1976 (5) TMI 55 - AT - Income Tax

Summary

Issues:
- Inclusion of Rs. 28,000 as capital gains on the sale of loose diamonds held by the assessee.
- Whether loose diamonds held for personal use constitute a capital asset for levy of capital gains tax.

Analysis:
The appeal before the Appellate Tribunal ITAT Madras-B arose from the order of the AAC confirming the inclusion of Rs. 28,000 as capital gains on the sale of loose diamonds held by the assessee. The assessee had sold loose diamonds valued at Rs. 40,000 to her daughter, and the ITO calculated the capital gains at Rs. 28,000. The assessee contended that no capital gains tax was chargeable as the diamonds were movable property held for personal use, exempting them from capital gains tax. The AAC upheld the ITO's order, leading to the appeal.

The crux of the issue was whether loose diamonds held for personal use constitute a capital asset for the levy of capital gains tax. The assessee argued that under section 2(14)(ii) of the IT Act, loose diamonds did not constitute a capital asset as they were held for personal use. The assessee relied on previous Tribunal rulings that supported this interpretation. The Tribunal referred to its previous decisions in similar cases where it was held that articles intended for personal use do not qualify as capital assets. Following these precedents, the Tribunal concluded that the loose diamonds in this case were intended for personal use and hence did not constitute a capital asset under the IT Act. Consequently, the Tribunal canceled the assessment of capital gains tax on the sale of the loose diamonds.

Additionally, the Revenue attempted to rely on a Supreme Court ruling in another case to support its contention regarding the levy of capital gains tax. However, the Tribunal distinguished the facts of the Supreme Court case from the present case, emphasizing that the issue at hand involved loose diamonds held for personal use, which were deemed not to be capital assets. Therefore, the Tribunal allowed the appeal, ruling in favor of the assessee and canceling the assessment of capital gains tax.

In conclusion, the Tribunal's decision clarified that loose diamonds held for personal use do not constitute a capital asset for the levy of capital gains tax, based on the interpretation of relevant provisions of the IT Act and previous Tribunal rulings. The decision highlighted the distinction between movable property held for personal use and other types of assets subject to capital gains tax, ultimately leading to the cancellation of the tax assessment on the sale of the loose diamonds.