2014 (9) TMI 170 - HC - Income Tax

Indexation of sale of painting by assessee Painting acquired before 01.04.1981 Whether the value of painting as on 01.04.1981 is to be indexed up to the date of the sale or not Held that - As decided in Faiz Murtaza Ali v. Commissioner of Income Tax 2013 (3) TMI 100 - DELHI HIGH COURT paintings had been considered to be personal effects, but only those articles were to be included in the definition of personal effects which were intimately and commonly used by the assessee - since the assessee herself in her return had not claimed the painting as a personal effect, there is no evidence on record on either side - prior to 01.04.2008, a painting could be regarded as a personal effect - But, before a painting can be regarded as a personal effect there must be evidence on record to show that it was intimately and commonly used by the assessee - There is no such evidence on either side, and the matter is to be remitted back to the AO for determination on the basis of evidence Decided in favour of assessee.

Summary

Issues involved:
Challenge to order under Section 264 of the Income Tax Act, 1961 regarding the treatment of a painting as a capital asset for Assessment Year 2006-07.

Analysis:
1. The petitioner/assessee sold a painting for Rs. 34 lacs in 2006 and computed long term capital gains based on the indexed cost of acquisition. Subsequently, realizing a mistake in treating the painting as a capital asset instead of a personal effect, the petitioner sought rectification and refund. The Assessing Officer rejected the application, leading to a revision application under Section 264, which was also dismissed by the Commissioner.

2. The amendment to Section 2(14) of the Income Tax Act in 2008 specifically included paintings in the definition of "capital asset." The petitioner contended that the mistake in treating the painting as a capital asset for the year 2006-07 was realized post-filing of return and receipt of intimation under Section 143(1). The application for rectification and refund was based on this realization.

3. The High Court referred to a previous decision where it was established that for an article to be considered a personal effect, it must be intimately and commonly used by the assessee, irrespective of the mode of acquisition or frequency of use. In the present case, as the petitioner did not claim the painting as a personal effect in the return, the court found a lack of evidence on record regarding its use, necessitating a determination by the Assessing Officer.

4. The court remitted the matter to the Assessing Officer for a conclusive finding on whether the painting could be considered a personal effect based on evidence of its use by the assessee. The petitioner was granted two weeks to submit additional documents, and the Assessing Officer was directed to provide a decision within three months from the date of the judgment. The impugned orders were set aside for this limited issue.

This detailed analysis outlines the key points of the judgment regarding the treatment of a painting as a capital asset for the Assessment Year 2006-07 and the subsequent rectification sought by the petitioner.