In the present case, the Supreme Court was faced with two principal questions. The first question pertained to whether the assessee could be considered as the ‘owner’ of the goods in question, and the second question revolved around whether ‘bitumen’ could be classified as an ‘other valuable article’ under Section 69A of the Income Tax Act, 1961.

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, jewellery, or other valuable articles when offering no satisfactory explanation regarding their nature and source of acquisition.

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.

Moving on to the second question, the Court delved into the nature of bitumen. It described bitumen as a residual offshoot obtained during the process of crude oil refining, commonly used for road surfacing, roofing, and painting. 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 articles mentioned in Section 69A referred to high-priced and precious items, not ordinary articles of nominal value.

Taking into account the legislative intent, the Court referred to Circular No. 20 of 1964, wherein it was clarified that the insertion of Section 69A aimed to tax high-value items like gold, jewelry, and other valuable items used by high-income individuals to park their unaccounted income. The Court emphasized that the legislative intent was not to bring every article of value within the ambit of Section 69A.

Applying principles of strict interpretation and referring to the principles of ejusdem generis and noscitur a sociis, the Court held that the phrase ‘other valuable article’ in Section 69A should be limited to high-value goods, such as gold bars and jewelry. Including bitumen, a residual offshoot material, within the expression ‘other valuable article’ would lead to absurd outcomes and go against the legislative intent.
In conclusion, the Supreme Court held 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 the section. 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.

Posted on: May 26th, 2023