2013 (3) TMI 100 - HC - Income Tax

Income From Undisclosed Sources - ITAT deleted the addition - Whether item sold by the assessee were personal effects so as to fall within the ambit of exclusionary clause of Section 2(14) which defines capital asset - onus to prove that the items sold were not personal effects of the assessee will be on whom ? - Held that - The Supreme Court in CIT Vs. H H Maharani Usha Devi (1998 (5) TMI 5 - SUPREME COURT) had observed that the High Court in Himatlal C. Valia Vs. CIT 2000 (9) TMI 41 - GUJARAT HIGH COURT had rightly held that the frequency of use of the property must necessarily depend on the nature of the property and that merely because from the nature of the property, it could be used on ceremonial occasions only, it did not follow that the property was not held by the assessee for personal use. Thus as in the present case the only evidence that is forthcoming is the affidavit of the assessee where he has indicated that the said articles were for his personal use. He has also indicated that these articles were received by him from two streams, one, by way of inheritance from his father and uncle and the other, by way of a gift deed from his aunt. Whatever be the mode of acquisition of articles, the fact, as stated in his affidavit, is that these were in his personal use. Those articles were moveable properties. They did not include any jewellery and they had been held for personal use by the assessee and they were subsequently sold by him to various buyers. The fact that these articles were held by him for personal use has been indicated in the affidavit filed by the assessee before the assessing officer. No material has been brought out by the assessing officer or the revenue to indicate that the affidavit is false. Therefore, on the basis of evidence on record, the articles in question ought to have been held to be personal effects of the assessee. The amendment to section 2(14) has prospective operation with effect from 01.04.2008, whereas in the present case the assessment year is 2002-03 - appeal decided in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Deletion of addition treating the sale of personal effects as "Income From Undisclosed Sources."
2. Believability of evidence provided by the assessee and shifting of onus to the Revenue.
3. Classification of items sold as "personal effects" under Section 2(14) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition Treating the Sale of Personal Effects as "Income From Undisclosed Sources":
The Assessing Officer (AO) noticed a deposit of Rs. 39.47 lakhs in the assessee's bank account, claimed to be proceeds from the sale of personal effects such as carpets, paintings, and antique furniture. The AO treated these items as capital assets under Section 2(14) of the Income Tax Act and included the amount for tax purposes, citing lack of documentary evidence to support the claim of personal use. The CIT(A) and ITAT, however, held that the items were personal effects and exempt under Section 2(14).

2. Believability of Evidence Provided by the Assessee and Shifting of Onus to the Revenue:
The CIT(A) found that the assessee had discharged the onus of proving the genuineness of the sale through sufficient material, including an affidavit and confirmations from buyers. The ITAT affirmed this finding, and the High Court did not disturb it, recognizing it as a pure finding of fact based on evidence.

3. Classification of Items Sold as "Personal Effects" Under Section 2(14) of the Income Tax Act, 1961:
The High Court noted that the term "personal effects" includes movable property held for personal use but excludes jewelry. The Supreme Court in HH Maharaja Rana Hemant Singhji Vs. CIT emphasized that personal effects must have an intimate connection with the person of the assessee. The Court considered the affidavit and evidence provided by the assessee, which indicated that the items were inherited or gifted and held for personal use. The Court also referred to Himatlal C. Valia Vs. CIT and CIT Vs. H H Maharani Usha Devi, which supported the view that the frequency of use is not a determinative factor for personal effects.

Conclusion:
The High Court concluded that the articles sold by the assessee were personal effects and not capital assets. The amendment to Section 2(14) excluding items like paintings and sculptures from personal effects, effective from 01.04.2008, was not applicable to the assessment year 2002-03. The Court answered the substantial question of law in favor of the assessee, allowing the appeal and ruling that the items sold were personal effects exempt under Section 2(14) of the Income Tax Act. The appeal was allowed with no order as to costs.