Facts

The assessee, a minor, having been recognised by the Government as successor     of the former Maharaja, certain assets consisting of gold sovereigns, silver coins  and silver bars were released by the Govt. and handed over to Rajmata being the adoptive mother and guardian of the assessee. During the financial year 1957-58, the aforesaid sovereigns, silver coins and silver bars were sold at the suggestion     of the Government. The assessee contended that there was no voluntary sale chargeable to capital gains tax under section 12B of the 1922 Act and the aforesaid items did not constitute “capital assets”  as contemplated by section 2(4A)  of the 1922Act but fell within the purview of the exception carved out by clause

(ii) thereof and as such were to be excluded in computing the gains because they were held for personal use by the assessee and the  members of his  family as was evident from the fact that they were used for the purpose of Maha Lakshmi puja and other religious festivals and rituals in the family. The ITO overruled    the assessee’s contention and taking into account the market value of the assets worked out capital gains. The appeal before the AAC remained unsuccessful. On second appeal, the Tribunal dismissed the appeal holding that the expression “personal effects” meant such items of movable property as were necessary adjuncts to an individual’s own personality and the nature of sale being voluntary or otherwise was irrelevant for the purpose of section 12B of the 1922 Act. On reference, the High Court held that in order that an article should constitute a     part of personal effects, it is necessary that the article must be associated with the person of the possessor and that the aforesaid items consisting of gold sovereigns, silver rupees and silver bars could not be deemed to fall within the exception carved out by clause (ii) of section 2(4A) of the 1922 Act merely because they   wereplaced before Goddess Lakshmi while performing puja.

Assessee preferred further appeal to the Supreme Court.

Issue

Whether an item of movable property consisting of gold sovereigns, silver rupees and silver bars held for personal use i.e they were placed before Goddess Lakshmi while performing puja is a part of personal effects of an assessee and fall within  the exception carvedout by clause (ii) of section 2(4A) of the Act?.

View

The expression “personal use” occurring in section 2(4A)(ii) of the 1922 Act is   very significant. A close scrutiny of the context in which the expression occurs showed that only those effects can legitimately be said to be personal which pertain to the assessee’s person. In other words, an intimate connection between the effects and the person of the assessee must be shown to exist to render them “personal effects”.

The enumeration of articles like wearing apparel, jewellery, and furniture mentioned by way of illustrations in the above-quoted definition of “personal effects” also showed that the legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee.

The meaning assigned to the expression “personal effects” in various dictionaries also lends support to this view.

The silver bars or bullion could by no stretch of imagination be deemed to be “effects” meant for personal use. Even the sovereigns and the silver coins which were alleged to have been customarily brought out of the iron safes and boxes       on two special occasions, namely, the Ashtami Day of “Sharadh Paksh” for Maha Lakshmi Puja and for worship on the occasion of Diwali festival could not also      be designated as effects meant for personal use. They might have been used for  puja of the deities as a matter of pride or ornamentation but it was difficult to understand how such user could be characterised as personal use. The court noted that if sanctity of puja were considered so essential by the assessee, the aforesaid articles would not have been delivered by his guardian to the banks for sale.

The court also noted that no exemption on behalf of the assessee was claimed in respect of the aforesaid effects under the provision of the Wealth-tax Act.

Held

The aforesaid articles were capital assets and not personal effects and as such could not be excluded while computing the gains. The appeal of assessee was dismissed. (AY. 1957-58) (CA No. 779 of 1971 dt. 17-2-1976)

Editorial: Ratio of above judgment is followed in, Jayantilal A. Shah v. K. N Ananthrama Aiyar v. CIT (1985) 156 ITR 448 (Bom) (HC); Faiz Murtaza Ali v.  CIT (2014) 360 ITR 200 (Delhi)(HC)

“Live simply so that others may simply live.”

– Mahatma Gandhi