Vintage car held non personal effect of the assessee and sale thereof held liable to capital gain tax – High Court
In a recent judgment, Bombay High Court has held that vintage car owned by the appellant assessee was not his personal effect and thus the gain arising on sale thereof was liable to be taxed under the head ‘Capital Gains’. Mere capability of a car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects.
ABCAUS Case Law Citation:
4704 (2025) (08) abcaus.in HC
In the instant case, the assessee had challenged the order passed by the ITAT in holding that vintage car owned by the appellant assessee was not his personal effect and thus the gain arising on sale thereof was liable to be taxed under the head ‘Capital Gains’.
The Assessee was an employee of a company and was a salaried employee. The assessee had income from house property, share income, dividend etc. In the course of assessment proceedings, the Assessing Officer noticed that the assessee had purchased a vintage car. The said car was sold during the relevant Assessment Year. The assessee replying to the query in this regard stated that the car was shown as a personal asset in Wealth-tax and same was an exempt asset within the meaning of section 2(14) of the Income Tax Act, 1961 (the Act).
However, disagreed with the assessee, the Assessing Officer treated the sale proceeds on account of sale of motor car as business income of the assessee.
The CIT(A) interalia held that vintage cars are not generally used frequently as maintenance costs of these cars are very high. The car was shown as personal asset in wealth tax returns. The assessee never claimed any depreciation in respect of the car.
The CIT(A) also observed that there was no need for purchase of foreign exchange for spare parts as the parts were locally fabricated. The CIT(A) set aside the addition. However, the ITAT reversed the finding of CIT(A) and held that the vintage car was not used by the assessee as personal effect. The order passed by the CIT (A) was set aside by the ITAT.
The Hon’ble High Court observed that perusal of Section 2(14) of the Act makes it evident that capital assets do not include 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 other member of his family dependent on him. Thus, the personal effects must be for personal use for being excluded from the definition of the term ‘capital assets’.
The Hon’ble High Court further observed that a pari-materia provision namely Section 2(4A) of the Income Tax Act, 1922 was interpreted by the Supreme Court with regard to the expression ‘personal effects’. The Apex Court held that an intimate connection between the effects and the person of the assessee must be shown to exist to render them “personal effects”. The Hon’ble Supreme Court pointed out that the enumeration of articles like wearing apparel, jewellery, and furniture mentioned by way of illustration in the above quoted definition of “personal effects” also shows that the legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee. It was further held that the expression “intended for personal or household use” did not mean capable of being intended for personal or household use. It meant normally, commonly, or ordinarily intended for personal or household use. This is the true concept of the expression “personal use”.
The Hon’ble High Court opined that from aforesaid enunciation of law it is evident that treating a movable property as personal effects, an intimate connection between the effects and the person of the assessee must be shown. In case before the Apex Court though the silver bars and silver coins were proved to be used for puja, the same was held to be not constituting personal use. It is also held that the expression ‘intended for personal or household use’ does not mean capable of being intended for personal or household use but it means normally or commonly intended for personal or household use.
The Hon’ble High Court opined that in view of the above, capability of a car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects for being excluded from capital assets of the assesse.
The Hon’ble High Court further observed that the Income Tax Appellate Tribunal had found that the subject car was not used even occasionally by the assessee for his personal purpose. The claim, that car was used for personal purposes, was not supported by any evidence. Whatever evidence was produced, were self-serving unsupported by any evidence. The Tribunal had found that assessee failed to produce any evidence that some expenditure was incurred on repair of the car or running of the car or having used occasionally like participating in any car rally organized by Govt. or by any other organization. The fact that the car was not even parked at the residence of the assessee also strengthen the case that it was not used by the assessee.
The Hon’ble High Court observed that the assessee was needed to prove that the car was used as a personal asset by him. It was therefore incumbent upon the assessee to lead evidence to show that he actually used the car personally. It is an admitted position that the Assessee failed to adduce evidence to prove that the car was used personally by him. On the other hand, there were several indicators showing that the car was never used by the assessee for personal use, such as (i) assessee using company’s car for commute (ii) car not being used even occasionally by the assessee (iii) vintage car not being parked at the assessee’s residence (iv) assessee’s inability to prove that he spent any amount on its maintenance for keeping the same in running condition and (v) a salaried employee purchasing a vintage car as pride of possession.
Accordingly, the appeal of the assessee was dismissed.
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