SALE OF ‘PERSONAL EFFECTS’ NOT TAXABLE
As per Section 2(14) of the Income-tax Act, ‘personal effects,’ excluding jewellery, are not treated as capital assets and hence any gain arising on their transfer cannot be made liable to capital gains tax.
‘Personal effects’ would include movable property such as wearing apparel, furniture, household articles, utensils, vehicles, etc. held for personal use. Jewellery which has been excluded from ‘personal effects’ would include ornaments made of gold, silver, platinum or any other precious metal, precious or semi-precious stones and any articles set in any such stones.
A motor car or any other conveyance held for the personal use of a taxpayer is also a personal effect and any profit or gain arising from the same cannot be charged to tax as capital gains. In this regard, one can rely on the decision of the Bombay High Court in the case of ‘CIT vs. Sitadevi N. Poddar’.
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ARE SILVER UTENSILS PERSONAL EFFECTS?
While any gain on sale of any silver ornaments would attract capital gains tax for sure, would the position be any different in case of silver utensils? It has been held by a number of Courts and Tribunals that where silver utensils transferred by a taxpayer are ordinarily intended for personal or household use, such silver utensils constitute personal effects and therefore, the profit or gain arising therefrom is not taxable as capital gains.
In fact in one of its decisions, the Supreme Court of India in the case of ‘CIT vs. H.H. Maharani Ushadevi’ has held that a property intended for personal or household use, may be for ceremonial occasions also, is always a personal effect.
For example, clothes meant for use at wedding or formal occasions are not used daily. Yet they are stitched for personal use of the wearer and as such they would form a part of his personal effect. Merely because from the nature of the property it can be used on ceremonial occasions also, it does not follow that the property is not held by the taxpayer for personal use.
In an interesting judicial pronouncement rendered by the Gujarat High Court in the case of ‘Himatlal C. Valia vs. CIT’, it has been confirmed that silverwares comprising of dinner sets intended for personal use of the taxpayer, his family members and guests are to be treated as personal effects, irrespective of the size of the family and the fact that these items were not used frequently. Hence, capital gains tax cannot be charged on sale of such silverwares.
In this case, the taxpayer had come in reference before the High Court against the directions of the Tribunal to remand the matter to the Assessing Officer to ascertain the total number of members of the taxpayer’s family and identify those who are dependent upon him, to allow deduction in respect of the value of only one set each for the taxpayer and said members of his family. There were in all 790 pieces of dinner sets.
The High Court held that it is difficult to understand why there should be rationing of personal effects of the taxpayer for the purpose of giving benefit of the exclusion clause contained in Section 2(14) of the Income-tax Act. The High Court held that there was nothing in the said provisions of Section 2(14) to assign such restricted meaning to the term ‘personal effects.’
While rendering this judgment, the Gujarat High Court also relied upon the ratio of the above referred judgment of the Honorable Supreme Court in the case of ‘CIT vs. H.H. Maharani Ushadevi’.