The Commissioner Of Income Tax ,Chennai v. Kuruvilla Abraham

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16-04-2013 CORAM: THE HONOURABLE MRS.JUSTICE R.BANUMATHI ANDTHE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) No. 24 of 2010 The Commissioner of Income Tax ,Chennai. ... Appellant Versus Kuruvilla Abraham ... Respondent Prayer: Appeal filed against the order of the Income Tax Appellate Tribunal "B" Bench, dated17.7.2009, in I.T.A No.1376/Mds/2008, under Section 260A of the Income Tax Act, 1961 for theassessment years 2005-06.For Appellant: Mr.Arun Kurian Joseph,Standing CounselFor Respondent: Mr.S.Sridhar JUDGMENT K.RAVICHANDRABAABU,J. The Revenue is on appeal as against the order of the Income Tax Appellate Tribunal in respect of theassessment year 2005-2006. 2. The respondent assessee filed the return of income for the relevant assessment year admitting atotal income of Rs. 2,40,150/-. When the assessment was taken up for scrutiny, the Assessing Officertreated the paintings sold by the assessee as capital asset and computed the capital gains arisingfrom sale of such paintings. The Assessing Officer rejected the contention of the assessee that thepaintings sold were personal effects and not capital assets . Accordingly, he brought an amount ofRs. 39,14,800/- to tax towards capital gains on sale of paintings and added the same to the returnedincome of Rs. 2,40,150/- 3. Aggrieved against the order of the Assessing Officer, the assessee filed an appeal before theCommissioner of Income Tax (Appeals). The first appellate authority found that the paintings arepersonal effects of the assessee and the sale of those personal effects would not attract the capitalgains. He also found that under Section 2(14) of the Income Tax Act the paintings were included inthe definition of capital asset only with effect from the assessment year 2008-2009. Therefore, theCommissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer. 4. The Revenue took it on appeal before the Tribunal. Accepting the contention of the assessee aswell as the finding rendered by the first appellate authority, the Tribunal dismissed the appeal filedby the Revenue. Aggrieved against the said order of the Tribunal, the Revenue has filed the presentappeal before this court by raising the following substantial question of law:- 'Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law inholding that the paintings would be personal effects and sale of the same would not attract thecapital gains ?" 5. Learned counsel appearing for the Revenue submitted that the Assessing Officer was right inmaking the addition by treating the paintings as capital asset. He also submitted that even thoughthe amendment was brought in by the Finance Act 2007 to include the paintings also within thedefinition of capital asset, still it does not imply that the paintings were expressively included underthe definition of "personal effects" for the earlier periods. The learned counsel for the Revenuefurther contended that the finding of the Tribunal that the assessee was holding the paintings fortwo decades is perverse in view of the fact that the assessee was holding the paintings only for sevenmonths after getting the same from his mother and therefore it can not be treated as personaleffects of the assessee. Thus, he supported the order of the Assessing Officer. 6. Per contra, the learned counsel appearing for the assessee submitted that the paintings are onlythe personal effects and when the relevant assessment year is 2005-2006, the amendment broughtin by the Finance Act 2007 with effect from 1.4.2008 excluding the paintings from the personaleffects cannot be applied retrospectively. Even the objects and reasons to bring the amendment 6. Per contra, the learned counsel appearing for the assessee submitted that the paintings are onlythe personal effects and when the relevant assessment year is 2005-2006, the amendment broughtin by the Finance Act 2007 with effect from 1.4.2008 excluding the paintings from the personaleffects cannot be applied retrospectively. Even the objects and reasons to bring the amendment would also show that it was intended to apply from the assessment year 2008-2009 onwards. Thelearned counsel for the assessee further submitted that there was no finding by the AssessingOfficer with regard to the period of holding by the assessee and the Revenue has also not raised anyground to that effect while filing the appeal before the Tribunal. The learned counsel relied on thedecision reported in (2011) 232 ITR 602 (SC) (Guffic Chem P. Ltd., Vs. Commissioner of Income Tax)to contend that the tax liability cannot be applied retrospectively . 7. Heard the learned counsel appearing for either side. 8. In this tax case appeal, the only issue that arises for consideration is as to whether the paintingsare to be treated as personal effects and the sale of the same would attract the capital gains or not ? 9. In order to consider the said issue, it is relevant to quote Section 2(14) of the Income Tax Act as itexisted during the relevant assessment year as hereunder:- "2(14) "capital asset� means property of any kind held by an assessee, whether or not connectedwith his business or profession, but does not include� (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; [(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, butexcluding jewellery) held for personal use by the assessee or any member of his family dependent onhim." ......... ........ ............ 10. An amendment was brought in to the above Section 2(14) under the Finance Act 2007 with effectfrom 1.4.2008. Consequently, it reads as follows: (14) "capital asset" means propert of any kind held by an assessee, whether or not connected withhis business or profession, but does not include� (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; [(ii) personal effects that is to say, movable property (including wearing apparel and furniture) heldfor 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. ......... ........ ............ 11. As per the amended provision, the paintings were excluded from the purview of personal effectsas contemplated under Section 2(14)(ii). Thus, in effect the paintings are brought under thedefinition of capital asset by virtue of the amended Act 2007 with effect from 1.4.2008. The firstappellate authority elaborately considered this aspect by discussing the objects and reasons of theFinance Act 2007 in bringing the paintings within the purview of definition of capital asset. Thus, heobserved that the jewellery was the only asset which is not in the nature of personal effects liable tobe treated as capital asset upto the assessment year 2007-2008 and the paintings etc., would fallwithin the meaning of capital assets to attract capital gains tax, only from the assessment year2008-2009. Consequently, the first appellate authority held that the paintings of the appellant soldduring the assessment year 2005-2006 cannot be brought under the definition of capital asset andaccordingly, he allowed the appeal filed by the assessee. 12. The Tribunal also found that the paintings can be considered as capital asset only with effectfrom 1.4.2008 by virtue of the Finance Act 2007 and the relevant assessment year being 2005-2006,the paintings were not excluded under the definition of Section 2(14) as the personal effects . Therefore, the Tribunal rejected the appeal filed by the Revenue. 12. The Tribunal also found that the paintings can be considered as capital asset only with effectfrom 1.4.2008 by virtue of the Finance Act 2007 and the relevant assessment year being 2005-2006,the paintings were not excluded under the definition of Section 2(14) as the personal effects . Therefore, the Tribunal rejected the appeal filed by the Revenue. 13. We find that the order of the Tribunal confirming the order of the first appellate authority doesnot warrant any interference in view of the following reasons:- (i) The relevant assessment year is 2005 -2006 and during such assessment year, the definition of capital asset found under Section 2(14) does not specifically exclude paintings from the purview ofpersonal effects. (ii) the paintings were excluded from the purview of personal effects and consequently included asone of the capital asset under Section 2(14) only in pursuant to the amendment made under theFinance Act 2007 that too with effect from 1.4.2008. (iii) The above said amendment was not made with any retrospective effect. On the other hand, as could be seen from the memorandum explaining the provisions of the Finance Bill 2007 as also thenotes and clauses of the Finance Bill 2007, as extracted by the Commissioner of Income Tax(Appeals) in his order, it is very clear that the amendment was intended to take effect from 1st April2008 and will accordingly apply in relation to the assessment year 2008-09 and for subsequentyears. (iv) When the amendment itself was brought in with prospective effect, the same cannot be appliedretrospectively. Moreover, it being a taxing liability, the same cannot be applied retrospectively asheld by the Apex Court in the decision reported in (2011) 232 ITR 602 (SC) (Guffic Chem P. Ltd., Vs.Commissioner of Income Tax). Therefore, the first appellate authority as well as the Tribunal haverightly deleted the addition made by the Assessing Officer. (v) In order to attract the capital gains, it should first fall within the definition of capital asset as contemplated under Section 2(14). However, the capital asset, as defined, does not include thepersonal effects which in turn excluded the paintings etc., after the amendment was brought in. Toput it simply, the paintings are excluded from the purview of personal effects and included withinthe scope of capital asset only with effect from 1.4.2008. Therefore, the capital gains tax on thepaintings are liable only with effect from 1.4.2008 in respect of the assessment year 2008-2009onwards and not in respect of earlier assessment years. The relevant assessment year in this casebeing 2005-2006, both the authorities below viz., the Commissioner of Income Tax (Appeals) as wellas the Tribunal have rightly found in favour of the assessee in this regard. (vi) In so far as the contention of the Revenue with regard to the period of holding of such personaleffects is concerned, we have perused the order of the Assessing Officer and there is absolutely nofinding to that effect as contended by the learned counsel for the Revenue. Therefore, a contentionwhich was not raised and considered before the lower authorities, cannot be permitted to be raisedfirst time before this court. (vi) In so far as the contention of the Revenue with regard to the period of holding of such personaleffects is concerned, we have perused the order of the Assessing Officer and there is absolutely nofinding to that effect as contended by the learned counsel for the Revenue. Therefore, a contentionwhich was not raised and considered before the lower authorities, cannot be permitted to be raisedfirst time before this court. (vii) No doubt, the Assessing Officer relied on the decision of the Apex Court reported in (1976) 103ITR 61 (SC) (H.H.Maharaja Rana Hemant Singhji Vs. Commissioner of Income Tax) in support of hisconclusion to hold that the paintings are not personal effects of the assessee. The facts of the saidcase show that the assessee therein was held liable to tax on the capital gains derived by the sale ofsovereigns, silver bars and rupee coins, under Section 12B of the Indian Income Tax Act 1922, readwith Section 2(4A). Considering those facts and circumstances, the Apex Court held that the silverbars or bullion could by no stretch of imagination be deemed to be "effects" meant for personal use.The said decision of the Apex Court was rendered by taking into consideration of the relevantprovisions under the Income Tax Act 1922, read with Section 2(4A). On the other hand, the presentcase involving the assessment year 2005-2006 deals with Section 2(14) of the Income Tax Act, 1961,which was amended under the Finance Act 2007, as discussed supra. Therefore, when Section 2(14)of the 1961 Act had only excluded jewellery from the purview of personal effects before amendmentand further excluded the paintings and others after the amendment, it would only show that thefacts and circumstances of that case before the Apex Court are totally different and distinguishable,apart from the fact that the same was rendered prior to the 1961 Act. Therefore, the AssessingOfficer was not right in relying on the said decision of the Apex Court. 14. Hence, we find no merits in the appeal as we are in full agreement with the finding rendered byboth the appellate authorities. Consequently, the tax case appeal is dismissed and the question oflaw is answered that the paintings are excluded withinR.BANUMATHI,J.ANDK.RAVICHANDRABAABU,J. krr/ the meaning of personal effects and included within the scope of capital asset only with effect fromthe assessment year 2008-2009 onwards and not in respect of the earlier periods. No costs. (R.B.I.,J) (K.R.C.B,.J)16 .04.2013 Index:YesInternet:Yeskrr/ To 1. The Income Tax Appellate Tribunal 'B' Bench, Chennai. 2. The Commissioner of Income -Tax (Appeals),III, Chennai . 3. The Assistant Commissioner of Income Tax, Company Circle III(2), Chnneai. Pre-Delivery Judgmentin Tax Case (Appeal) No.24 of 2010