The Bombay High Court, in Narendra I. Bhuva v. Assistant Commissioner of Income-tax (Income Tax Appeal No. 681 of 2003), examined whether a vintage motor car owned by the assessee constituted a “personal effect” excluded from the definition of “capital asset” under Section 2(14) of the Income-tax Act, 1961, and whether the gains arising from its sale were liable to tax under the head “Capital Gains”.

The assessee, a salaried employee, had purchased a 1931 model vintage car in 1983 for ₹20,000 and sold it during the relevant assessment year for ₹21,00,000. The Assessing Officer treated the surplus as taxable income. The Commissioner of Income-tax (Appeals) granted relief by holding that the car was a personal asset. However, the Income Tax Appellate Tribunal reversed the said finding and held that the car was not a personal effect, as there was no evidence of its personal use by the assessee.

Before the High Court, the substantial question of law was whether the Tribunal was justified in holding that the vintage car was not a personal effect and that the gains arising on its sale were liable to capital gains tax. The assessee relied upon various judicial precedents to contend that even occasional use would suffice to qualify an asset as a personal effect.

The High Court analysed Section 2(14) of the Act and reiterated that “personal effects” refer only to movable property held for personal use and having an intimate and common connection with the person of the assessee. Relying on the Supreme Court judgment in H.H. Maharaja Rana Hemant Singhji v. CIT (103 ITR 61), the Court held that mere capability of personal use or pride of possession is insufficient; actual personal use, whether regular or occasional, must be established by evidence.

On facts, the Court noted that the assessee failed to adduce any evidence of personal use of the vintage car. The car was not parked at the assessee’s residence, no expenditure on maintenance or running was proved, the assessee used a company car for commuting, and there was no material to show even occasional use such as participation in rallies or events. The Court observed that treatment of the car as a personal asset in wealth-tax returns or non-claim of depreciation were irrelevant considerations for determining personal use.

The High Court held that the Tribunal had correctly applied the legal test and that its findings were purely factual and not perverse. Consequently, the vintage car could not be regarded as a personal effect, and the gains arising from its sale were rightly taxable as capital gains.

Accordingly, the substantial question of law was answered against the assessee, and the appeal was dismissed.

Source- https://www.mytaxexpert.co.in/uploads/1768388232_NarendraI.Bhuvav.AssistantCommissionerofIncometax.pdf

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