Thief Can't Be Assessed As 'Owner' Of Stolen Property Under Section 69A Income Tax Act : Supreme Court

The Supreme Court has ruled that a thief cannot be recognised as the owner of the property within the meaning of Section 69A of the Income Tax Act, 1961. The top court observed that for Section 69A of the Income Tax Act to apply, it is indispensable that the Assessing Officer must find that the articles/ goods enumerated and covered under Section 69A, are owned by the assessee.

Section 69A of the Income Tax Act allows the assessing officer to consider as deemed income any unexplained money, bullion, jewellery, or any other valuable article if the taxpayer is found to be the owner of

The bench of Justices K.M. Joseph and Hrishikesh Roy was hearing an appeal against the decision of the Patna High Court, who had upheld the additions made by the Assessing Officer (AO) towards the bitumen lifted by the assessee from the consignor as a carriage contractor, which was allegedly not delivered by it to the consignee as instructed.

The High Court had found the assessee to be the owner of the bitumen allegedly misappropriated by it. Thus, it had upheld the additions made under Section 69A of the Act towards the short delivery of bitumen.

The Supreme Court in appeal - while considering the issue whether a person can be considered an ‘owner’ under Section 69A if his ownership is illegal- referred to the discussion contained in the commentary on Sampath Iyengar’s Law of Income Tax, where it was observed that an assessee must be found to be the owner before anything in his possession can be deemed to be his income. Thus, it cannot be said that the thief is the owner of a stolen property.

The bench also reckoned that in Addl. Commissioner of Income Tax vs S. Pichaimanickan Chettiar, 1984 (147) ITR 251, the Supreme Court had ruled that the assessee, who was convicted under Section 135(b)(ii) of the Customs Act, 1962 for possession of contraband gold, could not be assessed under Section 69A of the Income Tax Act. The Apex Court had held that the liability to be taxed under Section 69A can arise only if the assessee is shown to be the owner of the goods. In the said case, the court had noted that the assessee had been convicted under the Customs Act by the Magistrate only as a carrier and not as the owner of the gold. Further, the Magistrate had specifically observed that the actual owners of the goods were underground.

The Supreme Court further took note that in Commissioner of Income Tax vs. K.I. Pavunny, (1998) 232 ITR 837, the Apex Court had held that simply because the law prohibits retention of a property, that does not mean that such a property is without ownership. Thus, even contraband or prohibited articles can be owned and possessed unlawfully.

The top court concluded that both the views can be reconciled. The bench held 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 officer must find the assessee to be the owner of the article,” the court said.

However, the court added that, without finding ownership, or in a case where it is obvious that someone else is the owner, a person who is found to be in illegal possession of goods cannot be said to be the owner under Section 69A.

The court remarked that 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,” said the court.

The bench added: “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.” However, when the facts are known that the carrier is not the owner and somebody else is the owner, then to describe the said carrier as the owner may produce results which are most illegal apart from being unjust, the court said.

Therefore, noting that the assessee’s possession of bitumen began as a bailee, who was entrusted with the said goods as a carrier, the court concluded that ownership of the goods did not pass to the assessee, who was a mere carrier of goods. Thus, the assessee could not be said to be the ‘owner’ of bitumen so as to attract Section 69A. The bench thus allowed the appeal and set aside the additions made by the Assessing Officer.

Case Title: M/s. D.N. Singh vs Commissioner of Income Tax & Anr.

Citation : 2023 LiveLaw (SC) 451

Counsel for the Appellant: Mr. Ramesh P. Bhatt, Sr. Adv. Mr. Diggaj Pathak, AOR Mrs. Shweta Sharma, Adv. Mr. Rohit Priya Ranjan, Adv. Ms. Prachi Kohli, Adv.

Counsel for the Respondent: Mr. N Venkatraman, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Udai Khanna, Adv. Mr. Saurabh Mishra, Adv. Mrs. Diksha Rai, Adv. Mr. Shubranshu Padhi, Adv.

Income Tax Act, 1961: Section 69A- The Supreme Court has ruled that a thief cannot be recognised as the owner of the property within the meaning of Section 69A. The top court observed that for Section 69A to apply, it is indispensable that the Assessing Officer must find that the articles/ goods enumerated and covered under Section 69A, are owned by the assessee.

The bench held that a person may own contraband or prohibited articles and still be within the embrace of Section 69A. However, the court added that, without finding ownership, or in a case where it is obvious that someone else is the owner, a person who is found to be in illegal possession of goods cannot be said to be the owner under Section 69A.

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