Background Matrix 

In the matter of M/S DN Singh v Commission of Income Tax a case appealing the Patna High Court’s ruling upholding the Assessing Officer’s additions to the bitumen the assessee had purchased from the consignor as a carriage contractor but had allegedly failed to deliver to the consignee as directed. The assessee was determined by the High Court to be the rightful owner of the allegedly diverted bitumen. As a result, it supported the additions made by Section 69A of the IT Act. The High Court ruled that after lifting the bitumen, the appellant would be responsible for paying tax on any bitumen that was not supplied. The Supreme Court received an appeal of this ruling.

ISSUE 

whether a thief can be considered an ‘owner’ of the goods under Section 69A IT Act.

Relevant provisions 

The IT Act’s Section 69A addresses “unexplained money,” in which the assessee is determined to be the owner of any cash or valuables that are not noted in the books of accounts.

Analysis of Court Order 

The Supreme Court’s divisional bench of Justices KM Joseph and Hrishikesh Roy held that the assessing officer must determine that the assessee is the owner of the article or products by the law for Section 69A IT Act to be applicable. A thief cannot be accepted as the owner of a property under Section 69A of the Income Tax Act, the panel recently ruled.

The court noted that recognising a thief as the owner of the property within the meaning of Section 69A would be stretching the law beyond what is justified. The most shocking outcome would come from recognising a thief as the owner of the property, which would also mean that the owner would no longer be recognised as the owner. 

The Sampath Iyengar’s Law of Income Tax commentary, which asserts that the assessee must be the owner before anything in his possession may be considered to be his income, was cited by the Court. Therefore, a thief cannot be the owner of anything that has been taken. Further, the Court cited the ruling in Additional Commissioner of Income Tax v. S Pichaimanickan Chettiar, where it was determined that the assessee could not be assessed under Section 69A of the Internal Revenue Code after being found guilty under the Customs Act of possessing gold. The Supreme Court’s observation that just because the law forbids the retention of a property does not entail that it is without ownership was made in the Commissioner of Income Tax v. KI Pavunny case, which was cited by the Court. Because of this, it is possible to own and possess illegal items.

The Bench concluded that to identify a thief as the owner of the property within the meaning of Section 69A would be to overstep the bounds of the law. When it is known that the carrier is not the owner and someone else is, describing him as the owner may result in outcomes that are mostly illegal in addition to being unjust. While possession 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. It was determined as a result that a thief could not be accepted as the owner of the property by Section 69A. The appeal was permitted by the court because it was determined that the appellant could not be considered the owner of the bitumen.