Full Judgment Text
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PETITIONER:
THE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH, BHOPAL
Vs.
RESPONDENT:
H.H. MAHARANI USHA DEVI
DATE OF JUDGMENT: 14/05/1998
BENCH:
SUJATA V. MANOHAR, S. RAJENDRA BABU
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
Mrs. Sujata. V. Manohar, J.
The assessee is the ex-Ruler of the erstwhile Holkar
State. The assessee was assessed as an individual and the
assessment year involved is 1972-73.
In 1949, the Ministry of States, New Delhi had accepted
certain heirloom jewellery as private properties of His late
Highness Maharaja keshaw Rao Holkar of Indore. These
included a ’Sirpech" and a Ceremonial belt. All the listed
jewellery and gold in the Huzur Jawahirkhana at Indore in
1949 and used by the Ruler of Indore on ceremonial occasions
as in the past, were exempt under the provisions of Section
5(1)(xiv) of the wealth-Tax Act.
During the accounting year relating to the assessment
year 1972-73, the assessee sold two items of heirloom
jewellery for Rs. 13,80,001/-. The assessee claimed before
the Tribunal that the heirloom jewellery constituted
personal effects of the assessee within the meaning of
Section 2(14) of the Income-Tax Act, 1961, and, therefore,
the sale of this jewellery did not give rise to any taxable
capital gains. This contention was negatived by the
Tribunal. The Tribunal, however, framed the following
question for reference before the High Court of Madhya
Pradesh under Section 256(1) of the Income-Tax Act, 1961:
" Whether on the facts and in the
circumstances of the case, the
heirloom jewellery constituted
’personal effects’ within the
meaning of Section 2(14) of the
Income-tax Act, 1961, therefore,
the sale thereof did not give rise
to any taxable capital gains?"
The High Court has answered the question in favour of
the assessee. Hence the present appeal.
Under Section 45 of the Income-tax Act any profits or
gains arising from the transfer of a capital asset effected
in the previous year is chargeable to Income-tax under the
head ’Capital Gains’. Such profits or gains shall be deemed
to be the income of the previous year in which the transfer
took place. The term ’Capital asset’ has been defined in
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Section 2(14) of the Income-tax Act. Section 2(14), as it
stood at the relevant time, was as follows:
Section 2(14):
"Capital asset means property of
any kind held by an assessee
whether or not connected with his
business or profession, but does
not include:
(i) ...........................
(ii) personal effects, that is to
say, movable property (including
wearing apparel, jewellery and
furniture) held for personal use by
the assessee or any member of his
family dependant on him.
.......................
..........................."
Personal effects which are excluded from capital assets
include jewellery for personal use. We have to consider
whether jewellery held for personal use by the assessee
would cover heirloom jewellery of the assessee. Heirloom
jewellery is also meant for the personal use of the
assessee. it is, however, not meant for daily use but for
use on ceremonial occasions. This does not deprive such
jewellery of its character as jewellery meant for personal
use. For example, clothes meant for use at weddings or
formal occasions are not used daily. Yet they are stitched
for personal use of the wearer. As such, they would form a
part of his personal effects. Heirloom jewellery may be
passed down from generation to generation. But it is
nevertheless for the personal use of the owner. The High
Court has rightly held that the frequency of use of the
property must necessarily depend on the nature of the
property. Merely because from the nature of the property, it
can be used on ceremonial occasions only, it does not follow
that the property is not held by the assessee for personal
use.
On behalf of the department, however, it is contended
that because the jewellery is meant for use on ceremonial
occasions, it will not be a part of the assessee’s personal
effects. Learned counsel for the department has relied upon
a decision of this Court in the case of H.H. Maharaja Rana
Hemant Singhji v. Commissioner of Income-Tax, Rajasthan (103
ITR 61). In that case silver bars, sovereigns and rupee
coins which were said to be used on special occasions for
worship were held not to be the personal effects of the
assessee. This Court said that only those articles which
were "intimately and commonly used by the assessee" would be
considered as personal effects. The Phrase "intimately and
commonly" should not be taken literally. What was meant was
property which is individually or personally used. One must
remember that even furniture is included in personal
effects. Also this judgment does not deal with jewellery
which is meant to be worn personally be the assessee. it
deals with gold sovereigns, silver rupees and silver bars.
This Court rightly held that these could not be considered
as personal effects of an assessee. it also observed that
enumeration of articles like wearing apparel, jewellery and
furniture, mentioned by way of illustrations in the
definition of "personal effects" also showed that the
legislature intended only those articles to be included in
the definition which were intimately and commonly used by
the assessee.
Jewellery is expressly included in the personal effects
of an assessee as per Section 2(14) as it stood at the
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relevant time. In the case of Commissioner of Income-Tax,
Bombay City-VIII v. Sitadevi N. Poddar (148 ITR 506) (to
which one of us was a party) the Bombay High Court
considered a case where the assessee sold certain silver
utensils of the type which were used in the kitchen or in
the dinning room. The assessee contended that the silver
articles were the personal effects of the assessee and hence
were not capital assets within the definition of Section
2(14) of the Income-Tax Act, 1961. Kania, J. (as he then
was,) distinguished the decision in the case of H.H.
Maharaja Rana Hemant Singhji (supra) and held that "personal
effects" would include articles which were intimately and
commonly used by the assessee. Personal effects need not be
confined only to those article which were worn on the person
of the assessee. The inclusion, for example, of furniture
would negative such a contention.
The above case of Sitadevi N. Poddar (Supra) has been
followed by the Bombay High Court in a subsequent decision
in Jayantilal A. Shah V. K.N. Anantharam Aiyar, Commissioner
of Income-tax & Ors. (156 ITR 448). The Andhra Pradesh High
Court, however, in the case of Commissioner of Income-tax,
A.P., Hyderabad v. Trustees of H.E.H. The Nizam’s Wedding
Gifts Trusts (154 ITR 573) has held that jewellery which was
meant for use on ceremonial occasions was not jewellery
meant for personal use and would not be covered by the
definition of "Capital asset" under Section 2(14). In our
view, this decision of the Andhra Pradesh High Court does
not appear to be correct. The occasion on which the
jewellery is used will depend upon the nature of the
jewellery is used will depend upon the nature of the
jewellery. but if it is meant for the assessee’s personal
use, it will form a part of the assessee’s personal effects.
In the case of G.S. Poddar V. Commissioner of Wealth-
tax, Bombay City, II (57 ITR 207), the Bombay High Court
considered a case where certain gold certain gold articles
made in the shape of utensils like cups, saucers, trays were
sold by the assessee. it was found that the articles were
kept in a show-case in the drawing room of the assessee. The
court, therefore, held that though the articles had the
shape of household articles, they were neither regarded as
household utensils by the assessee nor were they used or
intended to be used as such. They were not personal effects
of the assessee.
In the present case, however, the jewellery is to be
worn on the person of the assessee. It would, in any event,
form a part of the personal effects of the assessee. In the
premises, since the definition of "Capital asset" in Section
2(14) does not include personal effects including jewellery,
the High Court rightly came to the conclusion that on the
facts found by the Tribunal, the items of jewellery in
question were the personal effects of the assessee held for
personal use by her and were, therefore, excluded from the
definition of the term capital asset. As Such, profits and
gains arising from the sale of these items was not taxable
under the provisions of Section 45.
The appeal is, therefore, dismissed. There will,
however, be no order as to costs