Important Point
Heirloom jewellery to be worn on the person of the assessee, ex-Ruler of erstwhile Holkar State, in any event, forms part of the personal effects of the assessee within the meaning of Section 2(14)(ii) of Income-Tax Act, 1961 and would, thus, be excluded from the definition of the term capital asset in Section 2(14) and the sale thereof does not give rise to any taxable capital gains under the provisions of Section 45, Income-Tax Act, 1961.

Headnote:Income-tax Act, 1961-Section 2(14)(ii) and 45-Capital Asset-Heirloom jewellery for personal use of assessee-Constitutes ‘personal effects’ of assessee within meaning of Section 2(14)(ii) and, hence, excluded from definition of term capital asset-Sale of such jewellery by assessee-Not taxable capital gains within meaning of Section 45 of Act.
       Held : 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. (Para 5)
       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 the premises, since the definition of “capital asset” in Section 2(14) does not include personal effects 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 was not taxable under the provisions of Section 45. (Para 10)

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.

2. In 1949, 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 6(1)(xiv) of the Wealth-Tax Act.

3. 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 :

“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?”

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

5. 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:

(i) .......

(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 dependant 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.

6. 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. Commissioner of Income-Tax, Rajasthan1

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