2013 (3) TMI 827 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of asset sold (paintings) as capital asset within the meaning of section 2(14) chargeable to capital gain tax u/s 45 of the Income-tax Act, 1961.

Summary:

Issue 1: Taxability of Asset Sold (Paintings) as Capital Asset

The primary issue in this appeal by the revenue and the cross-objection by the assessee revolves around the taxability of the sale of paintings, specifically whether these paintings qualify as capital assets within the meaning of section 2(14) and are chargeable to capital gain tax u/s 45 of the Income-tax Act, 1961.

The Assessing Officer (AO) added Rs. 35,00,000 to the income of the assessee on account of the sale of paintings, rejecting the assessee's claim of exemption on the grounds that the paintings were personal effects. The AO argued that the amendment in section 2(14)(ii) effective from 01.04.2008, which included paintings as capital assets, did not apply to the assessment year 2007-08. The AO treated the receipts as revenue receipts and taxed them accordingly.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the paintings were personal effects and thus exempt from tax. The CIT(A) noted that the amendment to section 2(14)(ii) was applicable from the assessment year 2008-09 onwards and not to the relevant assessment year 2007-08. The CIT(A) also observed that the AO failed to provide reasons why the paintings could not be considered personal effects. The CIT(A) relied on various judicial precedents, including the decisions of the ITAT, Mumbai, and ITAT, Kolkata, which supported the view that paintings held for personal use were not capital assets prior to the amendment.

The revenue appealed against the deletion, but the Tribunal upheld the CIT(A)'s order, citing the consistent view of the Coordinate bench decision in the case of Borendra Nath Mookerjee Vs. ITO, AY 2007-08, which held that the sale of old paintings inherited by the assessee did not fall within the definition of capital assets and did not attract capital gains tax prior to the amendment brought by the Finance Act, 2007, effective from 01.04.2008.

Conclusion:

The Tribunal dismissed the revenue's appeal and the assessee's cross-objection, affirming that the sale of paintings in the assessment year 2007-08 did not attract capital gains tax as they were considered personal effects and not capital assets under section 2(14) prior to the amendment effective from 01.04.2008.