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TMI Blog2013 (9) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... ings in a packed condition and is preserving them according to the norms required and is not displaying them at his house. These aspects were admitted in the course of arguments. Therefore, these paintings cannot be held as personal effects. To that extent the assessee's contentions are rejected. - Decided against the assessee. Whether the transaction is in the nature of "adventure in the nature of trade" so as to consider it as business or as an "investment" by the assessee. - For deciding whether trade or investment, it is to be examined afresh in the light of past conduct of the assessee and necessary details/evidences, including the running account in Synergy Art Foundation. Additions u/s 69 - While accepting that the amount of Rs. 5 lakhs was made subsequent to the search and seizure proceedings, the Commissioner of Income-tax (Appeals) surprisingly confirmed the same as an afterthought to explain the discrepancies detected. - Held that:- There is no dispute with reference to the cost of the painting and also no dispute with reference to the payment over 2 years. The Assessing Officer has already accepted the payment of Rs. 15 lakhs which was stated to have been paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 153C was issued to the assessee and in response, the assessee filed return declaring a taxable income of Rs. 30,25,536 as declared by him in the original return filed on January 9, 2007. The Assessing Officer after issuing a statutory notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 (in short the Act) and after examining the seized material also issued a showcause notice to explain all the entries found recorded in the seized material and to file other relevant details. In response to the said notice, the assessee filed reply vide his explanation dated December 14, 2009. The Assessing Officer after considering the same observed that the assessee for the years has been conducting buying and selling of paintings as a business activity and using his purchases as stock-in-trade through his company SAFL or directly through online auction purchase and sales. Thus according to the Assessing Officer the profits from the sale of paintings needs to be assessed as business profits and not as capital gains and accordingly, he assessed the profit from sale of paintings at Rs. 80,74,480 and completed the assessment at an income of Rs. 1,11,00,016 vide order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. Hence to allege controlling interest as a ruse to acquire paintings in an advantageous portion, is a mischievous attempt by both the Assessing Officer and the Commissioner of Income-tax (Appeals) to throw the assessee in poor light and thereby allege contumacious conduct in the present assessment proceedings. (b) The assessee has purchased only 61 paintings from Synergy Art Foundation Ltd., out of the total paintings of 7547 Nos. from the stock of the company since inception, which indicate that the purchases by the assessee using the company as a platform (to borrow the words of the Commissioner of Income-tax (Appeals)) is only 0.81 per cent. of the total purchases made by the company in which he is a promoter director allegedly holding 82 per cent. shares. (c) The purchases allegedly as frequently made from the company is also not at cost price in the books of the company but were sold at arm's length margins to the assessee and hence there is no gain saying the fact that assessee was treating the company as his buying platform (for e.g., Synergy Art Foundation Ltd. made a profit of Rs. 1,50,000 on the sale of painting by Anju Dodiya to the assessee). (d) The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of section 2(14) of the Act available then, the paintings are personal effects which does not attract capital gain. Learned counsel placed his reliance on the order of the Income-tax Appellate Tribunal in the case of Asst. CIT v. Mrs. Dilnavaz S. Variava [2003] 87 ITD 113 (Mumbai) to submit that on similar facts it was held that paintings could be considered to be the personal effect and, as such not exigible to tax. The learned Departmental representative however, relied on the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) to submit that the assessee is not involved as an invester but as a trader and referred to the profits earned in short term out of purchases made from Synergy Art Foundation. He reiterated that the assessee is involved in trading activity, therefore, the authorities are correct in bringing it to tax as business income. We have considered the issue and examined the details placed on record including the orders of the authorities and the co-ordinate Bench in the case of Asst. CIT v. Mrs. Dilnavaz S. Variava [2003] 87 ITD 113 (Mumbai). Before adverting to various arguments it is important to note that the assessee has not furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to ascertain whether the assessee has indulged in trading or investment in the absence of complete details that are within the knowledge of the assessee, but not placed on record. Coming to the contention that whether these paintings can be considered as personal effect, the assessee relied on the decision of the Incometax Appellate Tribunal in the case of Asst. CIT v. Mrs. Dilnavaz S. Variava [2003] 87 ITD 113 (Mumbai). The facts in the said case are as under : "3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. A sum of Rs. 1,00,000 was credited into the bank account of the assessee on August 26, 1991. This was stated to be realised from the sale proceeds of four paintings. The said paintings were disposed of in favour of Shri N. D. Sidhwa as under : 1 Oil painting 36 41 Landscape with Shrin by Badri Narayan Rs. 10,000 1 Oil painting 26 34 View from window by J. Sabavala Rs. 50,000 1 Oil painting 48 36 Oil No. VI by Rasik Sonhi Rs. 30,000 1 Oil painting 32 42 Flowers by Ara Rs. 10,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be personal effect. In the case of Lippincott's Estate 173 Pa. 368, 34 Atl. 58, furniture and pictures were held to be articles of personal effects. The apex court in the case of H. H. Maharaja Rana Hemant Singhji v. CIT [1976] 103 ITR 61 (SC) has said that an intimate connection between the effects and the person of the assessee must be shown to exist to render them 'personal effects' within the meaning of that expression used in clause (ii) of the exceptions in section 2(4A) of the Indian Income-tax Act, 1922. The Legislature intended only those articles to be included within the expression 'personal effects' which were intimately and commonly used by the assessee. 11. The paintings were used to decor the house. The assessee loved paintings. A good painting transmits good vibe across the element of personal attachment with the object did exist in the facts of the case. Therefore, in our opinion, paintings could be construed to be the personal effects, as such not exigible to tax. Accordingly we uphold the impugned order." As can be seen from the above, the assessee therein had only 4 paintings out of which one was inherited and were displayed in the house and subsequently sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (Rs.) 1 December 1991 or there about 32,000 K. G. Subramanyan May 2006 13,71,130 13,39,130 2 Year 1989 or thereabout 15,000 Ganesh Pyne May 2006 2,69,019 2,54,019 Total 47,000 16,40,149 15,93,149 As can be seen from the above, it was the submission that the assessee purchased many of the paintings way back in 1991 to 1994 and the Assessing Officer accepted the cost even though there is no evidence with reference to the date of purchase of many paintings. Since the Assessing Officer considered as trading activity year of purchase has no relevance, but cost. As stated above, the assessee has also not placed on record complete details of the purchases, year-wise or painting wise and there is also either overlapping or suppressing of information with reference to various claims of paintings purchases/sales. Be that as it may, what is noticed of sale of Anju Dodiya in March, 2006, is that the same was purchased on March 1, 2006 from M/s. Synergy Arts Fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to be examined by the Assessing Officer, the issue whether the assessee is a trader or an investor is restored to the file of the Assessing Officer to examine complete details and analyse the facts correctly so as to come to a correct conclusion. We make it clear that these holdings of paintings cannot be considered as personal effects. It is also on record that the assessee was holding these paintings in a packed condition and is preserving them according to the norms required and is not displaying them at his house. These aspects were admitted in the course of arguments. Therefore, these paintings cannot be held as personal effects. To that extent the assessee's contentions are rejected. For deciding whether trade or investment, it is to be examined afresh in the light of past conduct of the assessee and necessary details/evidences, including the running account in Synergy Art Foundation. The assessee is directed to file complete details of holdings/purchase of paintings, sales, year-wise amount involved, evidence of purchase date/year, so that the Assessing Officer can take necessary examination of the issues. With these directions, the matter is restored to the file of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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