Summary of this article
Taxpayers must prove legitimate sources for all inherited gold.
Sworn affidavits and old valuation reports confirm ancestral ownership.
Married women can lawfully hold up to 500 grams.
In India, gold is much more than just a precious metal. It is a traditional asset passed from one generation to the next. However, taxpayers often do not consider checking the tax implications of inheriting gold.
Not considering these tax implications can lead to the Income Tax Department's scrutiny and severe legal complications. Such a situation unfolded recently as a taxpayer in Kolkata was investigated over the legitimacy of his family's heirloom jewellery.
Under Section 132 and Section 292C of the Income Tax Act, 1961, when cash, bullion, or jewellery are discovered during an enforcement search, the law creates a statutory presumption that these assets belong to the person being searched.
Thus, the entire burden of proof falls on the taxpayer to demonstrate that the assets do not belong to them or originate from fully explained, legitimate sources. When undisclosed lockers and substantial physical assets surface without immediate documentation, tax officers routinely treat the holdings as unexplained income.
I-T Department’s Gold-Probe
On June 21, 2022, the tax department investigated the residential and business premises of Miraj Digvijay Shah as part of a search and seizure operation. Notably, the department found jewellery and bullion valued at Rs. 14,68,97,402 at Shah’s residence and in various bank lockers.
The I-T Department’s Assessing Officer (AO) ordered the taxpayer to reconcile and provide the source of this jewellery. While the AO partially accepted the explanation for a portion of the wealth, he treated the balance as unexplained and unaccounted for. Consequently, the AO added Rs. 1,56,77,954, representing 3233.11 grams of gold, to the taxpayer's taxable income.
How The Taxpayer Appealed Against The Order
To appeal against the tax addition, Shah filed an appeal before the Commissioner of Income Tax Appeals (CITA). He argued that the 3233.11 grams of gold did not belong to him but instead belonged to the estates of his deceased grandparents, father, and his late father's Hindu Undivided Family (HUF).
A key part of Shah’s defence was that the gold was not recovered from his personal possession, but rather from lockers at UCO Bank held jointly in the names of his deceased family members and his mother.
To further substantiate the claim of ancestral ownership, he submitted historical valuation reports obtained by his deceased family members during the Voluntary Disclosure of Income Scheme of 1997.
He also provided a sworn affidavit from his mother, Rekha Shah, who confirmed her custody of the unexecuted estates of her deceased relatives. During the initial search, the taxpayer explicitly maintained that he had no knowledge of the specific bank lockers where the gold was found.
"I was not aware of these lockers as they were my mother's," Shah said.
What The ITAT Said In The Matter
The Commissioner of Income Tax Appeals (CITA) ruled in favour of the taxpayer, a decision that the tax department subsequently challenged before the Income Tax Appellate Tribunal.
However, the tribunal reviewed the evidence and noted that the AO had failed to point out any falsity or infirmity in the 1997 valuation reports or the mother's sworn affidavit.
The tribunal concluded that since the taxpayer was neither the executor nor the legal heir to the estates of his deceased family members, it was imprudent to expect him to furnish their wealth tax returns.
In delivering the initial appellate decision, the authority emphasised that the taxpayer had successfully met the burden of proof.
"I am of the view that the assessee has been able to reasonably demonstrate the lineage and ownership belonging to his deceased family members and therefore, such ancestral jewellery is treated to be explained," ITAT said.
The tribunal firmly upheld this view and highlighted the contradiction in the tax department accepting the mother's affidavit for her personal gold but rejecting it for the ancestral assets.
"Having accepted the affidavit of Smt. Rekha Shah, in relation to the existence and ownership of her 1293.43 gms of gold jewellery, it is unjustified to assail the addition of the impugned ancestral jewellery, which similarly rested on the valuation reports of the deceased family members and the assessee's mother's uncontroverted affidavit," the ITAT said.
What Should Taxpayers Who Hold Gold Do
The ruling shows that any taxpayer inheriting ancestral wealth has to proactively maintain thorough documentation. However, for an ordinary taxpayer, receiving gold through a will or inheritance does not attract any immediate income tax.
Under the Central Board of Direct Taxes (CBDT) instructions, tax officials conducting a search will generally not seize gold jewellery up to 500 grams for a married woman, 250 grams for an unmarried woman, and 100 grams for a male family member. However, this threshold is strictly an operational non-seizure guideline during raids. Thus, as long as a taxpayer can demonstrate that the legitimate source and lineage of the gold can be held lawfully.
