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Issues:
1. Whether loose diamonds can be considered 'personal effects' for personal use, exempt from capital gains tax under the I.T. Act, 1961? Analysis: The case involved a question regarding the taxability of capital gains arising from the sale of loose diamonds held for personal use. The assessee had sold loose diamonds valued at Rs. 40,000, which were held for personal use. The Income Tax Officer (ITO) estimated the capital gains at Rs. 28,000 in the absence of original cost information. The assessee contended that no capital gains tax should apply as the diamonds were personal effects. The ITO and the Appellate Authority Commission (AAC) rejected this claim. However, the Tribunal, based on previous cases, ruled in favor of the assessee, canceling the assessment of capital gains. The Tribunal referred to a previous case under the Wealth Tax Act concerning loose diamonds as jewelry held for personal use. The court highlighted that loose diamonds could be considered jewelry but not necessarily held for personal use. The court discussed the provisions of the Wealth Tax Act exempting certain articles for personal or household use, emphasizing that jewelry intended for personal use would fall under the exemption. The court then analyzed the relevant section of the Income Tax Act, specifically Section 2(14) in force before April 1, 1973. The section defined 'capital asset' and excluded 'personal effects' like movable property held for personal use, excluding jewelry. The court interpreted the provision and concluded that while furniture and apparel held for personal use were exempt, jewelry, whether for personal use or not, would be considered a capital asset. The court reasoned that jewelry, regardless of personal use, falls under the category of movable property subject to capital gains tax. The judgment was delivered against the assessee, upholding the taxability of capital gains from the sale of jewelry, including loose diamonds.
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