1. Search in premises of public servant – Wife of public servant claiming ownership of money and assets – Department taxing them in hands of wife – Effect on proceedings under Prevention of Corruption Act against husband – Income-tax Act, 1961, s. 132

District Superintendent of Police, Chennai vs. K. Inbasagaran 282 ITR 435, (SC)

Where a public servant was prosecuted for an offence under the Prevention of Corruption Act, 1988, for possession of unaccounted money based on the recovery of huge cash and other assets by the Income-tax Department from his house, he produced evidence to show that they did not belong to him and his wife gave evidence that she was running some concerns and the money which had been recovered from his house belonged to her but had not been disclosed and the Income-tax Department had assessed her to tax in regard to the money in her hands:

The Supreme Court held that when there was joint possession between wife and husband, or father and son, and if some member of the family was involved in amassing illegal wealth, unless there was categorical evidence to believe that this could be read in the hands of the husband or as the case may be the head of the family, it could not be fastened on the husband or the head of the family. Though the prosecution had tried to do its best to lead evidence to show that all the money belonged to the public servant, when the wife had fully owned that the entire money and other wealth was earned by her but she had not shown it in the income-tax return and she had accepted the whole responsibilities, it was difficult to hold that the public servant was guilty of the charge. The prosecution was not able to lead evidence that some of the money could be held in the hands of the accused. In view of the explanation given by the husband which was substantiated by the wife and other witnesses coupled with the fact that the entire money had been treated in the hands of the wife and as she had owned it and she had been assessed to tax thereon, it was not proper to hold the husband guilty under the Prevention of Corruption Act as his explanation appeared plausible and justifiable. He had satisfactorily accounted for the recovery of the unaccounted money.

2. Transaction of mobile phone connection is a sale or is it a service or is it both for levy of sales-tax

Bharat Sanchar Nigam Ltd. vs. Union of India 282 ITR 273 (SC)

It was contended by the mobile phone connections providers that there is no sale transaction involved and that the attempt of the several States to levy tax on the provision of mobile phone facilities by them to subscriber was constitutionally incompetent. It is the case of the mobile phone connections providers that the transaction in question was merely a service and that the Union Government alone was competent to levy tax thereon. They are supported in their stand by the Union Government.

The States’ contended that the transaction was a deemed sale under Article 366(29A)(d) of the Constitution read with the changing sections in their various sales-tax enactments and therefore, they are competent to levy sales-tax on the transaction.

The Bench of three judges of the Supreme Court held as under:

1. "Goods" do not include electromagnetic waves or radio frequencies for the purpose of Article 366(29A)(d) of the Constitution of India. The goods in telecommunication are limited to the handsets supplied by the service provider. There are two reasons : (i) Electromagnetic waves are neither abstracted nor consumed in the sense that they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message itself by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscriber. (ii) The second reason is more basic: a subscriber to a telephone service cannot reasonably be taken to have intended to purchase or obtain any right to use electromagnetic waves or radio frequencies when a telephone connection is given. Nor does the subscriber intend to use any portion of the wiring, the cable, the satellite, the telephone exchange, etc. At the most the concept of sale in the subscriber’s mind would be limited to the handset that may be purchased. As far as the subscriber is concerned no right to the use of any other goods, incorporeal of corporeal, is given to him or her with the telephone connection. Electromagnetic wave (or radio frequencies) do not fulfil the parameters applied for determining whether they are goods, the right to use of which would be sale for the purposes of Article 366(29A)(d). The essence of the right under Article 366(29A)(d) is that it relates to the user of goods. It may be that the actual delivery of the goods is not necessary for effecting the transfer of the right to use the goods but the goods must be available at the time of transfer, must be deliverable and delivered at some stage. If the goods or what are claimed to be goods are not deliverable at all by the service providers to the subscribers, the question of the right to use those goods would not arise.
    

2. If the SIM card is not sold to the subscribers but is merely part of the services rendered by the service providers, the SIM card cannot be charged separately to sales-tax. If the parties intended that the SIM card would be a separate object to sale, it would be open to the sales tax authorities to levy sales tax thereon. If the sale of the SIM card is merely incidental to the service being provided and facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales-tax.
   
   The Union of India cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service.
    

3. "Goods" may be tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility, (b) its capability of being bought and sold, and (c) its capability of being transmitted, transferred, delivered, stored and possessed. This is the correct approach to the question as to what are "goods" for the purpose of sales-tax.