COMMISSIONER OF INCOME TAX Vs. SAROJ GOENKA SMT

JUDGEMENT

(1.) IN this case, arising under the IT Act, 1961, the following question has been referred :

(2.) THE relevant assessment year is 1972 -73. The assessee had sold loose diamonds of the value of Rs. 40,000 held by her for her personal use from a period prior to 1954. In the absence of any information regarding the original cost or the fair market value as on 1st Jan., 1954, the ITO had estimated the value and determined the capital gains at Rs. 28,000. The assessee had claimed before the ITO that no capital gains tax was chargeable on the above sum of Rs. 28,000 because the diamonds sold by the assessee were her movable property held by her for personal use. The ITO rejected the said claim. On appeal, the AAC confirmed the order of the ITO. On further appeal, the Tribunal followed its earlier order in several other cases of this group, wherein a similar question had arisen. The Tribunal held that the loose diamonds held by the assessee were articles intended for personal use and that they were not liable to be included in the term "capital asset" as defined in S. 2, cl. (14), of the IT Act, 1961. The result was, the Tribunal cancelled the assessment of capital gains. It is this order of the Tribunal that has given rise to the present reference. One of the orders of the Tribunal referred to by it in para 4 of its statement of case came upon reference to this Court under the WT Act. The question was whether loose diamonds were jewellery held for personal use. In the decision in CWT vs. Arti Goenka (1980) 14 CTR (Mad) 264 : (1980) 121 ITR 632 (Mad), it was held that loose diamonds could be jewellery but they could not have been held for personal use within the meaning of S. 5(1)(viii) of the WT Act. Sec. 5(1)(viii) of the WT Act provides for certain specified articles and "other articles" intended for personal or household use of the assessee, being exempt from wealth -tax. In that case, the question had to be decided in the context of S. 5(1)(xv) and S. 5(1)(viii) of the WT Act. Sec. 5(1)(xv) of the WT Act referred to items of jewellery of a particular value being exempt from assessment. It had been held by the Supreme Court in CWT vs. Arundhati Balkrishna (1970) 77 ITR 505 (SC), that any jewellery intended for personal use, even though it may not come within the scope of S. 5(1)(xv) of the WT Act, would fall within S. 5(1)(viii) of the WT Act. It is this decision which was sought to be neutralised by the amendment made to S. 5(1)(viii) of the WT Act so as to exclude jewellery from its scope. Applying that provision to the reported case, we went into the question as to whether loose diamonds could be held to be jewellery intended for personal use. Even on the basis that it was jewellery, we held that it could not have been intended for personal use.

(3.) THE contention of the learned counsel for the assessee was that the words in brackets are not qualified or governed by the words "held for personal use" and as the word "jewellery" occurs within the brackets, it would stand excluded from capital assets as defined in the Act. The contention is that while any movable property held for personal use is excepted, furniture, wearing apparel and jewellery, whether held for personal use or not, would come in the excepted category of capital assets. The scheme of S. 2(14), if construed properly, would, demonstrate the hollowness of the contention. The definition opens with the term, "property of any kind" as capital assets. If the words were left as they were, then every asset would fall to be considered as capital assets. Hence, some assets are excluded or excepted from the compass of capital assets. For instance, personal effects are not to be treated as capital assets. Such personal effects as are intended for personal use come within the excepted category of assets. Personal effects include wearing apparel and furniture. There is, in the process, an exception upon an exception. The exception upon exception is in relation to jewellery. Such jewellery, whether held for personal use or not, is brought, in effect, within the main part of the definition and excluded from the exception. We do not see how wearing apparel could be held for other than personal use. If the wearing apparel is merely an heirloom then it would be a capital asset. Similarly, furniture held for personal use would not be a capital asset, so that its sale cannot produce capital gains. But, jewellery is intended to be taken out of the above category. Whether it is intended for personal use or not, it would stand out of the exception and would come within the main category of "movable property". The sale of jewellery would thus be sale of capital assets and the gain would be capital gain. The question is accordingly answered against the assessee. There will be no order as to costs.