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THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 20.02.2013
+ ITA 613/2012
FAIZ MURTAZA ALI ..... Appellant
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Dr Rakesh Gupta, Ms Rani Kiyala and Ms Ayushi Pareek,
Advs.
For the Respondent : Mr Amol Sinha, sr. standing counsel with Mr Anshum Jain,
Mr Rahul Kochar and Mr Deepak Anand, Advs.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
CM 18145/2012
Exemption is allowed subject to all just exceptions.
The application is disposed of.
ITA 613/2012
This appeal by the assessee is the second round of litigation before
this Court insofar as the assessment year 2002-03 is concerned. The
ITA 613/2012 Page 1 of 13
appeal is directed against the order dated 31.05.2012 passed by the
Income Tax Appellate Tribunal in ITA No.2117/Del./2007. The matter
had been remitted to the Tribunal on a limited question. Earlier this
Court had heard the appeal by the revenue in ITA No.929/2009. The
questions which were proposed in that appeal were as under :-
"(1) Whether ITAT was correct in law in deleting the
addition of Rs.39,47,136/- made by the Assessing Officer
treating the sale of alleged personal effects as "Income From
Undisclosed Sources"
(2) Whether ITAT was correct in law in holding that the
evidence filed by the assessee was believable and therefore,
onus was shifted to the Revenue to prove that the item sold
were not personal effects of the assessee?
(3) Whether item sold by the assessee were ,,personal effects
so as to fall within the ambit of exclusionary clause of
Section 2(14) of the Act, which defines ,,capital asset."
The facts need not be repeated and therefore the narration of facts given
in the order dated 10.05.2011 would suffice for our purposes. The facts
as narrated in the said order are as under :-
"3. In the return filed by the assessee for the assessment year
2002-03 he declared income of Rs.31,71,656/-. The
Assessing Officer noticed that in the bank account of the
assessee there is a deposit aggregating to Rs.39.47 lakhs,
which according to the assessee was the amount released by
him from the sale of certain "personal effects". According to
him, the sums released from the aforesaid sale were exempt
under Section 2(14) of the Income Tax Act. The assessee
had explained that he had received various household items,
ITA 613/2012 Page 2 of 13
paintings, carpets, collector items, furniture items, etc.
owned by his grandfather, father, uncle and aunt. These
movable properties were held for personal use by the
assessee. The details as given by the assessee are as under:-
A. Carpets (silk on silk carpets) 35 items
B. Paintings 20 Pcs
C. Collector items which included antique watches, rings
and decorative items 14 Pcs
D. House Hold Items which included crystal items 12 Pcs
E. Antique Furniture which includes table, chairs, centre
table, chest, etc. 34 Pcs
4. The Assessing Officer was of the view that the aforesaid
items could not be treated as personal effects and were in
fact capital assets within the meaning of Section 2(14) of the
Income Tax Act and therefore refused to grant any
exemption on the sales proceeds thereof from tax and
included this amount for the purpose of tax. Another reason
given by the Assessing Officer was that the assessee had
failed to establish the identity of the items sold individually
to each buyer or that these items have market value of
Rs.39.47 lakhs. According to him, since the assessee had
not produced any documentary evidence in support of his
claim he, was not able to establish the genuineness of his
claim for exemption under Section 2(14) of the Act. This
was the additional ground on which he returned the plea of
exemption under Section 2(14) of the Act.
5. The assessee preferred appeal there against before the
CIT(A). The CIT(A) held that the items sold were articles
meant for personal use and were therefore personal effects.
The entire discussion of the CIT(A) on this aspect is in the
following terms:- "Before deciding the Appeal I would like
ITA 613/2012 Page 3 of 13
to clarify that the assessee has sold certain furniture items
including fixtures, household items, silk carpets, paintings,
etc. which were assets of personal use of the assessee s
father and parcel of the immovable properties the assessee
has inherited. The assessee was using these assets along with
the immovable properties where these assets were located.
Hence, sale of these assets, in my opinion is sale of articles
meant for personal use."
6. Thereafter, the CIT(A) took up the issue as to whether the
assessee had been able to prove the genuineness of the sale
as allowed by him and recorded the finding of fact that
assessee had in fact been able to discharge the onus from
sufficient material produced by him on record that he had in
fact sold the aforesaid items and released the amount of Rs.
39.47 lakhs on sale thereof. In this manner he arrived at a
finding that the sale proceeds were exempted under Section
2(14) of the Act and not exigible to tax. The ITAT has
affirmed the order of the CIT(A) vide impugned judgment
dated 17th October, 2008 thereby dismissing the appeal of
the Revenue. However, the order of the ITAT is only on
second aspect, namely, the genuineness of items sold and the
money released. Since the order of the ITAT was silent on
the first issue, namely, whether the items sold was personal
effects entitled to exemption under Section 2(14) of the Act
or not, the Revenue moved an application under Section
254(2) of the Act alleging that this aspect was not decided
though it was raised. The Tribunal has dismissed this
application vide order dated 17th July, 2009 stating that no
ground was raised that some articles were personal effects or
capital assets."
2. Thereafter, this Court in the said order dated 10.05.2011 had noted
that insofar as the question of genuineness of the sales by the assessee to
various buyers for a sum of `39.47 lakhs was concerned, the Court was of
the opinion that the finding arrived at in favour of the assessee was on the
ITA 613/2012 Page 4 of 13
basis of evidence produced by the assessee and was a pure finding of fact.
Therefore, this Court, in the said appeal, which was disposed of by the
order dated 10.05.2011 did not disturb the finding of the Tribunal that the
sales were genuine.
3. The only question which needed to be considered, in terms of the
order dated 10.05.2011, was whether the articles sold by the assessee to
different buyers could be treated as ,,personal effects and, therefore,
would be eligible for exemption under Section 2(14) of the Income Tax
Act, 1961. This Court by virtue of the order dated 10.05.2011 directed as
under: -
"12. The question was only applicability of Section 2(14) in
respect of these articles. No factual aspects were involved
and it was a question to be decided on the basis of facts.
13. Under these circumstances we are of the opinion that the
Tribunal should have gone into this issue and decided the
same. For this reason alone we remit the case back to the
ITAT for deciding this aspect of the matter. For this reason
we are not deciding the proposed questions of law. Parties
to appear before the Tribunal on 18th July, 2011."
Thereafter, the matter was taken up by the Tribunal and was disposed of
by the impugned order dated 31.05.2012. In the impugned order we find
that the Tribunal has exceeded the direction given by this Court. The
impression that emerges from the narration of facts given by the Tribunal
ITA 613/2012 Page 5 of 13
is that the sales themselves were doubtful. The Tribunal, in our view,
could not go behind the description of the articles as given in the
confirmations furnished by the buyers because the genuineness of the
sales had already been concluded by the Tribunal in the earlier round and
was not disturbed by the High Court by virtue of the order dated
10.05.2011. The only issue for the Tribunal was to consider whether
articles such as carpets, paintings, collector items, household items
including crystal items, antique furniture could be considered to be
personal effects or not in law.
4. In this back drop, the substantial question of law which arises for
our consideration is:-
"Whether the items sold by the assessee were ,, personal
effects so as to fall within the ambit of the exclusionary
clause of section 2(14) of the Income Tax Act, 1961, which
defines ,,capital asset?"
5. We have heard the learned counsel for the parties at length. The
position that emerges is that a substantial part of these articles had been
received by the assessee through inheritance either from his father, who,
in turn had inherited them from his father, or through inheritance from his
uncle. There is also evidence of the fact that some of these articles had
been gifted to the assessee by his aunt by virtue of a gift deed which is
ITA 613/2012 Page 6 of 13
also on record. We also note that the assessee had given an affidavit to
the assessing officer which was to the following effect:-
"AFFIDAVIT
I, Faiz Murtaza Ali, S/o late Justice Murtaza Fazi Ali, R/o
112, Uday Park, New Delhi 110049 do hereby solemnly
affirm on oath as under :
1. That I have inherited immovable property from my Aunt,
Late Mrs. Sayeeda Mehdi Imam vide her registered Will
dated 9th Sept. 1999.
2. That I have been gifted various antique items, furniture,
carpets, paintings, watches, decorative items etc. as personal
effects by my aunt Smt. Sayeeda Mehdi Imam on
05.02.1999.
3. That I have inherited immovable properties from my father
Late Justice Fazal Murtaza Ali and my uncle Late Mustafa
Fazi Ali who died intestate.
4. That I have inherited various furniture items, carpets,
paintings, decorative items for my personal use from my
father and uncle.
Deponent
Verification
I, Faiz Murtaza Ali do hereby solemnly affirm on oath that
whatever has been stated above is true and correct and
nothing material has been concealed therefrom.
Deponent"
From the above it is clear that the assessee had stated on affidavit that the
articles which were either received by him as gift from his aunt or
inherited from his father and uncle were articles of his personal use.
ITA 613/2012 Page 7 of 13
6. The definition of capital asset given in Section 2(14) of the Income
Tax Act, 1961 indicates that a capital asset means property of any kind
held by an assessee, whether or not connected with the business or
profession but does not include :-
"(ii) Personal effects, that is to say, movable property
(including wearing apparel and furniture, but excluding
jewellery) held for personal use by the assessee or any
member of his family dependent on him.
Explanation :- For the purposes 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 worked or sewn into
any wearing apparel;"
Therefore, if the articles in question fall within the expression ,,personal
effects they are not to be included as part of capital assets. Now, the
expression ,,personal effects has been defined as movable property
(including wearing apparel and furniture, but excluding jewellery) held
for personal use by the assessee or any member of his family dependent
on him. There are no jewellery items in the articles in question. Of
ITA 613/2012 Page 8 of 13
course, there are some articles which are furniture items. Then, there are
carpets and paintings and certain other items such as watches and crystal
items.
7. In HH Maharaja Rana Hemant Singhji Vs. CIT : (1976) 103 ITR
61 (SC), the Supreme Court was examining a somewhat similar definition
of ,,capital asset under the 1922 Act wherein capital asset was defined in
Section 2(4-A). The expression "personal effects" was defined as
,,movable property (including wearing apparel, jewellery and furniture)
held for personal use by the assessee or any member of his family
dependent on him. The Supreme Court considered the expression
"personal use" and while doing so, observed that only those effects could
legitimately be said to be personal which pertain to the assessees person
and an intimate connection between the effects and the person of the
assessee must be shown to exist to render them to be regarded as personal
effects. It is clear that the Supreme Court held that only those articles are
to be included in the definition of ,,personal effects which are intimately
and commonly used by the assessee.
8. Keeping this in mind, we have to examine whether, in facts of the
present case, the articles in question could be regarded as personal
ITA 613/2012 Page 9 of 13
effects. The only evidence that is forthcoming is the affidavit of the
assessee where he has indicated that the said articles were for his personal
use. He has also indicated that these articles were received by him from
two streams, one, by way of inheritance from his father and uncle and the
other, by way of a gift deed from his aunt. Whatever be the mode of
acquisition of articles, the fact, as stated in his affidavit, is that these were
in his personal use.
9. We may also refer to Himatlal C. Valia Vs. CIT : (2001) 248 ITR
262 (Guj.) where the Gujarat High Court, when confronted with the
question as regards the frequency of use before any article could be
regarded as a ,,personal effect, observed that it would be difficult to
understand as to why there should be such rationing of personal effects of
the assessee for the purpose of giving the benefit of the exclusion clause
contained in section 2(14). In that case the issue was with regard to 790
pieces of dinner sets. The Gujarat High Court held that if the assessee
had more than one dinner set which were intended to be used by him and
his family members, as and when dinner parties were arranged, there was
nothing in the provisions of section 2(14) to enable courts to assign a
ITA 613/2012 Page 10 of 13
restricted meaning to the words "personal effects" used in that provision.
Therefore, the extent of use was held not to be a relevant factor.
10. The Supreme Court in CIT Vs. H H Maharani Usha Devi : (1998)
231 ITR 793 (SC) had also observed that the High Court had rightly held
that the frequency of use of the property must necessarily depend on the
nature of the property and that merely because from the nature of the
property, it could be used on ceremonial occasions only, it did not follow
that the property was not held by the assessee for personal use.
11. Looking at the totality of circumstances we are of the view that the
assessee has been able to show that the articles in question were inherited
and/or received by him by way of gift. Those articles were moveable
properties. They did not include any jewellery and they had been held for
personal use by the assessee and they were subsequently sold by him to
various buyers. The fact that these articles were held by him for personal
use has been indicated in the affidavit filed by the assessee before the
assessing officer. No material has been brought out by the assessing
officer or the revenue to indicate that the affidavit is false. Therefore, on
the basis of evidence on record, the articles in question ought to have
been held to be ,,personal effects of the assessee.
ITA 613/2012 Page 11 of 13
12. With regard to the amendment to section 2(14), which has been
brought about by the Finance Act, 2007 w.e.f. 1.4.2008 and which alters
the clause pertaining to ,,personal effects in the manner indicated below,
we may say straightaway that the same would not apply as it has
prospective operation with effect from 01.04.2008, whereas in the present
case the assessment year is 2002-03. The amendment that has been
brought about in Section 2(14)(ii) is as follows :
"(ii) Personal effects, that is to say, movable property
(including wearing apparel and furniture) held for personal
use by the assessee or any member of his family dependent
on him, but excludes
(a) Jewellery;
(b) archaeological collections;
(c) drawings;
(d) paintings;
(e) sculptures; or
(f) any work of art.
Explanation : For the purposes 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 worked or sewn into
any wearing apparel;"
ITA 613/2012 Page 12 of 13
It will be seen that with effect from 01.04.2008 even paintings,
sculptures, works of art, archaeological collections and drawings, in
addition to jewellery, have been excluded from the expression ,,personal
effects. But, that would be applicab le from 01.04.2008, which is much
after the assessment year 2002-03.
In view of the foregoing discussion, the question which has been
framed for our consideration is answered in favour of the assessee and
against the revenue.
The appeal is allowed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
FEBRUARY 20, 2013
vld
ITA 613/2012 Page 13 of 13
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