MR. KURUSH N. JUNGALWALA, MUMBAI V. THE ITO WD 19(3)(2), MUMBAI

ITA 2398/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2606 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 07-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OZHA
• Keywords: Capital asset; Cost of acquisition; Capital Gains
• Section: 2(14); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI R. K. PANDA, AM I.T.A. NO.2398/MUM/2008 (ASSESSMENT YEAR : 2004-05 ) KURUSH N.JUNGALWALA, 212, KEKEE MANZIL, BANDRA(W), MUMBAI-400 050. PAN:AACPJ7461J VS. THE INCOME TAX OFFICER, WARD-19(3)(2), PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. K.GOPAL RESPONDENT BY : MR. VIRENDRA OZHA, DR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS APPEAL FILED BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2004-05 AND IS DIRECTED AGAINST THE ASSESSMENT OF RS.6,54,074/- AS LONG TERM CAPITAL GAINS. 2. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUS INESS OF SHOE MAKING. HE ALSO DERIVED INCOME FROM OTHER SOUR CES. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SOLD THE PAINTING FOR RS.6,54,075/- BUT HAD NOT SHOWN ANY CAPITAL GAINS O N THE SALE. WHEN ASKED TO EXPLAIN, THE ASSESSEE CONTENDED THAT THE PAINTING WAS BOUGHT MORE THAN TEN YEARS BACK, THAT IT WAS BOUGHT FOR AESTHETIC PRESSURE AND PRIDE OF POSSESSI ON THAT IT WAS THUS A PERSONAL EFFECT AND THE SALE PROCEEDS TH EREOF WERE EXEMPT FROM THE LEVY OF CAPITAL GAINS. HE ALSO RELI ED ON THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. MRS. DILNAVAZ S. VARIAVA, (2003) 87 ITD 113 IN WHIC H IT WAS HELD THAT SALE PROCEEDS OF PAINTINGS HELD AS PERSON AL EFFECTS DID NOT GIVE RISE TO CAPITAL GAINS. IT WAS FURTHER EXPL AINED IN RESPONSE TO THE QUERY FROM THE ASSESSING OFFICER TH AT THE ITA NO.2398/MUM/08 2 PAINTING WAS PURCHASED FOR RS.2000/- IN THE YEAR 19 93 AND WAS PLACED IN THE HOUSE WALL FOR LONG TIME AND SINCE TH E ASSESSEE DID NOT DERIVE THE SAME ENJOYMENT IT HAD GIVEN HIM EARLIER, HE DECIDED TO SELL THE SAME. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES SUBMISSIONS. ACCORDING TO HIM, THE PAINTING WAS USE D AS A DECORATIVE PIECE TO SERVE THE AESTHETIC URGE OF THE ASSESSEE AND THUS WAS NOT INTIMATELY CONNECTED WITH HIM. IT WAS NOT USED TO IMPROVE THE ASSESSEES LOOK AND PERSONALITY. THE AS SESSEE WAS BORED WITH THE PAINTING AFTER THE PASSAGE OF TIME. ALL THESE FACTS ACCORDING TO THE ASSESSING OFFICER SHOWED THAT THE PAINTING WAS NOT A PERSONAL EFFECT. HE ACCORDINGLY BROUGHT THE S ALE PROCEEDS TO CAPITAL GAIN TAX AND ASSESSED LONG TERM CAPITAL GAINS OF RS.6,50,280/- AFTER GIVING DEDUCTION FOR THE INDEXE D COST OF ACQUISITION FROM THE SALE PROCEEDS. IN COMING TO TH IS CONCLUSION, THE ASSESSING OFFICER RELIED ON THE JUDGEMENT OF TH E BOMBAY HIGH COURT IN THE CASE OF G.S.PODDAR VS. CWT(1965) 57 ITR 207 AND AN ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MS.VINA CHOKANI VS. ITO. THE CIT(A) HAVING AGREED WITH THE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE CAPITAL GAINS ON THE SALE OF ANY CAPITAL ASS ET ARE BROUGHT TO CHARGE UNDER SECTION 45 OF THE INCOME TA X ACT IN THE PREVIOUS YEAR IN WHICH THE CAPITAL ASSET IS TRANSFE RRED. CAPITAL ASSET IS DEFINED IN SECTION 2(14). CLAUSE (II) OF T HE DEFINITION EXCLUDES PERSONAL EFFECTS, THAT IS TO SAY MOVABLE PROPERTY (INCLUDING WEARING APPAREL AND FURNITURE, BUT EXCLU DING JEWELLERY) HELD FOR PERSONAL USE BY THE ASSESSEE O R ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM. THE QUESTION BEFO RE US IS WHETHER THE PAINTING CAN BE CONSIDERED TO BE A PERS ONAL EFFECT OF THE ASSESSEE. WE HAVE ALREADY SEEN THAT THE ASSESSE E IS NOT IN THE BUSINESS OF BUYING AND SELLING PAINTINGS. HE SE EMS TO HAVE INDULGED IN ACQUIRING PAINTINGS FOR HIS PERSONAL US E. ACCORDING ITA NO.2398/MUM/08 3 TO THE LIST FILED ON BEHALF OF THE ASSESSEE BEFORE US AT THE TIME OF HEARING, THE PAINTING SOLD BY THE ASSESSEE WAS BY B.PRABHA AND IT WAS ACQUIRED ON 27.5.1993 FOR RS.2000/-. BEFORE THIS DATE THE ASSESSEE HAD ACQUIRED BY A PAINTING BY M.F. HUSSAIN FOR RS.5,750/- ON 16.10.2002 AND ANOTHER PAINTING BY PA L CHABBDA ON 21.2.2003 FOR RS.1,50,000/-. IN THE YEARS 2004 A ND 2005, THE LIST SHOWS THAT THE ASSESSEE BOUGHT SEVERAL PAI NTINGS AND THEY CONTINUED TO BE RETAINED BY HIM. THE ONLY PAIN TING SOLD BY THE ASSESSEE IS THE ONE WHICH HE SOLD DURING THE PR EVIOUS YEAR RELEVANT TO THE YEAR UNDER APPEAL AND THE REASON WH Y HE SOLD WAS, ACCORDING TO HIS OWN WORDS IN HIS LETTER TO TH E ASSESSING OFFICER, THAT THE PAINTING WAS UP IN THE HOUSE WALL FOR A LONG TIME AND AS IT WAS THERE FOR A LONG TIME, THE ASSES SEE WAS NOT DERIVING THE SAME ENJOYMENT AS IT HAD GIVEN HIM EAR LIER AND HENCE DECIDED TO SELL IT. THE ASSESSEE HAD HELD T HE PAINTING FOR CLOSE TO TEN YEARS. APPARENTLY THE JOY AND THE AEST HETIC SENSE OF PLEASURE WHICH HE WAS DERIVING FROM THE PAINTING DU RING INITIAL DAYS STARTED WANING. IN THE SAME LETTER WRITTEN TO THE ASSESSING OFFICER, THE ASSESSEE HAD ALSO STATED THAT THE PAIN TING TRANSMITTED GOOD VIBES AND IT APPEALED TO THE EMOTI ONAL FEELINGS OF THE ASSESSEE. IT SEEMS TO US THAT IN THESE CIRCU MSTANCES THE PAINTING MUST BE CONSIDERED TO BE A PERSONAL EFFECT OF THE ASSESSEE. WE MAY REFER TO THE ORDER OF THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF MRS. DILNAWAZ S.VARIAVA (SU PRA) WHERE ON SIMILAR FACTS AND CIRCUMSTANCES THE PAINTING SOL D BY THE ASSESSEE WAS HELD TO BE A PERSONAL EFFECT NOT EXIGI BLE TO TAX. IN THIS ORDER THE TRIBUNAL HAS CONSIDERED THE JUDGEMEN T OF THE BOMBAY HIGH COURT IN THE CASE OF G.S.PODDAR(SUPRA) AND IT WAS HELD THAT THE JUDGEMENT WAS RENDERED IN THE CONTEXT OF SECTION 5(1)(VIII) OF THE ACT WHICH EXEMPTED ARTICLES INTEN DED FOR THE PERSONAL USE OF THE ASSESSEE. 5. FURTHER WE NOTE THAT IN THE CASE BEFORE THE HIGH COURT THE ITEMS INVOLVED WERE TWO GOLD CASKETS WEIGHING 225 T OLAS, GOLD ITA NO.2398/MUM/08 4 TRAY, GOLD CUPS AND SAUCERS WHICH WERE PUT IN SHOW CASE WHICH WAS PART OF THE DRAWING ROOM FURNITURE. THEY WERE F IRST CLAIMED TO BE EXEMPT AS PART OF THE FURNITURE WHICH WAS NEG ATIVED. THEY WERE ALTERNATIVELY CLAIMED TO BE EXEMPT AS ARTICLES INTENDED FOR PERSONAL USE OF THE ASSESSEE AND THE SUBMISSION BEF ORE THE HIGH COURT WAS THAT THE ASSESSEE MAY VERY WELL LIKE TO HAVE HIS MORNING OR EVENING TEA IN THE GOLD CUPS IN HIS ADVA NCED AGE AND THUS THERE WAS A POSSIBILITY OF THE ITEMS BEING USE D PERSONALLY. THIS SUBMISSION WAS ALSO NEGATIVED BY THE HIGH COUR T ON THE GROUND THAT WHAT THE ASSESSEE WOULD DO IN THE FUTUR E WITH THE GOLD CUPS ETC. WAS NOT OF IMMEDIATE RELEVANCE. FU RTHER UNDER SECTION 5(1)(XIII) OF THE WEALTH TAX ACT, PAINTINGS WERE EXEMPT FROM WEALTH TAX PROVIDED THEY ARE NOT INTENDED FOR SALE. UNDER THE INCOME TAX ACT, LIABILITY TO CAPITAL GAINS TAX WOULD ARISE ONLY ON SALE OF THE PAINTING AND THEREFORE THE CONDITION THAT A PAINTING IN ORDER TO BE A PERSONAL EFFECT SHOULD NO T BE INTENDED FOR SALE CANNOT BE VALID UNDER THE INCOME TAX ACT. THE PAINTING UNDOUBTEDLY GAVE A PERSONAL PLEASURE AND AESTHETIC HAPPINESS TO THE ASSESSEE AND HE SOLD IT ONLY WHEN IT STARTED WANING OVER A PERIOD OF TIME. THERE IS THUS AN INTIMATE CONNECTI ON BETWEEN THE ASSESSEE AND THE PAINTING SO AS TO CONSTITUTE T HE PAINTING A PERSONAL EFFECT UNDER SECTION 2(14) . IT IS ALSO T O BE NOTED THAT THE FINANCE ACT, 2007 AMENDED SECTION 2(14)(II) TO EXCLUDE DRAWINGS AND PAINTINGS FROM THE SCOPE OF PERSONAL E FFECT WITH THE RESULT THAT FROM THE ASSESSMENT YEAR 2008-09 TH E SALE OF PAINTINGS AND DRAWINGS GAVE RISE TO LIABILITY FOR C APITAL GAINS TAX. THE AMENDMENT IS INDICATIVE OF THE POSITION THAT BE FORE 1.4.2008 DRAWINGS AND PAINTINGS WERE CONSIDERED BY THE LEGISLATURE TO CONSTITUTE PERSONAL EFFECTS. THE CIR CULAR NO.3 OF 2008 DATED 12.3.2008 WHILE EXPLAINING THE AMENDMENT (SEE 299 ITR ST 8 AT 18) SAYS IN PARA 5.1 THAT PRESENTLY T HE ONLY ASSET WHICH IS IN THE NATURE OF PERSONAL EFFECTS, BUT IS INCLUDED IN THE DEFINITION OF CAPITAL ASSETS IS JEWELLERY AND THE AMENDMENT WAS ITA NO.2398/MUM/08 5 MADE WITH A VIEW TO WIDEN THE SCOPE OF CAPITAL ASSE TS SO AS TO FURTHER INCLUDE ASSETS LIKE ARCHAEOLOGICAL COLLECTI ONS, DRAWINGS, PAINTINGS, SCULPTURES, OR ANY WORK OF ART. THE AM ENDMENT IS PROSPECTIVE AND NOT RETROSPECTIVE AND THEREFORE DOE S NOT APPLY TO THE YEAR UNDER APPEAL. 6. FOR THE ABOVE REASONS, WE ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HOLD THAT THE SALE OF THE PAINTING DUR ING THE RELEVANT ACCOUNTING YEAR DOES NOT GIVE RISE TO LIAB ILITY TO CAPITAL GAINS TAX. THE LONG TERM CAPITAL GAIN OF RS.6,50,28 0/- INCLUDED IN THE ASSESSMENT IS DELETED AND THE APPEAL IS ALLO WED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON THIS 8 TH DAY OF DECEMBER, 2009. SD/- (R.K. PANDA) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 8 TH DECEMBER, 2009. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT, CITY-19, MUMBAI. 4. THE CIT(A) XIX, MUMBAI 5. THE DR A BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI