VIJAYVARGIYA, J. - By this reference under s. 256(1) of the I. T. Act, 1961, (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Bombay Bench has referred the following question of law for the opinion of this court :

"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, therfore, the sale thereof did not give rise to any taxable capital gain ?"

The facts giving rise to this reference, as set out in the statement of the case, are as follows :

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, for which the previous year ended on March 31, 1972. During the accounting year relating to the assessment year in question, the assessee sold two items of heirloom jewellery for Rs. 13,80,001. The assessee claimed that the heirloom jewellery was exempted from the provisions of the W. T. Act by the CBR and, therefore, the sale thereof did not give rise to any taxable capital gains. The ITO negative the contention of the assessee and held that the assessee had earned capital gains amounting to Rs. 6,30,001 by the sale of the heirloom jewellery and that the said amount was taxable. On appeal by the assessee, the AAC upheld the order of the ITO and dismissed the appeal. On further appeal before the Tribunal, it was urged on behalf of the assessee that the heirloom jewellery constituted "personal effects" of the assessee within the meaning of s. 2(14) of the Act and, therefore, the sale thereof did not give rise to any taxable capital gains. The Tribunal negatived the contention of the assessee and upheld the order of the ITO. At the instance of the assessee, the Tribunal has referred the aforesaid question of law for the opinion of this court.

We have heard learned counsel for the parties. The Tribunal has found that the items of heirloom jewellery in question were recognised as a dynastic jewellery by the Central Govt. to be kept by the Ruler of Indore (subject to the right of inspection by the Government) for use by the Rulers of Indore on ceremonial occasions as in the past. The CBR after making an enquiry as to the circumstances under which the heirloom jewellery was to be kept in the custody of the Princess Usha; s Trust, recognised the items of jewellery in question as the heirloom jewellery of His Highness under the W. T. (Exemption of Heirloom Jewellery of Rulers) Rules, 1958, for the purpose of cl. (xiv) of sub-s. (1) of s. 5 of the W. T. Act, 1957. In the accounting year in question, the assessee sold two items of the heirloom jewellery after taking permission of the Central Govt. The Tribunal has also found that the articles of jewellery in question were meant for use and were used on ceremonial occasions. However, the Tribunal came to the conclusion that these items of jewellery were meant to be used by a person, who at a particular point of time, acts as the Ruler of the State and, therefore, according to the Tribunal, these articles were for the use of the body corporate and could not be called as the "personal effects" of the Ruler. The Tribunal therefore, held that the items of jewellery in question were not exempt under the provision of s. 2(14) of the Act. The Tribunal placed reliance upon a decision of the Supreme Court in His Highness Maharani Rana Hemant Singhji v. CIT [1976] 103 ITR 61 (SC).

The learned counsel for the assessee contended that on the facts found by the Tribunal and not in dispute, the Tribunal was not justified in law in holing that the items of heirloom jewellery were not the "personal effects" of the assessee and, therefore, the income arising on account of the sale thereof was not exempt from tax. According to him, the view of the Tribunal that the heirloom jewellery in question was not the personal property but was the corporate property of the assessee and,