The Mumbai Bench of the Income Tax Appellate Tribunal has held in a recent order that vintage car held by the assessee is not a 'personal effect' as occurring in Section 2(14)(ii) of Income Tax Act but a capital asset.

Thus, the surplus realised on its sale is chargeable to capital gains under section 45 of Income Tax Act, 1961.

The assessee purchased Ford Tourer 1931 Model car from one Jesraj Singh of Delhi sometimes in 1983 for a consideration of Rs 20,000. Assessee contended before the assessing officer that this car was treated as personal asset disclosed in the wealth tax return and claimed exemption as the price of the car was Rs 20,000. The said car was sold during 1991-92 to one Kamalaben Babubhai Patel for a total consideration of Rs 21,00,000. The assessee received the sale proceedings through NRE account of the purchaser.

The assessing officer observed that car was more than 50 years old when it was bought by the assessee and these types of cars known as vintage cars are not generally used regularly as the maintenance costs are very high.

The assessing officer examined the capital account of the assessee and found that assessee has not debited any expenditure on maintenance of motor car in any of the years.

The assessing officer concluded that at no point of time the car was used by the assessee for a personal use.

CIT (A) held that the car was a personal asset outside the purview of section 2(14) of Income Tax Act. The factors that weighed most to CIT (A) were:

1) That the assessee has shown this car as a 'personal effect' in the wealth tax return and has claimed exemption as a personal effect.

2) That, no depreciation was claimed or allowed on this car.

3) No expenditure pertaining to this car was claimed from the taxable income of the assessee.

ITAT discussed in detail what can come within the purview of a personal asset and what will be outside it. The test which is to be applied for ascertaining, whether a particular asset is 'personal effect', would be, whether the particular asset was intimately and commonly used by the assessee

If we apply this test to the facts of the case, which is before us, we find that the antique car in question cannot be taken as 'personal effect' of the assessee. From the facts gathered by the assessing officer, it is clear that the subject car was not used even occasionally by the assessee for his personal purpose.

Whatever submission has been made before authorities below and before us, in support of the claim, that car was used for personal purposes, is not supported by any evidence. Whatever evidence has been produced, they are self-serving, unsupported by any evidence.

It further observed that the assessee has 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 organised by the government or by any other organisation.

The fact that the car was not even parked at the residence of the assessee also strengthen the case of the income tax officer that it was not used by the assessee. The reason for parking at a distant place at the resident of relative has been given by the assessee before the CIT(A) i.e. 'assessee being prudent business man will not think of parking such a valuable article in open compound or on the road', also goes against the assessee.

One of the pleas taken by the assessee that assessee had purchased the car as a pride of possession. It may have been kept as a matter of pride but it is difficult to understand how such use can be characterized as a 'personal use'. The 'personal use', which is contemplated by the exemption is not a pride of possession.

The element of pride of possession can be understood, to some extent, in the case of Maharaja or Maharani, but it is difficult to understand in the case of a salary employee like the assessee.

See full Text of judgment '2003-Taxindiaonline-27-ITAT-Mum' in Legal Corner.

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