PERSONAL EFFECTS

As per Section 2(14) of the Income-tax Act personal effects, excluding jewellery, are not treated as capital assets and hence any gain arising on their transfer cannot be made liable to capital gains tax. Personal effects would include movable property such as wearing apparel, furniture, household articles, utensils, vehicles, etc. held for personal use. Jewellery which has been excluded from personal effects would include ornaments made of gold, silver, platinum or any other precious metal, precious or semi-precious stones and any articles set in any such stones. A motor car or any other conveyance held for the personal use of a taxpayer is also a personal effect and any profit or gain arising from the same cannot be charged to tax as capital gains. In this regard, one can rely on the decision of the Bombay High Court in the case o f CIT vs. Sitadevi N. Poddar 148 ITR 506(Bom.). GAIN ON SALE OF SILVER UTENSILS NOT TAXABLE? It has been held by a number of Courts and Tribunals that where silver utensils transferred by a taxpayer are ordinarily intended for personal or household use, such silver utensils would constitute personal effects and therefore, the profit or gain arising therefrom could not be charged to tax as capital gains. In fact in one of its decisions, the Supreme Court of India in the case of CIT vs. H.H. Maharani Ushadevi 231 ITR 793(SC) has held that a property intended for personal or household use, may be for ceremonial occasions also, is always a personal effect. For example, clothes meant for use at wedding or formal occasions are not used daily. Yet they are stitched for personal use of the wearer and as such they would form a part of his personal effect. Merely because from the nature of the property it can be used on ceremonial occasions also, it does not follow that the property is not held by the taxpayer for personal use.

In an interesting judicial pronouncement rendered by the Gujarat High Court in the case of Himatlal C. Valia vs. CIT 248 ITR 262(Guj.), it has been confirmed that silverwares comprising of dinner sets intended for personal use of the taxpayer, his family members and guests are to be treated as personal effects, irrespective of the size of the family and the fact that these items were not used frequently. Hence, capital gains cannot be charged on sale of such silverwares.

Personal effects such as wearing apparel, furniture, air conditioners, refrigerators, motor cars, etc., held for personal use by the assessee or dependent family members are not considered as wealth. Ornaments made of gold, silver, platinum or other precious metals or alloys, whether or not containing any precious or semiprecious stones and whether or not worked or sewn or set into wearing apparel, furniture, utensil or other articles are not considered as personal effects. However, silver utensils to a reasonable extent, even if used by the assessee on certain special occasions are personal effects [Jayantilal A. Shah v K. N. Anantharama Aiyar CIT 23Taxman14 (Bom, 1985)]. For instance, a dining set made of silver, used for entertaining guests can be considered as personal effects even if it is used occasionally. Even if the assessee has more than one set, intended to be used for such purpose, there is nothing in Sec. 2(14) to assign restricted meaning to the words 'personal effects' [Himatlal C. Valia v CIT 22TCR306(Guj), 2001].