1987 (1) TMI 182 - AT - Income Tax

Summary

Issues Involved:
1. Taxability under Section 69B of the Income Tax Act.
2. Nature of income from the sale of jewellery (whether business income or capital gains).
3. Deduction of commission expenses in computing capital gains.

Detailed Analysis:

1. Taxability under Section 69B of the Income Tax Act:
The primary issue revolves around whether the difference between the fair market value of jewellery at the time of partition and its disclosed value under the Voluntary Disclosure Scheme (VDS) should be taxed under Section 69B. The assessee-HUF disclosed jewellery worth Rs. 4,95,300 acquired between 1943-44 and 1956-57. The ITO sought to tax the difference of Rs. 20,94,450 as unexplained investment. The CIT(A) found that the ITO's action was not in accordance with the Board's clarification dated 20th Nov., 1975, which stated that only the cost of acquisition needed to be disclosed under the VDS. The CIT(A) concluded that the addition under Section 69B was not maintainable and deleted it.

2. Nature of income from the sale of jewellery (whether business income or capital gains):
The ITO treated the sale of jewellery on 21st Feb., 1976, as business income. However, the CIT(A) relied on the Special Bench decision in the case of Mannalal Nirmal Surana vs. ITO, which held that the income from the sale of capital assets should be treated as capital gains. The CIT(A) observed that the facts of the present case were identical to the Special Bench case and concluded that the income from the sale of jewellery should be treated as long-term capital gains.

3. Deduction of commission expenses in computing capital gains:
In the case of Smt. Madhuridevi, the ITO did not allow the deduction of commission expenses of Rs. 20,136 incurred for the sale of jewellery. The AAC confirmed this decision. The assessee argued that this should be allowed as a deduction. However, the Tribunal held that the commission expenses were not allowable as a deduction for computing capital gains, as they were not incurred wholly and exclusively in connection with the transfer.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the addition under Section 69B was not maintainable and that the income from the sale of jewellery should be treated as long-term capital gains. The Tribunal also upheld the AAC's decision not to allow the deduction of commission expenses in computing capital gains. The departmental appeals were dismissed, while the cross-objections and the assessee's appeal in the case of Smt. Madhuridevi were dismissed.

Separate Judgment Observation:
H.S. Ahluwalia, J.M., expressed concerns about potential tax evasion due to the acceptance of the assessee's contentions but ultimately did not propose to make it a third Member case, leaving it for the consideration of the High Court.