2012 (6) TMI 41 - AT - Income Tax

Capital assets vs personal effects - Whether articles like carpets, paintings, antique watches, antique furniture and other household items sold by the assessee are capital assets or personal effects - Held that - There is no direct evidence available before us in support of the claim of the assessee that these inherited and gifted articles were in personal use by the assessee or his dependent family members, or in which premises these were located or in use. The frequency of use of the property depends on the nature of the property. In the absence of nature and full description of each of the household articles or furniture and collector items in the confirmation of sales placed, nor any evidence of intimate connection between the effects and the person of the assessee having been placed before us, we hold that same cannot be classified as personal effects u/s 2(14). Further, we are of the opinion that antique or decorative items and collectors items, cannot be classified as personal effects - Decided against the assessee.

Summary

Issues Involved:
1. Addition of Rs. 1,09,40,000/- under Section 68 of the Income-tax Act, 1961.
2. Whether the articles sold by the assessee qualify as personal effects or capital assets under Section 2(14) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,09,40,000/- under Section 68 of the Income-tax Act, 1961:

The appeal primarily concerns the addition of Rs. 1,09,40,000/- under Section 68 of the Income-tax Act, 1961. The breakdown of the amounts is as follows:

| S. No. | Date | Amount (Rs. ) |
|--------|------------|--------------|
| 1. | 3.4.2001 | 72,40,000/- |
| 2. | 9.4.2001 | 14,00,000/- |
| 3. | 8.6.2001 | 2,00,000/- |
| 4. | 8.6.2001 | 2,00,000/- |
| 5. | 9.6.2001 | 1,00,000/- |
| 6. | 8.10.2001 | 8,00,000/- |
| 7. | 21.11.2001 | 10,00,000/- |
| | Total | 1,09,40,000/-|

The assessee explained that Rs. 72,40,000/- on 3.4.2001 and Rs. 14,00,000/- on 9.4.2001 were received as advances against properties and from the sale of personal effects amounting to Rs. 39,47,136/-. The ITAT had previously concluded that the sale of personal effects was legitimate, and the Assessing Officer's objections were not material. The evidence provided by the assessee, including confirmations from buyers, was deemed sufficient to prove the source of the money.

2. Whether the articles sold by the assessee qualify as personal effects or capital assets under Section 2(14) of the Income-tax Act, 1961:

The Hon'ble High Court directed the ITAT to reconsider whether the articles sold by the assessee qualify as personal effects or capital assets under Section 2(14) of the Act. The AO had disputed the assessee's claim that the items sold were personal effects, citing definitions from various legal dictionaries and case law. The AO concluded that the assessee failed to establish the identity and personal use of the items sold.

On appeal, the CIT(A) held that the items sold were personal effects inherited by the assessee and thus not capital assets. The CIT(A) noted that the Assessing Officer had verified the sales through spot inquiries and obtained confirmations from buyers, which corroborated the assessee's claims.

In reconsidering the issue, the ITAT examined the definition of "personal effects" under Section 2(14) of the Act, which excludes movable property held for personal use by the assessee or any dependent family member. The ITAT referred to the Supreme Court's interpretation in H.H. Maharaja Rana Hemant Singhji v. CIT, which emphasized that personal effects must have an intimate connection with the person of the assessee.

The ITAT found that the assessee failed to provide sufficient evidence that the items sold were for personal use. The confirmations of sales did not specify the nature, description, or location of the items. The ITAT concluded that the items sold could not be classified as personal effects and thus were capital assets.

Conclusion:

The ITAT allowed the Revenue's appeal, concluding that the items sold by the assessee were capital assets and not personal effects under Section 2(14) of the Income-tax Act, 1961. The addition of Rs. 1,09,40,000/- under Section 68 was upheld, as the assessee failed to satisfactorily prove the source of the money.