(Appeals from the judgment and order, dated February 21, 1981, of the Madhya Pradesh High Court in M.C.C. No. 152 of 1978).

Income-tax---

----Capital gains---Capital asset---Heirloom jewellery---Recognised as dynastic jewellery by Central Government for personal use by Rulers on ceremonial occasions-- -Constitutes personal effects of ruler---Is not a "Capital asset "---Profit derived from sale of jewellery not liable to tax on capital gains---Indian Income Tax Act, 1961, Ss.2(14)(ii), [before amendment w.e.f. 1-4-1973] & 45---Indian Wealth Tax Act, 1957, S.5(1)(xiv).

During the assessment year 1972-73, the assessee, the ex-Ruler of the erstwhile State of Holkar, sold two items of heirloom jewellery and claimed before the Income-tax Officer that the heirloom jewellery constituted the personal effects of the assessee within the meaning of section 2(14) of the Income Tax Act, 1961, and were exempt from wealth tax under section- 5(1)(xiv) of the Wealth Tax Act, 1957, and that the sale thereof did not give rise to any capital gains. The Income-tax Officer rejected the contention of the assessee and held that the assessee had earned capital gains by the sale of the heirloom jewellery and the gains were taxable. On appeal, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. On further appeal, the Tribunal held that the heirloom jewellery did not constitute the "personal effects" of the assessee within the meaning of section 2(14) of the Income Tax Act, 1961, and therefore, the items of jewellery were not exempt under section 2(14). On a reference, the High Court held that since the jewellery was meant for use and were used by the assessee on ceremonial occasions, the jewellery were the personal effects of the assessee and were held for personal use and could not be included within the term "capital asset" as defined by section 2(14) [before amendment with effect from April 1, 1973] and the profits and gains from the sale thereof were not liable to capital gains tax under section 45 of the Act. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, that personal effects which are excluded from capital assets include jewellery for personal use. Heirloom jewellery is also meant for the personal use of the assessee. It is, however, not meant for daily use but for use on ceremonial occasions. This does not deprive such jewellery of its character as jewellery meant for personal use. Heirloom jewellery may be passed down from generation to generation. But it is, nevertheless, for the personal use of the owner. The frequency of the use- of the property must, necessarily, depend on the nature of the property. Merely because from the nature of the property, it can be used on ceremonial occasions only, it does not follow that the property is not held by the assessee for personal use. The occasion on which the jewellery is used will depend upon the nature of the jewellery. But if it is meant for the assessee's personal use, it will form part of the assessee's personal effects. In the instant case, the jewellery was to be worn on the person of the assessee. It would, in any event, form a part of the personal effects of the assessee, Since the definition of "capital asset" in section 2(14) does not include person l effects including jewellery, the items of jewellery in question were the personal effects of the assessee held for personal use by her and were, therefore, excluded from the definition of the term "capital asset". Therefore, the profits and gains arising from the sale of the items of jewellery in question were not assessable to capital gains tax under section 45 of the Act.

H.H. Maharani Usha Devi v. CIT (1982) 133 ITR 43 affirmed.

CIT v. Trustees of H.E.H. the Nizam's Wedding Gifts Trusts (1985) 154 ITR 573 (AP) disapproved.

CIT v. Sitadevi N. Poddar (1984) 148 ITR 506 (Bom.); H.H. Maharaja Rana Hemant Singhji v.CIT (1976) 103 ITR 61 (SC); Jayantialal A. Shah v. Anantharam Aiyar (K.N.), CIT (1985) 156 ITR 448 (Bom.) and Poddar (G.S.) v. CWT (1965) 57 ITR 207 (Bom.) ref.

Dr. V. Gauri Shankar, Senior Advocate (Tara Chand Sharma, B.K. Prasad, C. Radhakrishnan and S. Rajappa, Advocates with him) for Appellant.

Joseph Vellapally, Senior Advocate (Manoj Wad, Tarun Gulati and Ms. J.S. Wad, Advocates with him) for Respondent.

JUDGMENT

MRS. SUJATA V. MANOHAR, J.---The assessee is the ex-Ruler of the erstwhile Holkar State, The assessee was assessed as an individual and the assessment year involved is 1972-73.

The 1948, the Ministry of States, New Delhi, had accepted certain heirloom jewellery as private properties of His Late Highness Maharaja Keshaw Rao Holkar of Indore. These included a "Sirpech" and a ceremonial belt.. All the listed jewellery and gold in the Huzur Jawahirkhana at Indore in 1949 and used by the Ruler of Indore on ceremonial occasions as in the past, were exempt under the provisions of section 5(1)(xiv) of the Wealth Tax Act.

During the accounting year relating to the assessment year 1972-73, the assessee sold two items of heirloom jewellery for Rs.13,80,001. The assessee claimed before the Tribunal that the heirloom jewellery constituted personal effects of the assessee within the meaning of section 2(14) of the Income Tax Act, 1961, and, therefore, the sale of this jewellery did not give rise to any taxable capital gains. This contention was negatived by the Tribunal. The Tribunal, however, framed the following question for reference before the High Court of Madhya Pradesh under section 256(1) of the Income Tax Act, 1961 (page 44 of 133 ITR):

"Whether, on the facts and in the circumstances of the case, the heirloom jewellery constituted 'personal effects' within the meaning of section 2(14) of the Income Tax Act, 1961, therefore, the sale thereof did not give rise to any taxable capital gains?"

The High Court has answered the question in favour of the assessee Hence, the present appeal.

Under section 45 of the Income tax Act any profits or gains arising from the transfer of a capital asset effected in the previous year is chargeable to income-tax under the head "Capital gains". Such profits or gains shall be deemed to be the income of the previous year in which the transfer took place. The term "capital asset" has been defined in section 2(14) of the Income Tax Act. Section 2(14), as it stood at the relevant time, was as follows:

"Section 2(14) 'capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-...

(ii)??????? personal effects, that is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him. . . "

Personal effects, which are excluded from capital assets include jewellery for personal use. We have to consider whether jewellery held for personal use by the assessee would cover heirloom jewellery of the assessee.. Heirloom jewellery is also meant for the personal use of the assessee. It is, however, not meant for daily use but for use on ceremonial occasions. This does not deprive such jewellery of its character as jewellery meant for personal use. For example, clothes meant for use at weddings or formal occasions are not used daily. Yet they are stitched for personal use of the wearer. As such, they would form a part of his personal effects. Heirloom jewellery may be passed down from generation to generation. But it is nevertheless for the personal use of the owner. The High Court has rightly held that the frequency of use of the property must necessarily depend on the nature of the property. Merely because from the nature of the property, it can be used on ceremonial occasions only, it does not follow that the property is not held by the assessee for personal use.

On behalf of the Department, however, it is contended that because the jewellery is meant for use on ceremonial occasions, it will not be a part of the assessee's personal effects. Learned counsel for the Department has relied upon a decision of this Court in the case of H.H. Maharaja Rana Hemant Singhji v. CIT (1976) 103 ITR 61. In that case, silver bars, sovereigns and rupee coins, which were said to be used on special occasions for worship were held not to be the personal effects of the assessee. This Court said that only those articles, which were "intimately and commonly used by the assessee" would be considered as personal effects. The phrase "intimately and commonly" should not be taken literally. What was meant was property, which is individually or personally used. One must remember that even furniture is included in personal effects. Also this judgment does not deal with jewellery, which is meant to be worn personally by the assessee. It dealt with gold soverigns, silver rupees and silver bars. This Court rightly held that these could not be considered as personal effects of an assessee. It also observed that enumeration of articles like wearing apparel, jewellery and furniture, mentioned by way of illustrations in the definition of "personal effects" also showed that the Legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee.

Jewellery is expressly included in the personal effects of an assessee as per section 2(14) as it stood at the relevant time. In the case of CIT v. Sitadevi N. Poddar (1984) 148 ITR 506 (to which one of us was a party) the Bombay High Court considered as case where the assessee sold certain silver utensils of the type which were used in the kitchen or in the dining room. The assessee contended that the shiver articles were the personal effects of the assessee and hence were not capital assets within the definition of section 2(14) of the Income Tax Act, 1961. Kania J. (as he then was), distinguished the decision in the case of H.H. Maharaja Rana Hemant Singhji (1976) 103 ITR 61 (SC) and held that "personal effects" would include articles which were intimately and commonly used by the assessee. Personal effects need not be confined only to those articles, which were worn on the person of the assessee. The inclusion, for example, of furniture would negative such a contention.

The above case of the Sitadevi N. Poddar (1984) 148 ITR 506 (Bom.) has been followed by the Bombay High Court in a subsequent decision in Jayantilal A. Shah v. K.N. Anantharam Aiyar, CIT (1985) 156 ITR 448. The Andhra Pradesh High Court, however, in the case of CIT v. Trustees of the H.E.H. the Nizam's Wedding Gifts Trusts (1985) 154 ITR 573 has held that jewellery which was meant for use on ceremonial occasions was not jewellery meant for personal use and would not be covered by the definition of "capital asset" under section 2(14). In our view, this decision of the Andhra Pradesh High Court does not appear to be correct. The occasion on which the jewellery is used will depend upon' the nature of the jewellery. But if it is meant for the assessee's personal use, it will form a part of the assessee's personal effects.

In the case of G.S. Poddan v. CWT (1965) 57 ITR 207, the Bombay High Court considered a case where certain gold articles made in the shape of utensils like cups, saucers, trays were sold by the assessee. It was found that the articles were kept in a show-case in the drawing room of the assessee. The Court, therefore, held that though the articles had the shape of Household articles, they were intended as household utensils by the assessee nor were they used or intended to be used as such. They were not personal effects of the assessee.

In the present case, however, the jewellery is to be worn on the person of the assessee. It would, in any event, form a part of the personal effects of the assessee. In premises, since the definition of "capital asset" in section 2(14) does not include personal effect including jewellery, the High Court rightly came to the conclusion that on the facts found by the Tribunal, the items of jewellery in question were the personal effects of the assessee held for personal use by her and were, therefore, excluded from the definition of the term "capital asset". As such, profits and gains arising from the sale of these items were not taxable under the provisions of section 45.

The appeal is, therefore, dismissed. There will, however, be no order as to costs.

M.B.A./1846/FC ??????????????????????????????????????????????????????????????????????????????? Appeal dismissed