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PETITIONER: THE COMMISSIONER OF INCOME-TAX, MADHYA PRADESH, BHOPAL

       Vs.

RESPONDENT: H.H. MAHARANI USHA DEVI

DATE OF JUDGMENT:       14/05/1998

BENCH: SUJATA V. MANOHAR, S. RAJENDRA BABU

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Mrs. Sujata. V. Manohar, J.      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.      In 1949, the Ministry of States, New Delhi had accepted certain heirloom jewellery as private properties of His late Highness  Maharaja   keshaw  Rao  Holkar  of  Indore.  These included a  ’Sirpech" and  a Ceremonial belt. All the listed jewellery and  gold in  the Huzur  Jawahirkhana at Indore in 1949 and used by the Ruler of Indore on ceremonial occasions as in  the past, were exempt under the provisions of Section 5(1)(xiv) of the wealth-Tax Act.      During the  accounting year  relating to the assessment year 1972-73,  the  assessee  sold  two  items  of  heirloom jewellery for  Rs. 13,80,001/-.  The assessee claimed before the  Tribunal   that  the   heirloom  jewellery  constituted personal effects  of the  assessee  within  the  meaning  of Section 2(14)  of the  Income-Tax Act, 1961, and, therefore, the sale  of this jewellery did not give rise to any taxable capital  gains.   This  contention   was  negatived  by  the Tribunal.  The   Tribunal,  however,  framed  the  following question for  reference before  the  High  Court  of  Madhya Pradesh under Section 256(1) of the Income-Tax Act, 1961:      " 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,  therefore,      the sale  thereof did not give rise      to any taxable capital gains?"      The High  Court has  answered the question in favour of the assessee. Hence the present appeal.      Under Section  45 of  the Income-tax Act any profits or gains arising  from the transfer of a capital asset effected in the  previous year  is 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 in

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Section 2(14)  of the  Income-tax Act.  Section 2(14), as it stood at the relevant time, was as follows:      Section 2(14):      "Capital asset  means  property  of      any  kind   held  by   an  assessee      whether or  not connected  with his      business or  profession,  but  does      not include:      (i) ...........................      (ii) personal  effects, that  is to      say,  movable  property  (including      wearing  apparel,   jewellery   and      furniture) held for personal use by      the assessee  or any  member of his      family dependant on him.      .......................      ..........................." Personal effects  which are  excluded  from  capital  assets include jewellery  for personal  use. We  have  to  consider whether jewellery  held for  personal use  by  the  assessee would cover  heirloom jewellery  of the  assessee.  Heirloom jewellery  is  also  meant  for  the  personal  use  of  the assessee. it  is, however,  not meant  for daily use but for use on  ceremonial occasions.  This does  not  deprive  such jewellery of  its character  as jewellery meant for personal use. For  example, clothes  meant for  use  at  weddings  or formal occasions  are not  used daily. Yet they are stitched for personal  use of  the wearer. As such, they would form a part of  his personal  effects. Heirloom  jewellery  may  be passed  down  from  generation  to  generation.  But  it  is nevertheless for  the personal  use of  the owner.  The High Court has  rightly held  that the  frequency of  use of  the property must  necessarily  depend  on  the  nature  of  the property. Merely because from the nature of the property, it can be used on ceremonial occasions only, it does not follow that the  property is  not held by the assessee for personal use.      On behalf  of the  department, however, it is contended that because  the jewellery  is meant  for use on ceremonial occasions, it  will not be a part of the assessee’s personal effects. Learned  counsel for the department has relied upon a decision  of this  Court in the case of H.H. Maharaja Rana Hemant Singhji v. Commissioner of Income-Tax, Rajasthan (103 ITR 61).  In that  case silver  bars, sovereigns  and  rupee coins which  were said  to be  used on special occasions for worship were  held not  to be  the personal  effects of  the assessee. This  Court said  that only  those articles  which were "intimately and commonly used by the assessee" would be considered as  personal effects.  The Phrase "intimately and commonly" should  not be taken literally. What was meant was property which  is individually or personally used. One must remember  that   even  furniture  is  included  in  personal effects. Also  this judgment  does not  deal with  jewellery which is  meant to  be worn  personally be  the assessee. it deals with  gold sovereigns,  silver rupees and silver bars. This Court  rightly held  that these could not be considered as personal  effects of  an assessee.  it also observed that enumeration of  articles like wearing apparel, jewellery and furniture,  mentioned   by  way   of  illustrations  in  the 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.      Jewellery is expressly included in the personal effects of an  assessee as  per Section  2(14) as  it stood  at  the

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relevant time.  In the  case of  Commissioner of Income-Tax, Bombay City-VIII  v. Sitadevi  N. Poddar  (148 ITR  506) (to which  one  of  us  was  a  party)  the  Bombay  High  Court considered a  case where  the assessee  sold certain  silver utensils of  the type  which were  used in the kitchen or in the dinning  room. The  assessee contended  that the  silver articles were the personal effects of the assessee and hence were not  capital assets  within the  definition of  Section 2(14) of  the Income-Tax  Act, 1961.  Kania, J.  (as he then was,)  distinguished  the  decision  in  the  case  of  H.H. Maharaja Rana Hemant Singhji (supra) and held that "personal effects" would  include articles  which were  intimately and commonly used  by the assessee. Personal effects need not be confined only to those article which were worn on the person of the  assessee. The  inclusion, for  example, of furniture would negative such a contention.      The above  case of  Sitadevi N. Poddar (Supra) has been followed by  the Bombay  High Court in a subsequent decision in Jayantilal A. Shah V. K.N. Anantharam Aiyar, Commissioner of Income-tax  & Ors. (156 ITR 448). The Andhra Pradesh High Court, however,  in the  case of Commissioner of Income-tax, A.P., Hyderabad  v. Trustees  of H.E.H.  The Nizam’s Wedding Gifts Trusts (154 ITR 573) has held that jewellery which was meant for  use on  ceremonial occasions  was  not  jewellery meant for  personal use  and would  not be  covered  by  the definition of  "Capital asset"  under Section  2(14). In our view, this  decision of  the Andhra  Pradesh High Court does not  appear  to  be  correct.  The  occasion  on  which  the jewellery is  used  will  depend  upon  the  nature  of  the jewellery is  used  will  depend  upon  the  nature  of  the jewellery. but  if it  is meant  for the assessee’s personal use, it will form a part of the assessee’s personal effects.      In the  case of  G.S. Poddar V. Commissioner of Wealth- tax, Bombay  City, II  (57 ITR  207), the  Bombay High Court considered a  case where  certain gold certain gold articles made in the shape of utensils like cups, saucers, trays were sold by  the assessee.  it was  found that the articles were kept in a show-case in the drawing room of the assessee. The court, therefore,  held that  though the  articles  had  the shape of  household articles,  they were neither regarded as household utensils  by the  assessee nor  were they  used or intended to  be used as such. They were not personal effects of the assessee.      In the  present case,  however, the  jewellery is to be worn on  the person of the assessee. It would, in any event, form a  part of the personal effects of the assessee. In the premises, since the definition of "Capital asset" in Section 2(14) does not include personal effects including jewellery, the High  Court rightly  came to  the conclusion that on the facts found  by the  Tribunal, the  items  of  jewellery  in question were  the personal effects of the assessee held for personal use  by her  and were, therefore, excluded from the definition of  the term  capital asset. As Such, profits and gains arising  from the  sale of these items was not taxable under the provisions of Section 45.      The  appeal   is,  therefore,  dismissed.  There  will, however, be no order as to costs