Mr. A is an Indian citizen and resident in India. He does not carry on any ostensible business. In August 1992, while crossing the Ino-Pakistan border, he was intercepted by customs authorities and gold weighing 5 kgs. was recovered from him and confiscated by the customs department. `A' was also sentenced to 2 years imprisonment.
He was issued a notice to file his return of income and prove the source of his investment in the gold that he was smuggling to Pakistan. Prior to this conviction, there had been no evidence that `A' was involved in smuggling business or carried on any other business. Perhaps, he was being used as a carrier on payment of some reward though he denies this. He has filed a return showing nil income on the ground that he has no business of any kind. He has however claimed loss equivalent to the value of gold confiscated in case the I-T department assesses the value of gold as income. The I-T department, however, wishes to tax the value of confiscated gold without giving any credit for the loss occasioned by confiscation. Kindly indicate whether the I-T department's view is correct.
Indrajeet Mehta, Advocate, Jodhpur

Prima facie, the loss seems to be allowable in view of the Supreme Court's decision in the CIT v. Piara Singh (1980) 124 ITR 40. The facts in the queriest's case are however different from Piara Singh's case. Hence what needs to be seen, is whether taking into accounts facts in the queriest's case the loss claimed can be allowed.

The facts show that the assessee never carried on any business or indulged in smuggling activities in the past. But that does not imply that he cannot engage himself in the business activities in future. In Chuharmal v. CIT (1988) 172 ITR 250, in the course of search and seizure by Customs authorities, watches were recovered from the bedroom of the assessee. No explanation was given for the source. It was held that a legitimate inference could be drawn that the petitioner had income which he had invested in purchasing the wrist watches and could be held to be owner of the wrist watches and their value could be deemed to be his income by virtue of section 69A of the Act.

Hence the I-T authorities, in view of the aforesaid decision, are justified in treating, the value of gold as assessee's income. However having accepted that this value represented assessee's business income (may be from an adventure in the nature of trade), the loss caused consequent to confiscation of gold could not be said to be a non-business loss. Hence in my view, the loss would be an admissible deduction in view of Piara Singh's decision (supra). The result would be that the assessee's income would be reduced to zero and there would be no liability to tax under the IT Act.

What immunities are available to a declarant under the VDIS currently in force.
Bhim Sen Gupta, Calcutta.

The word `immunity' has not been used in the VDIS provisions -- sections 64 to 78 of the Finance Act 1997 unlike in the 1976 VD scheme where section 16 specifically deals with the issue of immunity from penalty, prosecution etc. However, the 1997 scheme stipulates benefits of the following nature to those who make declarations.

(i) Section 72 provides that the particulars furnished by a declarant shall be kept a secret and shall be treated as confidential. No court or any other authority shall be entitled to require any officer of the I-T department or the declarant himself to produce before it may such declaration or to give evidence before it in this regard.

(ii)Further nothing contained in any declaration shall be admissible as evidence against the declarant for the purpose of any proceeding relating to imposition of penalty or launching of prosecution under the Income Tax Act, Wealth Tax Act, Foreign Exchange Regulation Act, 1973 or the Companies Act, 1956. However, the I-T department can make available declarations to the officers of the income tax or to the wealth tax or to any officer appointed by the Comptroller and Auditor General of India or the Board to audit income tax receipts or refunds.