Family jewellery cannot be taxed

Source: DNA dated 24.09.2019

By Arvind Rao (Sebi Registered Investment Adviser)

In an interesting case that came up for hearing before the Delhi Tax Tribunal, the taxman had conducted search procedures at a taxpayer’s residence as well as her bank locker in the year 2012. As required under the procedure, the taxpayer filed her return of income declaring a total income of Rs 6.04 lakh under the head ‘other sources’ for the year under consideration. However, during the course of search, gold jewellery of 1,225 gms worth Rs 25.87 lakh and silver utensils of 1,283 gms worth Rs 0.58 lakh were found from the residence and locker of the taxpayer.

The taxpayer submitted that out of the total jewellery found, 580.4 gms of gold was her streedhan given by her parents and relatives at the time of her marriage in 1990. Out of the jewellery found in the locker, gold jewellery of 598.8 gms and all the silver utensils/coins belonged to her mother-in-law who had passed away in 2005 and was then passed on to the taxpayer. Further, the taxpayer relied on a previous decision by the Delhi High Court wherein it had held that streedhan in the form of jewellery received during the span of 25 years cannot be deemed as unexplained investments under the provisions of the Income Tax Act (‘the Act’).

The tax officer considered the taxpayer’s submissions and held that she had failed to satisfactorily explain the source of acquisition for the gold jewellery and silver utensils. And an amount of Rs 10.65 lakh was added back as income towards unexplained investments of the taxpayer. The first-level appellate authority did not find any merit in the appeal by the taxpayer and agreed with the tax officer’s view.

When the matter came up for hearing before the Delhi Tax Tribunal, the taxpayer argued that it is neither practically desirable nor legally permissible to make the stated addition on the ground of the lack of documentary evidence when it’s an undisputed position that her mother in law’s marriage had taken place 53 years prior to the search and her own marriage had taken place 20 years ago. She relied on a previous decision of the Delhi High Court, where the honorable Court had accepted jewellery of 906.60 gms in the case of a married lady without any documentary evidence, as denying similar explanations provided by the lady, in that case, would result in overlooking the realities of life.

On the basis of the facts of the case, the tax tribunal observed that the jewellery found during the course of search operations was actually from the locker held by the father-in-law and husband of the taxpayer and hence the addition of income in the hands of the taxpayer is not correct. Referring to the decisions relied upon by the taxpayer in her defense, the Tribunal held that it is a normal custom for a woman to receive jewellery in the form of streedhan or on other occasions such as birth of child, etc.