ABHAYKUMAR S. MASKARA, MUMBAI V. ITO WD 14(1)1, MUMBAI

ITA 3706/MUM/2012

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7379 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Business income; Earning of tax free income; Source of fund; Question of law; Revised return
• Section: 2(14); 68; 6; 10; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI G.S. PANNU (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 3706 /MUM/201 2 ASSESSMENT YEAR: 2007 - 2008 MR. ABHAY KUMAR S. MASKARA, GANDHI MANSION, 2 ND FLOOR, BOMANJI MASTER ROAD, MUMBAI - 400002 PAN: AABPM6281G VS. THE INCOME TAX OFFICER - 14(1)(1), 204, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 400021 (APPELLANT) (RESPONDENT) & ITA NO. 3430 /MUM/20 1 2 ASSESSMENT YEAR: 2007 - 2008 THE INCOME TAX OFFICER - 14(1)(1), 204, 2 ND F LOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI - 400021 VS. MR. ABHAY KUMAR S. MASKARA, GANDHI MANSION, 2 ND FLOOR, BOMANJI MASTER ROAD, MUMBAI - 400002 PAN: AABPM6281G (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJESH KUMAR YADAV (DR) ASSESSEE B Y : SHRI MADHUR AGGARWAL (AR) DATE OF HEARING: 16/03 /201 8 DATE OF PRONOUNCEMENT: 27 / 04 /201 8 O R D E R PER RAM LAL NEGI, JM THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DATED 27/03/2012 PASSED BY THE C OMMISSIONER OF INCOME TAX (APPEALS) - 28 , MUMBAI , PERTAINING TO THE ASSESSMENT YEAR 2007 - 2008 , 2 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 WHEREBY THE LD. CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAVING SOURCES OF INCOME FROM BANK INTEREST, ARTICLE WRITING AND DIVIDEND, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DE CLARING THE TOTAL INCOME OF RS. 86,203/ - . T HE CASE WAS SELECTED FOR SCRUTINY AND IN RESPONSE TO THE NOTICES U/S 143 (2) AND 142 (1) THE AUTHORIZED REPRESENTATIVE (AR) APPEARED BEFORE THE AO AND FILED THE RELEVANT DETAILS CALLED FOR BY THE AO. IT WAS NOTICE D THAT IN THE P&L ACCOUNT, THE ASSESSEE HAD CREDITED RS. 1,78,92,633/ - AS LONG TERM CAPITAL GAIN (LTCG) AND SHORT TERM CAPITAL GAIN (STGC) ON SALE OF PAINTING , INTEREST INCOME OF RS. 86,277.87, PROFESSION FEES ON ARTICLE S WRITING RS. 5,000/ - AND DIVIDEND I NCOME OF RS. 1,300/ - . AGAINST THE SAID INCOME, THE ASSESSEE HAD CLAIMED BANK CHARGES OF RS . 1 515.90 AND DECLARED NET PROFIT OF RS. 20,633,285/ . ON BEING ASKED T HE AR CONTENDED THAT MONEY RECEIVABLE ON SALE OF PAINTING WAS NOT OFFERED TO TAX BECAUSE PAINTIN GS WERE EXCLUDED FROM PERSONAL EFFECTS ONLY IN THE YEAR 2007 BY FINANCE ACT 2007,W.E.F. 01.04.2008 AND THE ASSESSEES CASE PERTAINS TO PRE AMENDMENT PERIOD. THE ASSESSEE WAS ASKED TO FILE THE DETAILS SUCH AS PURCHASE AND SALE OF EACH ITEM CLAIMED AS PERSON AL EFFECTS, AND FURTHER ASKED TO EXPLAIN AS TO WHY THE PAINTING WAS PURCHASED IN THE CAPACITY OF NRI AND TAKEN IN THE CAPITAL ACCOUNT FOR THE YEAR ENDING 31.03.2007 , WHY THE ADVANCE TAX WAS PAID , WHY IN THE RETURN OF INCOME EXEMPT COLUMN WAS KEPT BLANK AND WHY IN P&L ACCOUNT IT WAS SHOWN LTCG/STCG AND NOT IN COMPUTATION . THE AUTHORIZED REPRESENTATIVE ( AR) SUBMITTED THAT THE APPELLANT/ASSESSEE STARTED COLLECTING ART/PAINTINGS PAINTINGS IN THE YEAR 1996/97. THE ASSESSEE COLLECTED TWELVE PAINTINGS UP TO THE YE AR 1998 - 99. THE ASSESSEE ALSO REFLECTED THE SAME IN THE BALANCE SHEET U NDER THE HEAD ART COLLECTION. IN THE YEAR 1999 - 2000 THE APPELLANT LEFT FOR U.S. SINCE, PAINTING WAS HIS PASSION, HE CARRIED THE PAINTINGS ALONG WITH HIM TO THE 3 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 U.S. AND DISPLAYED HIS C OLLECTIONS OF PAINTINGS . HE CONTINUED TO STAY THERE AND BECAME NON RESIDENT. HE PURCHASED FOUR PAINTINGS IN U.S IN THE YEAR 2002 - 03, FOUR PAINTINGS IN THE SUBSEQUENT YEAR AND TEN PAINTINGS IN THE YEAR 2004 - 05. THESE PAINTINGS WERE PURCHASED OUT OF THE SALA RY FROM FULL TIME EMPLOYMENT IN THE U.S. FROM 1999 - 2000 TO 2004 - 05 THE ASSESSEE WAS A NON RESIDENT. THE ASSESSEE HAD NOT SOLD EVEN A SINGLE PAINTING FROM 1996 TO 2005. THE ASSESSEE CAME BACK TO INDIA IN THE YEAR 2005 - 06 AND BROUGHT THE ENTIRE COLLECTION. NO DUTY WAS CHARGED BY THE DEPARTMENT OF CUSTOMS TREATING THE SAME AS PERSONAL BELONGINGS OF THE ASSESSEE. 3. THE ASSESSEE ARRIVED IN INDIA FOR PER MANENT STAY ON 23.12.2004. T HE SALE OF PAINTINGS TO DIFFERENT BUYERS DURING THE FINANCIAL YEAR RELEVANT TO T HE ASSESSMENT YEAR UNDER CONSIDERATION IS NOT DISPUTED EXCEPT IN ONE CASE IN WHICH CONFIRMATION WAS NOT FILED. THE AR FURTHER EXPLAINED THAT TAX WAS PAID KEEPING IN VIEW THAT THERE MAY BE SOME TAXABLE INCOME. NO INCOME WAS CLAIMED AS EXEMPT BUT IT WAS CLAI MED AS NON TAXABLE. THE COSTS OF PAINTING S ARE SHOWN IN BALANCE SHEET AS ASSETS AND AFTER SALE THE DIFFERENCE IS SHOWN AS GAIN. THE ASSESSEE FURTHER SUBMITTED THE DETAILS OF PURCHASES OF PAINTINGS AND SOURCE OF INCOME. THE AO AFTER HEARING THE ASSESSEE IN THE LIGHT OF THE DOCUMENTS ON RECORD INTER ALIA MADE ADDITION OF RS. 1,96,63,977/ - ON ACCOUNT OF NET PROFIT EARNED ON SALE OF PAINTINGS AND CREDITED IN CAPITAL ACCOUNT UNDER THE HEAD BUSINESS INCOME. 4. THE ASSESSEE CHALLENGED THE ASSESSMENT PROCEEDING S BEFORE THE CIT(A). SINCE, THE AO HAD TREATED THE AMOUNT RECEIVED FROM ONE OF THE BUYERS AS UNEXPLAINED CREDIT IN THE ABSENCE OF CONFIRMATION FROM THE SAID BUYER, THE ASSESSEE SUBMITTED CONFIRMATION FROM THE SAID BUYER. THE SAID EVIDENCE WAS FORWARDED TO AO FOR VERIFICATION . THE AO AFTER VERIFICATION ACCEPTED THE GENUINENESS OF THE CREDIT. ACCORDINGLY, THE CIT(A) DIRECTED THE AO TO GIVE NECESSARY RELIEF IN THIS REGARD. HOWEVER, HELD THAT THE PAINTINGS IN QUESTION DO NOT COME WITHIN THE MEANING OF PERSONAL EFFECTS BUT FALL UNDER THE HEAD 4 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 CAPITAL ASSET AND THE ASSESSEE HAS EARNED CAPITAL GAIN FROM SALE OF THE PAINTINGS IN QUESTION THROUGH VARIOUS METHODS INCLUDING PUBLIC AUCTION, THROUGH GALLERIES AND THROUGH PERSONAL CONTACTS. AGAINST THE SAID FINDINGS OF THE LD. CIT(A ) THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 5 . THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THE INCOME EARNED ON SALE OF PAINTING WAS CHARGEABLE UNDER THE HEAD CAPITAL GAINS AND WAS NOT EXEMPT BECAUSE THE PAINTING WERE NOT PERSONAL EFFECTS AND THEREBY COVERED BY THE TERM CAPITAL ASSET U/S 2(14) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) OVERLOOKED THE FACT THAT THE AMENDMENT BRINGING PAINTINGS INTO THE AMBIT OF DEFINITION OF CAPITAL ASSET U/S 2(14) CAME IN FORCE W.E.F. 1.4.2008 & IN THE A.Y. 07/08 APPELLANT HAD NO LIABILITY TO PAY TAX ON GAINS ARISING O N SALE OF PAINTINGS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OVERLOOKED THE EVIDENCE PROVIDED BY APPELLANT SUCH AS PORT TRUST RECEIPT SHOWING PAINTINGS AS HOUSEHOLD GOODS AND OTHER EVIDENCE. 4. THE ASSESSING OFFICER BE DIRECTED TO EXCLUDE FROM THE TOTAL INCOME, INCOME DERIVED ON SALE OF PAINTINGS BEING PERSONAL EFFECTS. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT (A) HAS ERRED IN HOLDING THE INCOME FROM SALE OF PAINTING IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS HOLDING THAT PAI NTINGS DO NOT FALL UNDER THE CATEGORY PERSONAL EFFECTS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LD. CIT (A) HAS IGNORED THE FACT THAT THE PAINTINGS WERE BROUGHT WITHIN THE AMBIT OF THE DEFINITION OF CAPITAL ASSETS U/S 2 (14) OF THE ACT , BY THE FINANCE A CT, 2007 APPLICABLE W.E.F. 01.04.2008 AND SINCE THE ASSESSEES CASE PERTAINS 5 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 TO THE ASSESSMENT YEAR 2007 - 08, HE WAS NOT REQUIRED TO PAY ANY TAX ON GAINS ARISING ON SALE OF PAINTINGS. THE LD. COUNSEL FURTHER POINTED OUT THE LD. CIT (A) HAS OVERLOOKED THE EV IDENCE PROVIDED BY THE APPELLANT SUCH AS PORT TRUST RECEIPT SHOWING PAINTINGS AS HOUSEHOLD GOODS AND OTHER EVIDENCE AND THE STATUTORY PROVISIONS . ACCORDINGLY, THE LD. CIT (A) HAS WRONGLY HELD THAT THE GAINS ARISING ON THE SALE OF THE PAINTINGS ARE CAPITAL GAINS OF THE ASSESSEE. TO SUBSTANTIATE THE CONTENTION HIS CONTENTIONS , THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS: 1. FAIZ MURTAZA ALI VS CIT (TAXMANN. COM 232 DELHI HC) 2. CIT VS KURUVILLA ABRAHAM (33TAXMANN. COM 450 MADRAS HC) 3. ACIT VS MS. DILNAVA Z S. VARIAVA (87ITD 113 - MUMBAI ITAT) 4. KURUSH N. JUNGALWALA VS ITO (ITA NO. 2398/MUM/2008 DT. 8.12.2003) 5. ACIT VS SURESH SETHI (ITA NO. 763/KOL/2012 DT. 15.3.2013) 6. RENU ROY VS ITO (ITA NOS. 491 - 496/KOL/2012 DT. 28.5.2015) 7. SUVAPRASANNA BHATTACHARY A VS. ACIT (ITA NO. 1303/KOL/2010 DT. 6.11.2015) 7. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE FINDINGS OF THE AO SUBMITTED THAT THE AO HAS RIGHTLY HELD THAT MONEY EARNED ON SALE OF PAINTINGS AS PER THE STATEMENT FILED B Y THE ASSESSEE EXCEPT PAI NTINGS SOLD TO MR. HARISH CHAWLA FOR RS. 31,00,000/ - IS TAXABLE AS BUSINESS INCOME AS AGAINST THE ASSESSEES CLAIM AS EXEMPT INCOME ON THE GROUND OF PERSONAL EFFECT WHICH IS AN AFTERTHOUGHT. HENCE, THE CIT (A) HAS WRONGLY HELD TH AT THE INCOME RECEIVED BY THE ASSESSEE FROM SALE OF THE PAINTINGS COMES WITHIN THE MEANING OF CAPITAL GAIN. SO FAR AS THE PAINTINGS SOLD TO MR. HARISH CHAWLA IS CONCERNED, THE AO HAS RIGHTLY TREATED THE AMOUNT AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. THE LD. DR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT PASSED IN THE CASE OF HH MAHARAJA RANA HEMANT SINGH JI VS. CIT 103 ITR 61 AND THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN R . 6 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 RAMANATHAN CHETTIAR VS. COMMISSIONER OF INCOME TAX [1985] 20 TAXMA N 52(MAD). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT (A) HAS WRONGLY HELD THE INCOME FROM SALE OF PAINTINGS IN QUESTION IS TAXABLE UNDER THE HEAD CAPITAL GAINS . T HE CONTENTION OF THE ASSESSEE IS THAT THE MONEY RECEIVED FROM THE SALE OF PAINTINGS IS NEITHER THE CAPITAL GAIN NOR THE BUSINESS INCOME, THEREFORE NOT TAXABLE UNDER ANY OF THE HEAD S BEING PERSONAL EFFECTS HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMB ER OF HIS FAMILY WHICH WAS NOT WITHIN THE AMBIT OF THE DEFINITION OF CAPITAL ASSETS DURING THE RELEVANT PERIOD . THE PAINTINGS WERE EXCLUDED FROM THE DEFINITION OF PERSONAL EFFECTS BY THE F INANCIAL ACT 2007 APPLICABLE W.E.F. 01.04.2008 . P RIOR TO ITS SUBST ITUTION SUB - CLAUSE (II) AS SUBSTITUTED BY THE FINANCE ACT, 1972 W.E.F. 01.04.1973 THE WORDINGS OF THE SUB - CLAUSE WERE AS UNDER: - (II) PERSONAL EFFECTS, THAT IS TO SAY, MOVEABLE PROPERTY (INCLUDING WEARING APPAREL AND FURNITURE BUT EXCLUDING JEWELLERY) HE LD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDANT ON HIM. EXPLANATION - F OR THE PURPOSE S OF THIS SUB - CLAUSE, JEWELLERY INCLUDES (A) ORNAMENTS MADE OF GOLD, SILVER, PLATINUM OR ANY OTHER PRECIOUS METAL OR ANY ALLOY CONTAINING ONE OR MORE OF SUCH PRECIOUS METALS, WHETHER OR NOT CONTAINING ANY PRECIOUS OR SEMI - PRECIOUS STONE, AND WHETHER OR NOT WORKED OR SEWN INTO ANY WEARING APPAREL, (B) PRECIOUS OR SEMI - PRECIOUS STONES, WHETHER OR NOT SET IN ANY FURNITURE, UTENSIL OR OTHER ARTICLE OR WO RKED OR SEWN INTO WAY WEARING APPAREL FOR THE MEANING OF THE EXPRESSIONS HELD, PERSONAL EFFECTS AND PERSONAL USE . 9. THE AFORESAID SUB - CLAUSE (II) HAS BEEN SUBSTITUTED BY THE FINANCE ACT 2007, APPLICABLE W.E.F. 01.04.2008, WHICH READS AS UNDER: - 7 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 (II) PERSONAL EFFECTS, THAT IS TO SAY, MOVEABLE PROPERTY (INCLUDING WEARING APPAREL AND FURNITURE BUT EXCLUDING JEWELLERY) HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDANT ON HIM , BUT EXCLUDES - (A) JEWELLERY; (B) ARCHAEOLOGICAL COLLECT IONS; (C) DRAWINGS; (D) PAINTINGS; (E) SCULPTURES; OR (F) ANY WORK OF ART. EXPLANATION - .. 10. BY THE SAID AMENDMENT THE LEGISLATURE HAS BROUGHT THE PAINTINGS AND SOME OTHER ARTICLES WITHIN THE AMBIT OF THE CAPITAL ASSET. THE SAID AMENDMENT WAS THEREFORE MAD E APPLICABLE W.E.F. 01.04.2008, I.E. FROM THE ASSESSMENT YEAR 2008 - 09 AND SINCE THE PAINTINGS IN QUESTION WERE SOLD BY THE ASSESSEE IN THE FINANCIAL YEAR 2006 - 07 , THE SAME CANNOT BE TREATED AS CAPITAL ASSETS, THEREFORE THE INCOME F R OM SALE OF THE PAINTINGS CANNOT BE TREATED AS CAPITAL GAIN. IN THE CASE OF FAIZ MURTAZA ALI VS CIT(SUPRA) THE HONBLE DELHI HIGH COURT HAS HELD THAT THE AMENDMENT TO SECTION 2(14) OF THE ACT BY THE FINANCE ACT, 2007 W.E.F 01.04.2008 WHICH ALTERS THE CLAUSE PERTAINING TO PERSON AL EFFECTS WOULD NOT APPLY RETROSPECTIVELY. IN CIT VS KURUVILLA ABRAHAM (SUPRA) THE HONBLE MADRAS HIGH COURT HAS UPHELD THE FINDINGS OF THE ITAT THAT THE PAINTINGS CAN BE CONSIDERED AS CAPITAL ASSET ONLY WITH EFFECT FROM 01.04.2008 BY VIRTUE OF THE FINAN CE ACT 2007 . THE OBSERVATIONS OF THE HONBLE HIGH COURT ARE REPRODUCED HERE UNDER: - 14. HENCE, WE FIND NO MERITS IN THE APPEAL AS WE ARE IN FULL AGREEMENT WITH THE FINDINGS RECORDED BY BOTH THE APPELLATE AUTHORITIES. C ONSEQUENTLY, THE TAX CASE APPEAL IS D ISMISSED AND THE QUESTION OF LAW IS ANSWERED THAT THE PAINTINGS ARE EXCLUDED WITHIN THE MEANING OF PERSONAL EFFECTS AND INCLUDED WITHIN THE SCOPE OF CAPITAL ASSET ONLY 8 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 WITH EFFECT FROM THE ASSESSMENT YEAR 2008 - 09 ONWARDS AND NOT IN RESPECT OF THE EARLIER P ERIODS. NO COSTS. 11. HENCE, IN VIEW OF THE FINDINGS OF THE HIGH COURTS IN THE CASES REFERRED/DISCUSSED IN THE FOREGOING PARAS, THE PAINTINGS IN QUESTION DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WERE OUTSIDE THE DEFINITION OF C APITAL ASSETS, THEREFORE THE SALE PROCEEDS OF THE SAID PAINTINGS DO NOT FALL UNDER THE CATEGORY OF CAPITAL GAIN TO TAX UNDER THE HEAD INCOME FROM CAPITAL GAINS. THE CASES REFERRED BY THE LD. DR ARE DISTINGUISHABLE ON FACTS, HENCE NOT APPLICABLE TO THE PRES ENT CASE. IT IS PERTINENT TO MENTION HERE THAT THE REVENUE HAS ITSELF CHALLENGED THE IMPUGNED ORDER ON THE GROUND THAT THE LD. CIT(A) HAS WRONGLY TREATED THE PAINTINGS IN QUESTION AS CAPITAL ASSET. IN OTHER WORDS, THE REVENUE HAS ADMITTED THAT PAINTINGS IN QUESTION WERE PERSONAL EFFECTS DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR AND THE SAME WERE EXCLUDED FROM PERSONAL EFFECTS W.E.F. 01.04.2008 . HENCE, FIND MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT(A) HAS WRONGLY H ELD THAT THE INCOME EARNED ON SALE OF PAINTINGS ARE CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AS THE AMENDMENT BRINGING PAINTINGS WITHIN THE AMBIT OF THE DEFINITION OF CAPITAL ASSET U/S 2(14) OF THE ACT CAME INTO FORCE WITH EFFECT FROM THE ASSESSME NT YEAR 2008 - 09 AND THE ASSESSEES CASE PERTAINS TO THE ASSESSMENT YEAR 2007 - 08. 12. IN THE LIGHT OF THE AFORESAID DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE INVOLVED IN THIS CASE IS SQUARELY COVERED BY THE JUDGMENTS OF THE HONBLE HIGH COURT S DISCUSS ABOVE. WE THEREFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND ALLOW THE SOLE GROUND OF APPEAL OF THE ASSESSEE. ITA NO. 3430 /MUM/2012 (ASSE SSMENT Y EAR: 2007 - 2008 ) THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 9 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 1. THE LD. CIT (A) ERRED IN LAW BY TREATING THE ADDITION MADE BY A.O AS A CAPITAL GAIN INSTEAD OF BUSINESS INCOME, IGNORING THE FACT THAT THE AMENDMENTS WERE MADE BY FINANCE ACT 2007 IN SECTION 2 (14)( II) W.E.F. 1.4.2008 WHEREIN THE PAINTING HAS BEEN EXCLUDED FROM THE DEFINITION OF PERSONAL EFFECT HOLDING AS A CAPITAL ASSET, WHEREAS, AS LEGAL COROLLARY OF THE ABOVE AMENDMENT, PAINTING REMAINS TO BE HELD AS PERSONAL EFFECT IN THE YEAR OF COMPUTATION, RESULTING INTO NOT AS CAPITAL ASSET AND THE GAIN, THEREFORE, ON THE SALE OF SUCH PAINTING DOES NOT COME WITHIN THE PURVIEW OF CAPITAL GAIN. 2. THE LD. CIT (A) ERRED IN LAW AS WELL AS ON THE FACT TO TREAT THE ADDITION MADE BY THE A.O. AS A CAPITAL GAIN IN PL ACE OF BUSINESS INCOME IGNORING THE FACT THAT THE ASSESSEE INVOLVED IN SYSTEMATIC ACTIVITIES OF PURCHASE AND SALE OF PAINTINGS IN THE YEAR UNDER CONSIDERATION WHICH IS TO BE TREATED AS A BUSINESS INCOME ONLY. 2. THE REVENUE HAS CHALLENGED THE IMPUGNED O RDER ON THE GROUND THAT THE LD. CIT(A) HAS WRONGLY HELD THE INCOME FROM SALE OF PAINTINGS IN QUESTION IS TAXABLE UNDER THE HEAD CAPITAL GAINS, AND NOT UNDER THE HEAD INCOME FROM BUSINESS. BEFORE US , THE LD. DEPARTMENTAL REPRESENTATIVE ( DR ) RELYING ON TH E ASSESSMENT ORDER SUBMITTED THAT THE ASSESSEE HAD SHOWN THE PURCHASE OF PAINTINGS AS INVESTMENTS IN THE BALANCE SHEET UP TO AY 2005 - 06. HOWEVER, IN THE AY 2006 - 07 THE SAME WAS SHOWN AS PERSONAL ASSETS / COLLECTION. HENCE, THE AO HAS RIGHTLY HELD THAT THE AS SESSEES INTENTION CLEARLY SHOWS THAT THE INVESTMENTS WERE MADE FOR DOING BUSINESS IN PAINTINGS THROUGH GALLERY MASKARA PVT. LTD. IN WHICH THE ASSESSEE WAS A DIRECTOR. THE ASSESSEES PLEA THAT THE DURING THE RELEVANT PERIOD PAINTINGS WAS NOT EXCLUDED FROM THE AMBIT OF PERSONAL EFFECT, THEREFORE THE PROCEEDS OF THE SALE OF PAINTINGS WERE NOT TAXABLE, IS NOT PLAUSIBLE AS HUGE PURCHASES OF PAINTINGS AND SALES THEREOF CANNOT BE HELD AS PERSONAL EFFECT. 10 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 3. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE APPELLANT/ASSESSEE STARTED COLLECTING ART/PAINTINGS IN THE YEAR 1996/97. THE ASSESSEE COLLECTED TWELVE PAINTINGS UP TO THE YEAR 1998 - 99. THE ASSESSEE ALSO REFLECTED THE SAME IN THE BALANCE SHEET UNDER THE HEAD ART COLLECTION. IN THE YE AR 1999 - 2000 THE APPELLANT LEFT FOR U.S. SINCE, PAINTING HIS PASSION, HE CARRIED THE PAINTINGS ALONG WITH HIM TO THE U.S. AND DISPLAYED HIS COLLECTIONS OF PAINTINGS. HE CONTINUED TO STAY THERE AND BECAME NON RESIDENT. HE PURCHASED FOUR PAINTINGS IN U.S IN THE YEAR 2002 - 03, FOUR PAINTINGS IN THE SUBSEQUENT YEAR AND TEN PAINTINGS IN THE YEAR 2004 - 05. THESE PAINTINGS WERE PURCHASED OUT OF THE SALARY FROM FULL TIME EMPLOYMENT IN THE U.S. FROM 1999 - 2000 TO 2004 - 05 THE ASSESSEE WAS A NON RESIDENT. THE ASSESSEE H AD NOT SOLD EVEN A SINGLE PAINTING FROM 1996 TO 2005. THE ASSESSEE CAME BACK TO INDIA IN THE YEAR 2005 - 06 AND BROUGHT THE ENTIRE COLLECTION. THE CUSTOMS DEPARTMENT DID NOT CHARGE ANY DUTY TREATING THE SAME AS PERSONAL BELONGINGS OF THE ASSESSEE. THE ASSESS EE SOLD ONE PAINTING IN THE AY 2005 - 06. ONE PAINTING WAS SOLD IN THE AY 2006 - 07 AND CLAIMED THE INCOME AS CAPITAL GAIN, HOWEVER, THE CLAIM WAS WITHDRAWN SUBSEQUENTLY BEING A PERSONAL EFFECT. IN THE ASSESSMENT YEAR 2006 - 07, ONE PAINTING WAS SOLD BACK TO THE PARTY FROM WHOM IT WAS PURCHASED AS THE PAINTING WAS SUBJECTED TO CERTAIN RESTORATION WORK BEFORE IT WAS SOLD TO THE ASSESSEE AND THIS FACT WAS NOT DISCLOSED AT THE TIME OF SALE. IN THE ASSESSMENT YEAR 2007 - 08, THE PAINTING S WERE SOLD BY THE ASSESSEE FOR PERSONA L REASONS AND THEREAFTER NO PAINTING WAS SOLD FOR NEXT TWO YEARS. THEREFORE, IT CAN BE INFERRED FROM THE CONDUCT OF THE ASSESSEE THAT THE ASSESSEE WAS NOT IN BUSINESS OF DEALING IN PAINTINGS. HENCE, IT IS AMPLY C LEAR THAT THE ASSESSEE NEITHER PURCHA SED NOR SOLD ANY PAINTING WITH A VIEW TO EARN PROFIT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) HAS WRONGLY HELD THE ADDITION MADE BY AO AS CAPITAL GAIN INSTEAD O F BUSINESS INCOME. THE ASSESSEE 11 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 SOLD PAINTINGS WORTH RS. 2,05,42,224/ - DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ONLY QUESTION TO BE DECIDED IN THE LIGHT OF THE CONTENTION OF THE PARTIES IS THAT WHETHER THE SALE OF PAINTING S IN QUESTION BY THE ASSESSEE AMOUNTS TO BUSINESS SO AS TO BRING THE INCOME FROM SALE OF THE PAINTINGS TO TAX UNDER THE HEAD BUSINESS INCOME OR THE INCOME SO EARNED WAS NOT AT ALL TAXABLE . IN ORDER TO ASCERTAIN WHETHER THE PURCHASES AND SALES OF THE PAINTI NGS IN QUESTION BY THE ASSESSEE AMOUNTS TO BUSINESS ACTIVITY OR T HE SAME WAS SIMPLY SALE OF PERSONAL EFFECTS BY THE ASSESSEE , IT IS NECESSITY TO KNOW REAL INTENTION BEHIND THE TRANSACTION, MODE AND MANNER OF PURCHASES AND SALE OF PAINTINGS. AS CONTENDED BY THE ASSESSEE, THE APPELLANT STARTED COLLECTING ARTS /PAINTINGS SINCE 1996 - 97. THE APPELLANT PURCHASED PAINTINGS FOR THE FIRST TIME IN THE ASSESSMENT YEAR 1996 - 97. IN THE YEAR, 1999 - 2000, THE APPELLANT LEFT FOR US SINCE PAINTINGS WERE HIS PASSION AND HE WA S SO CONNECTED WITH THE PAINTINGS HE CARRIED THE SAME ALONG WITH HIM TO THE UNITED STATES. THE APPELLANT STAYED IN UNITED STATES AND BECAME A NON - RESIDENT. HE PURCHASED FOUR PAINTINGS IN THE YEAR 2002 - 03 AND FOUR PAINTINGS IN THE SUBSEQUENT YEARS AND TEN P AINTINGS IN THE YEAR 2004 - 05. THE APPELLANT REMAINED POSTED AS MARKETING MANAGER IN MICROSOFT, HE DID NOT SELL ANY PAINTING DURING THE AFORE SAID PERIOD . IN THE YEAR 2005 - 06, THE ASSESSEE CAME BACK TO INDIA AND ALSO BROUGHT THE PAINTINGS/COLLECTIONS. N O CU STOM DUTY WAS LEVIED ON THE SAID COLLECTION BEING THE PERSONAL BELONGINGS OF THE ASSESSEE. SO FAR AS THE SALE OF HIS PAINTINGS IS CONCERNED, THE ASSESSEE SOLD ONE PAINTING IN THE ASSESSMENT YEAR 2005 - 06. THIS PAINTING WAS MADE BY THE ASSESSEE HIMSELF AND THE SAME WAS TREATED BY THE ASSESSEE AS PROFESSIONAL INCOME. IN THE ASSESSMENT YEAR 2006 - 07 THE ASSESSE E SOLD ONE PAINTING AND IN ITS RETURN OF INCOME OFFERED THE PRICE OF PAINTING AS CAPITAL GAIN, HOWEVER, THE SAME WAS WITHDRAWN CLAIMING PERSONAL EFFECTS AFTER FILING REVISED RETURN. SO THE CONDUCT OF THE ASSESSEE DURING THE A.Y. 2005 - 06 AND 2006 - 07 DOES NOT SUGGEST THAT THE ASSESSEE HAD SOLD THE PAINTINGS AS A BUSINESSMAN. SO FAR AS THE SALE OF 12 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 PAINTING S IN THE A.Y. 2007 - 08 IS CONCERNED, THE AO TREATED THE SALE PROCEEDS AS INCOME FROM THE BUSINESS , WHEREAS THE LD. CIT (A) HAS HELD THE PROCEEDS AS CAPITAL GAIN. SINCE, THE PAINTINGS WERE EXCLUDED FROM THE LIST OF PERSONAL EFFECTS BY THE FINANCE ACT, 2007 W.E.F. 01.04.2008 AS DISCUSSED IN THE ASSESSEES CASE A FORESAID, THE PROCEEDS CANNOT BE TERMED AS CAPITAL GAIN. ON THE OTHER HAND, THE AO HAS HELD THAT THE INCOME EARNED FROM SALE OF THE PAINTINGS IS BUSINESS INCOME. IT IS EVIDENT FROM THE RECORD THAT THE ASSESSE E DID NOT SELL ANY PAINTING AFTER THE FINANCIAL YEAR 2006 - 07 TILL ASSESSMENT YEAR 2010 - 11. AS POINTED OUT BY THE LD. CIT (A), THE DETAILS OF LAST DECADE STARTING FROM FINANCIAL YEAR 1996 - 97 TO F.Y. 2006 - 07 SHOW FIVE PAINTING WERE PURCHASED DURING F.Y. 1996 - 97 AND F.Y. 1997 - 98 WHILE TWO PAINTINGS W E RE P URCHASED DURING THE F.Y. 1998 - 99. THEN FOR THE NEXT THREE YEARS THERE WAS NO PURCHASED OF ANY PAINTING BUT FROM F.Y. 2002 - 03, THE ASSESSEE STARTED PURCHASING PAINTINGS. DURING THE F.Y. 2002 - 03 THE ASSESSEE PURCHASED FOUR PAINTINGS. SIMILARLY FOUR PAINTINGS WERE PURCHASED IN THE F.Y. 2003 - 04 IN THE F.Y. 2004 - 05 HE PURCHASED 10 PAINTINGS IN THE F.Y. 2005 - 06 THE ASSESSEE PURCHASED 21 PAINTINGS AND IN THE F.Y. 2006 - 07 THE ASSESSEE PURCHASED FOUR PAINTINGS. OUT OF THE 55 PAINTINGS AVAILABLE WITH HIM HE SOLD 31 PAINTINGS DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. SO , FROM THE AFORESAID FACTS, THE LD.CIT (A) HAS HELD THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF DEALING IN PAINTINGS. REGARDING THE OBSERVATIONS OF THE AO THAT THE SALE OF PAINTINGS CAN BE TREATED AS ADVENTURE IN THE NATURE OF BUSINESS THE LD. CIT (A) HAS HELD THAT THE ASSESSEE IS AN ART LOVER AND NOT INTERESTED IN PARTING WITH THE PAINTINGS WHICH HE HAD ACQUIRED OVER THE YEARS. FURTHER, THE ASSESSEE HAD NOT SHOWN AS STOCK I N TRADE IN HIS BOOKS OF ACCOUNTS BUT HAD SHOWN AS ART COLLECTION. THE LD. CIT (A) HAS FURTHER HELD THAT THE ASSESSEE IS NOT IN THE BUSINESS OF DEALING IN PAINTING . THE SALE OF PAINTINGS BY THE ASSESSEE ON ACCOUNT OF PERSONAL REASONS WOULD NOT CONSTITUTE HI S DEALINGS AS ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEE HAD SHOWN THE PROFIT ARISING FROM THE PAINTINGS AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN 13 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 IN THE P&L ACCOUNT DOES NOT MAKE THE ASSESSEE LIABLE FOR TAX UNDER THE HEAD INCOME FROM CAPIT AL GAIN. SINCE, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. D R , WE AGREE WITH THE FINDINGS OF THE LD. CIT (A) THAT THE SALE OF PAINTINGS BY THE ASSESSEE WOULD NOT AMOUNT TO ADVENTURE IN THE NATURE OF TRADE TRADE OR THE ASSESSEE WAS IN THE BUSINESS OF PURCHASE/SALE OF THE PAINTINGS. HENCE, WE HOLD THAT THE SINCE THE PAINTINGS WERE PERSONAL EFFECTS DURING THE RELEVANT PERIOD AND THE ASSESSEE SOLD THE FOR PERSONAL REASONS, THE INCOME EARNED FROM THE SALE OF PAINTINGS DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, DOES NOT FALL UNDER THE HEAD INCOME FROM BUSINESS. WE THEREFORE, DISMISS THIS GROUND OF APPEAL OF THE REVENUE AND DIRECT THE AO TO EXCLUDE THE INCOME DERIVED ON SALE OF THE PAINTINGS IN QUESTION FROM THE TOTAL IN COME OF THE ASSESSEE. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2018 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 27/ 04/2018 ALINDRA PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 14 ITA NO S . 3430 & 3706/MUM/2012 ASSESSMENT YEAR: 2007 - 2008 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI