H H Maharani Usha Devi Vs. Commissioner of Income-tax, City-ii, Bhopal. - Court Judgment

VIJAYVARGIYA, J. - By this reference under s. 256(1) of the I. T. Act, 1961, (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Bombay Bench has referred the following question of law for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the heirloom jewellery constituted personal effects within the meaning of section 2(14) of the income-tax Act, 1961, therfore, the sale thereof did not give rise to any taxable capital gain ?'

The facts giving rise to this reference, as set out in the statement of the case, are as follows :

The assessee is the ex-Ruler of the erstwhile Holkar State. The assessee was assessed as an individual and the assessment year involved is 1972-73, for which the previous year ended on March 31, 1972. During the accounting year relating to the assessment year in question, the assessee sold two items of heirloom jewellery for Rs. 13,80,001. The assessee claimed that the heirloom jewellery was exempted from the provisions of the W. T. Act by the CBR and, therefore, the sale thereof did not give rise to any taxable capital gains. The ITO negative the contention of the assessee and held that the assessee had earned capital gains amounting to Rs. 6,30,001 by the sale of the heirloom jewellery and that the said amount was taxable. On appeal by the assessee, the AAC upheld the order of the ITO and dismissed the appeal. On further appeal before the Tribunal, it was urged on behalf of the assessee that the heirloom jewellery constituted 'personal effects' of the assessee within the meaning of s. 2(14) of the Act and, therefore, the sale thereof did not give rise to any taxable capital gains. The Tribunal negatived the contention of the assessee and upheld the order of the ITO. At the instance of the assessee, the Tribunal has referred the aforesaid question of law for the opinion of this court.

We have heard learned counsel for the parties. The Tribunal has found that the items of heirloom jewellery in question were recognised as a dynastic jewellery by the Central Govt. to be kept by the Ruler of Indore (subject to the right of inspection by the Government) for use by the Rulers of Indore on ceremonial occasions as in the past. The CBR after making an enquiry as to the circumstances under which the heirloom jewellery was to be kept in the custody of the Princess Usha; s Trust, recognised the items of jewellery in question as the heirloom jewellery of His Highness under the W. T. (Exemption of Heirloom Jewellery of Rulers) Rules, 1958, for the purpose of cl. (xiv) of sub-s. (1) of s. 5 of the W. T. Act, 1957. In the accounting year in question, the assessee sold two items of the heirloom jewellery after taking permission of the Central Govt. The Tribunal has also found that the articles of jewellery in question were meant for use and were used on ceremonial occasions. However, the Tribunal came to the conclusion that these items of jewellery were meant to be used by a person, who at a particular point of time, acts as the Ruler of the State and, therefore, according to the Tribunal, these articles were for the use of the body corporate and could not be called as the 'personal effects' of the Ruler. The Tribunal therefore, held that the items of jewellery in question were not exempt under the provision of s. 2(14) of the Act. The Tribunal placed reliance upon a decision of the Supreme Court in His Highness Maharani Rana Hemant Singhji v. CIT : [1976]103ITR61(SC) .

The learned counsel for the assessee contended that on the facts found by the Tribunal and not in dispute, the Tribunal was not justified in law in holing that the items of heirloom jewellery were not the 'personal effects' of the assessee and, therefore, the income arising on account of the sale thereof was not exempt from tax. According to him, the view of the Tribunal that the heirloom jewellery in question was not the personal property but was the corporate property of the assessee and, therefore, it cannot be said to be the personal effects of the assessee, is palpably erroneous. He further contended that if this view of the Tribunal is correct and it is held that the items of jewellery in question was not the personal property of the assessee, then the same cannot be treated as capital asset of the assessee and the income arising through the sale of the same cannot be taxed as capital gains in the hands of the assessee. He also contended that the decision of the Supreme Court in His Highness maharaja Rana Hemant Singhjis case : [1976]103ITR61(SC) , relied upon by the Tribunal, has no applicability to the present case. There is force in the contentions of the learned counsel for the assessee. Under s. 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year, is made chargeable to income-tax under the head 'Capital gains'. Such profits or gains shall be deemed to be the income of the previous year in which the transfer took place. The term 'capital asset' has been defined by s. 2(14) of the Act. According to this defination, as it stood in the year of assessment, 'capital asset' means property of any kind help by an assessee whether or not connected with his business or profession, but does not include... personal effects, that if to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him. Thus, if the capital asset in question is not an asset of the assessee, it is difficult to appreciate how the profits or gains arising from the sale of such asset can be deemed to be his income. It is also difficult to appreciate what is meant by the Tribunal when it stated that the items of heirloom jewellery were for the use of a body corporate and not personal effects, as claimed by the assessee. The Tribunal, as stated above, has found that the items of heirloom jewellery in question were meant for use and were used on ceremonial occasions by the assessee as the Ruler for the time being of the erstwhile Holkar State. Thus, at the material time, when the items of heirloom jewellery were sold by the assessee with the approval of the Central Govt., the same formed part of the assets of the assessee.

The short question which arise for determination, therefore, is whether the heirloom jewellery in question was the personal effects of the assessee held for personal use of the assessee, and, therefore, was not liable to be included in the terms ' capital asset' within the meaning of s. 2(14) of the Act. As stated above, the assessee has been taxed on the capital gains accrued to the assessee from the sale of the said items of jewellery treating the same to be the property of the assessee. The Tribunal has also found that the said items of jewellery were meant for use and were used by the assessee on ceremonial occasions. Thus, the items of jewellery in question were the personal effects of the assessee and were held for personal use of the property has necessarily to depend on the nature of the property. Merely because, in view of the nature of the property, which necessarily has to be used on ceremonial occasions, it cannot be said that the said property is not held by the assessee for personal use. The facts in H. H. Maharaja Rana Hemant Singhjis case : [1976]103ITR61(SC) were entirely different. In that case, the assets involved were bullion, silver coins and silver bars and the case put forward by the assessee was that the silver coins and silver bars were used by the assessee for the worship of goddess 'Lakshmi' and, therefore, were the personal effects of the assessee held by the assessee for him personal use and, therefore, cannot be treated as capital assets' of the assessee within the meaning of s. 2(14) of the Act. In that context, negativing the contention of the assessee, their Lordships of the Supreme Court have held as follows (p. 64) :

'The expression `personal use occurring in clause (ii) of the above quoted provision is very significant. A close scrunity of the context in which the expression occurs shows that only those effects can legitimately be said to be personal, which pertain to the assessees 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 illustration in the above-quoted defination of 'personal effects' also shows that the legislature intended only those articles to be included in the defination, which were intimately and commonly used by the assessee.

It is difficult to appreciate how the said decision of the Supreme Court can be pressed into service for holding that the items of jewellery in question were not the personal effects of the assessee held for personal use of the assessee. On the facts found by the Tribunal, it has to be held that the items of jewellery in question were the personal effects of the assessee held for personal use of the assessee. On the facts found by the Tirbunal, it has to be held that the itmes of jewellery in question were the personal effects of the assessee held for personal use by her and therefore, were excluded from the defination of the term 'capital asset', as defined by s. 2(14) of the Act and as such the profits and gains arising from the sale thereof were not taxable under the provisions of s. 45 of the Act. In our opinion, therefore, the Tribunal was not justified in law in holding that the heirloom jewellery did not constitute 'personal effects' of the assessee within the meaning of s. 2(14) of the Act, and therefore, the profits and gains arising from the sale of the same were liable to tax under s. 45 of the Act.

Our answer, therefore, to the question referred to us is in the affirmative and in favour of the assessee. In the circumstances, the parties shall bear their own costs of this reference.