The case before the High Court pertained to income tax assessment of Mahendra Jain, a Mumbai-based goldsmith, who possessed a licence under the Gold Control Act.
A smuggler can avail I-T exemption for business loss if the gold he has smuggled is confiscated, but a licensed goldsmith can’t seek such a benefit as he is not expected to deal in illegal gold that stands the risk of being seized, the Bombay High Court has held.
The case before the High Court pertained to income tax assessment of Mahendra Jain, a Mumbai-based goldsmith, who possessed a licence under the Gold Control Act. Under the licence, Jain was not allowed to sell or buy gold and was authorised only to make ornaments from gold given by clients.
In April 1991, Directorate of Revenue Intelligence raided Jain’s shop and seized bars of gold with foreign marks worth about Rs 3 lakh. He pleaded that the gold bars were given to him by one Raju from Bangalore to make ornaments. But the additional commissioner of customs did not accept this claim, and confiscated the gold as contraband. When the I-T officer assessed Jain’s income for 1992-1993, the value of gold bars was added as ‘income from undisclosed sources’.
Jain appealed against this addition before the Income Tax Appellate Tribunal. He also pleaded that if the value of bars was to be added as income, then the same must also be deducted as business loss, because the gold was confiscated and never returned. The Tribunal rejected this argument. Following this, Jain filed an appeal in the HC.
In its decision, division bench of Justices S Radhakrishnan and SJ Kathawalla held that confiscation of gold could not be dubbed as a business loss, because Jain never admitted that he dealt in gold, smuggled or otherwise.
“Loss caused by confiscation of smuggled gold is not trade or commercial loss connected with or incidental to assessee’s business (which was making ornaments),” the court said. The loss of gold occurred not in the course of Jain’s business, but because he broke the law and
possessed smuggled gold, the High Court said.
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