2006 (5) TMI 304 - AT - Income Tax

Summary

Issues:
Disallowance of long-term capital loss on the sale of a motor car.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A) confirming the disallowance of Rs. 11,55,288 claimed as long-term capital loss on the sale of a motor car for the assessment year 2002-03. The assessee claimed the loss based on the argument that since the car was a foreign one and no depreciation was claimed or allowed, it should be treated as a long-term capital asset eligible for indexation. However, the Assessing Officer rejected this explanation, stating that a personal asset like a motor car cannot be considered a capital asset for computing capital gains. The CIT(A) also rejected the claim, emphasizing that the car was a personal effect and not a business asset, hence the loss on its sale cannot be considered for set off or carry forward.

The assessee contended before the CIT(A) that as per the definition of a capital asset under section 2(14) of the Income-tax Act, the car should be considered a capital asset, and any profit or loss on its sale should be treated as a capital gain or loss. The assessee argued that since the car was not excluded under the definition, it should be covered under the provisions of sections 45 to 55 for capital gains computation. However, the CIT(A) maintained that the car was a personal effect and not a business asset, citing section 2(14)(ii) of the Act.

During the appeal before the Tribunal, the assessee's counsel highlighted that in previous years, the assessee had shown business income from the car, which was accepted and assessed as such by the revenue authorities. The counsel relied on a Supreme Court decision to argue that certain items, like silver bars and coins, cannot be treated as personal effects. The Tribunal considered these submissions, along with the past acceptance of car hire income as business income, and ruled in favor of the assessee, allowing the appeal.

In conclusion, the Tribunal allowed the appeal by the assessee, emphasizing the past acceptance of car hire income as business income and the argument that the car should be considered a capital asset for computing capital gains, based on relevant legal provisions and precedents.