the claims of non-delivery by all executive engineers before the Assessing Officer in which they have specifically pleaded that in pursuance of the order the bitumen was lifted from oil companies but not supplied. In this connection the observation of the Tribunal reads as follows:

In pursuance of the said show-cause notice, the assessee filed photocopies of delivery challans, claiming that it had made full delivery to the respective divisions. While adjudicating the appeal in I.T.A. No. 358 (Patna) 2000 decided on December 11, 2002, we had an opportunity to appreciate the facts in this regard. We formed an opinion that the photocopies of the delivery challan were false and fabricated. We further, came to the conclusion that the admission made by various junior engineers, was clarified and the explanation made by them was that bitumen supplied was short and the delivery was not in consonance with the orders, on the strength of which the goods were lifted from the various companies located at Haldia. Here in this case too the assessee nowhere disputes the quantity of the goods lifted by it from various companies at Haldia. It has not been disputed that bitumen weighing 10000.77 m.t. was lifted by it from Haldia. Its claim that full supply was made stands demolished when photocopies of delivery challans were found to be false and fabricated. All executive engineers asserted that delivery to the tune of 8206.2 m.t. of bitumen was made to their respective divisions. They had confirmed non-delivery to the tune of 2090.40 m.t. by the assessee. In such a situation the Assessing Officer was justified in adding a sum of Rs. 1,04,72,720 to the income of the assessee under the provisions of Section 69A of the Act.

Mr. Vikash Jain, appearing on behalf of the appellant-assessee submits that there is no finding that the assessee was the owner of the bitumen who had right to dispose of the same, hence it cannot be held to be owner thereof so as to attract the provision of Section 69A of the Act. He also points out that there is no finding that the bitumen was sold by the assessee and on that account also the value of the bitumen cannot be added as income. In support of the submission, reliance has been placed on a decision of the Supreme Court in the case of R.B. Jodha Mal Kuthiala Vs. The Commissioner of Income Tax, Punjab, Jammu and Kashmir, Himachal Pradesh and Patiala, in which the Supreme Court held as follows (page 578):

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 income. 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 edition, various meanings of the word ''owner'' are given. It is not necessary for our present purpose to examine that, 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 oppression. It must be in consonance with the principles underlying the Act.

Mrs. Archna Sinha, however, appearing on behalf of the Revenue submits that the word "owner" has different meanings in different contexts and in the present case the assessee having lifted the bitumen for supply to the Road Construction Department but having not supplied that, it shall be assumed that it has utilized the same and therefore it is the owner of the bitumen.

Having appreciated the rival submissions, I do not find any substance in the submission of Mr. Jain and the authority relied on, is clearly distinguishable.

In my opinion, for determining the person liable to pay tax one has to find out the person who receives the income and in case that income is not received for somebody else, it shall be its income. The word "owner" has different meanings in different contexts and when a transporter of goods sells the goods and receives money for that, not on behalf of the real owner, it becomes the owner for the purpose of tax. In the present case the assessee is in the business of carriers contract and in that capacity lifted the bitumen to be supplied to the Road Construction Department but having not supplied to the owner, in my opinion shall be liable to pay tax on the value of the bitumen so lifted and not delivered.

Referring to the decision of the Supreme Court in the case of R.B. Jodha Mal Kuthiala Vs. The Commissioner of Income Tax, Punjab, Jammu and Kashmir, Himachal Pradesh and Patiala, the same is clearly distinguishable. In the said case itself, the Supreme Court has observed that 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. Here on the facts the Tribunal has found that the bitumen was lifted but not supplied to the Road Construction Department and in that view of the matter, I am of the opinion that the assessee shall be liable to pay tax. The relevant portion of the judgment of the Supreme Court reads as follows (page 577):

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 corresponding 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 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.

To put the record straight, Mr. Jain has also placed reliance on a judgment of the Bombay High Court in the case of CIT v. Amratlal Chunilal Shah (1984) 40 CTR (Bom) 387 in support of the contention that the asses-see is not the owner there of In the said case it has been observed as follows (page 388):

The Tribunal has come to a conclusion that the assessee was not the owner of the gold but was only a carrier. The Tribunal has found that the financial condition of the assessee was poor and that his income for the previous assessment year was determined only at Rs. 4,000. The Tribunal has also relied upon the following facts as disclosed in the complaint before the Chief Presidency Magistrate, Bombay, namely that there were other persons who had accompanied the assessee at the time when he was carrying the gold in question. The assessee did not at the sight of the bogus customer approach the taxi in which the customer was sitting. Some other person negotiated with the customer first, and then led the assessee to the taxi. No other person, however, was prosecuted. The Tribunal accepted the explanation given by the assessee that he was induced on a payment of Rs. 50 to carry a bag containing gold up to a taxi which was standing on Kalbadevi Road. The Tribunal has, therefore, on the basis of these facts, come to the conclusion that the assessee was a small person with insufficient means and that he was not the owner of the gold in question. The Tribunal, has, therefore, come to the conclusion that the addition of Rs. 65,000 made by the Income Tax Officer u/s 69A of the Income Tax Act, 1961 was not justified.

This judgment in no way supports the contention of the assessee. In the aforesaid case on the facts, the High Court found that the Tribunal on the basis of the materials rightly held that the assessee was not the owner of the goods in question. Here on the facts, the Tribunal has found that the assessee is the owner of the property and I have concurred with that finding and hence the judgment relied on in no way supports the assessee''s case.

12 Mr. Jain then contends that other valuable articles in Section 69A of the Act would not include bitumen. According to him, the expression "other valuable article" must take colour from the preceding words of that section. He points out that for application of Section 69A of the Act, bitumen should have nexus with bullion, jewellery or other valuable article and admittedly it is not being so, income derived from it cannot be said to be unexplained income. Section 69A of the Act which is relevant for the purpose reads as follows:

69A. 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 other valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be income of the assessee for such financial year.

From a plain reading of the aforesaid provision, it is evident that when the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article its value would be deemed income of the assessee. Valuable article is a separate item in Section 69A of the Act and it cannot be said that those valuable articles should be in the nature of bullion and jewellery. In my opinion, any article which has value will come under the expression "valuable article" mentioned in Section 69A of the Act and the value of such article can be deemed to be the income of the assessee in case the assessee fails to offer explanation or the explanation offered is not satisfactory.

Mr. Jain then submits that the sine qua non for application of Section 69A of the Act is failure to offer explanation by the assessee of the valuable article and in the present case, the assessee having offered the explanation, the provision of Section 69A of the Act is not attracted. In my opinion, an explanation offered, if not accepted, is no explanation in law and not only this, the Legislature while enacting Section 69A of the Act has clarified that in case the explanation offered is not satisfactory, the value of the valuable article shall be deemed to be the income of the assessee. As such, this submission has no merit and it is rejected.

Mr. Jain, lastly submits that u/s 69A of the Act the value of the valuable article is deemed to be the income of the assessee but in the present case the cost of the bitumen and not the value thereof has been added as income. It is not the case of the assessee that it has sold the bitumen at a lower price than its cost and in that view of the matter its cost was rightly considered as the value of the bitumen.

From the discussion aforesaid, I am of the opinion that the confirmation of addition u/s 69A of the Act amounting to Rs. 1,04,71,720 is legal and valid. The first substantial question of law is answered in the affirmative against the assessee and in favour of the Revenue.

am further of the opinion that condition precedent for invoking Section 69A of the Act existed and the addition amounting to Rs. 1,04,71,720 is fit to be sustained. The second substantial question of law, is thus also answered in the affirmative, against the assessee and in favour of the Revenue.

In the facts of the present case, I am further of the opinion that the assessee is the owner of the bitumen within the meaning of Section 69A of the Act and the Tribunal was right in sustaining the addition. The third substantial question of law thus, is also answered in the affirmative, against the assessee and in favour of the Revenue.

In the result, the appeal stands dismissed but without any order as to costs.

Ravi Rajan, J.

I agree.