The Bombay High Court held that a vintage 1931 Ford Tourer sold by a Mumbai taxpayer was not his personal effect and was taxable under capital gains. The Court said ownership or pride of possession does not amount to personal use.
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MAHARASHTRA: The Bombay High Court has given an important ruling on whether the sale of a vintage car can be treated as a personal effect exempt from capital gains tax.
The Court held that a vintage 1931 Ford Tourer, sold by a Mumbai-based taxpayer, was not a personal effect as there was no proof of its personal use.
Hence, the income earned from its sale would be taxed under capital gains.
The Division Bench of Chief Justice Alok Aradhe and Justice Sandeep Marne explained that the law requires proof of intimate and common use of a personal item, not just ownership or the possibility of use.
The Court stated:
“Thus, from aforesaid enunciation of law it is evident that for treating a movable property as personal effects, an intimate connection between the effects and the person of the Assessee must be shown….Thus capability of a car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects for being excluded from capital assets of the Assessee.”
The case involved taxpayer Narendra Bhuva, a salaried employee, who had purchased a 1931 Ford Tourer in 1983 for Rs 20,000. He sold the car in 1992 for Rs 21 lakh. However, he did not declare the profit in his tax return for that year, claiming that the car was his personal asset and exempt from capital gains tax.
In 1994, the Assessing Officer rejected this claim and added Rs 20.8 lakh to his taxable income as business income. Later, the Commissioner of Income Tax (Appeals) partly agreed with Bhuva, noting that the car was mentioned in his wealth tax returns and not shown as depreciated.
But the Income Tax Appellate Tribunal (ITAT) disagreed, found no proof of personal use, and restored the addition.
Bhuva then appealed to the Bombay High Court. His lawyers argued that the Income Tax Department had earlier accepted the vintage car as his personal asset in past assessments. They also submitted that expenses for maintaining the car were reflected in his personal withdrawals and that the car was never used for commercial purposes.
The Court did not accept these arguments. It pointed out that the car was not parked at Bhuva’s residence, there was no proof of repair or running costs, and that Bhuva used a company-provided vehicle on a regular basis.
The ITAT had also earlier made an important observation on Bhuva’s claim that he had bought the vintage car as a matter of pride.
The tribunal had remarked:
“One of the plea 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 user can be characterized as a ‘personal use’. The ‘personal use’ which is contemplated by the exemption is not a pride of possession.”
The High Court agreed with this analysis and confirmed that mere ownership of an object for pride or prestige does not mean it qualifies as personal use under tax law.
Finally, the Court dismissed the appeal, holding that Bhuva had failed to provide any evidence that the car was actually used personally.
- Advocate Vipul Joshi with advocate Prashant Ghumare, instructed by Namrata S Kasale, represented Bhuva.
- Advocate Prakash Chhotaray with advocate Sangita Choure appeared for the Revenue.
CASE TITLE:
Narendra Bhuva v Assistant Commissioner of Income Tax, Mumbai.
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