R. Ramanathan Chettiar vs Commissioner of Income Tax

Ramanujam, J.—In this tax reference petition, the assessee seeks a direction to the Tribunal to refer the following question for the opinion of

this court!

Whether, on the facts and in the circumstances of the case, the assets sold were capital assets within the meaning of section 2(14) chargeable to

capital gains tax u/s 45 of the Income Tax Act, 1961 ?

The assessee is a HUF, and for the assessment year in question, it filed a return of income admitting a total income of Rs. 1,36,652. The ITO

completed the assessment and computed the total income at Rs. 1,70,117. The ITO found that the assessee had sold 845 items of silver articles

and vessels for Rs. 2,59,894, and that the assessee was in receipt of capital gains by such sale. The contention of the assessee that the profits on

sale of silver articles were exempt from capital gains tax because the articles sold were for the personal use of the assessee and hence were not

capital assets as defined in s. 2(14) of the I.T.Act, 1961, was not accepted by the ITO. Aggrieved by the order of the ITO, the assessee preferred

an appeal before the Commissioner of income tax(Appeals), but without success. The matter was then taken to the Tribunal by the assessee, and

the Tribunal agreed with the Commissioner of Income Tax (Appeals), holding that all the 845 silver articles could not be treated as having been

held by the assessee for personal use and that, therefore, the ITO was justified in treating some of the items as having been kept by the assessee

for personal use and other items as not having been kept for personal use.

Out of the total silver articles (845) weighing totally 237.856 kg., the ITO held that 96.259 kg. of silver articles could be taken to have been

held by the assessee for personal use and the balance of 141.597 kg. should be treated as capital assets. It is seen from the order of the Tribunal

that the assessee possessed more than one unit of the same type of articles, for example, there were 50 silver plates for serving betel leaves, and

100 cups, apart from 200 plates, for serving curd. The Tribunal, therefore, held that the possession of such a large number of the same type of

silver articles could not be taken to have been held by the assessee for personal use, and that, therefore, the ITO was justified in treating the

portions of the same articles as having been kept for personal use and the rest of the articles as falling within the definition in s. 2(14) of the I.T.

Act. According to the learned counsel for the assessee, having regard to the nature of the silver articles sold, all the articles, without reference to

their number, should be taken to have been kept by the assessee for personal use. Thus, according to the learned counsel for the assessee, when

ever the assessee says that it has kept an article for personal use, it should straightaway be accepted by the Revenue. We are not inclined to agree

with the said submissions of the learned counsel for the assessee. Irrespective of the claim put forward by the assessee that he is having articles for

personal use, the Revenue has to investigate whether the articles are required for the personal use of the assessee as claimed by the assessee or

whether the articles are in excess of the requirement of the personal use of the assessee so that it will fall within the definition of capital assets in s.

2(14) of the Act. Section 2(14) defines capital assets as follows :

(14) ''capital asset'' means property of any king materials held by an assessee, whether or not connected with his business or profession, but

does not include -

(i) any stock-in trade, consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing appeal and furniture, but excluding jewellery) held for personal use by the

assessee or any member of his family dependent on him.

Admittedly, in this case, the various items of silver articles sold will fall within the definition of capital asset, though they will stand excluded if it is

found that the articles have been kept by the assessee for personal use. The silver articles sold by the assessee during the year in question, as

already stated, are 845 items and it is not possible to treat all these items as having been kept by the assessee for personal use. It is for this reason

that the assessing authority took each item of silver articles and treated a reasonable portion of the same as having been held by the assessee for

personal use and such apportionment has been held by the Tribunal as being reasonable. We are also of the view that in a case like this, where the

assessee claims a very large number of items of silver articles as having been held for personal use. The allocation of the articles for personal use in

this case by the ITO appears to be quite reasonable and this is also the view taken by the Tribunal. In fact, we find that the Supreme Court while

interpreting the provisions of s. 2(4A)(ii) of the Indian I.T.Act, 1922, which corresponds to s. 2(14)(ii) of the present Act, in H.H. Maharaja Rana

Hemant Singhji, Dholpur Vs. Commissioner of Income Tax , Rajasthan, held that it was only those articles commonly and ordinarily intended for

personal or household use which would qualify as personal effects. In that case, the Supreme Court was of the view that a close scrutiny of the

context in which the expression ""personal use"" occurs shows that only those effects can reasonably be said to be personal which pertain to the

assessee personally; in other words, an intimate connection between the effects and the person of the assessee must be shown to exist to render

them personal effects; and that the intention of the legislature appears to be clear that only those articles should be included in the definition of

personal effects which were intimately and commonly used by the assessee. In this case, if we adopt the test laid down by the Supreme Court in

the above case, the large number of the same type of silver articles cannot be taken to have been held by the assessee for personal use and they

cannot, therefore, be taken to come within the expression ""personal effects"" occurring in s. 2(14)(ii) of the Act. The Tribunal has chosen to flow the

said decision of the Supreme Court in support of its conclusion that, except to the extent indicated by the ITO, the other silver articles sold cannot

be taken to fall within the scope of the expression ""personal effects"". We are, therefore, of the view that the Tribunal has come to the right

conclusion. the tax case petition is, therefore, dismissed. There will be no order as to costs.