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22.  Any Income Arising On The Transfer Of “Personal Effects” Is Not Liable To Income Tax At All – How ?

Income Tax is payable on the capital gains of an assessee, in relation to any movable or immovable property, subject of course, to the various exemptions and deductions allowed under the Income Tax Act. There are certain items of property, the gain in respect of which is not considered as chargeable capital gain but is completely exempt from income tax. “Personal effects” belong to this category of property, not considered as a “capital asset” and hence, any income arising on the transfer of “personal effects” is not liable to income tax at all. The various aspects of exemption or taxation in relation to personal effects have been discussed below.

Section 2(14) of the Income Tax Act, 1961 defines the expression “capital asset” as property of any kind held by an assessee, whether or not connected with his business or profession, but does not include; “personal effects, that is to say, movable property (including wearing apparel and furniture, but by excluding jewellery, paintings, drawings and works of art from the A. Y. 2008-2009) held for personal use by the assessee or any member of his family dependent on him.” It is therefore clear from the above definition of the expression “capital asset”, that if any property is considered an item of “personal effect” then it would not be considered as “capital asset” and hence the profit or gain in respect of the transfer of such personal effects would not be liable to income tax as capital gains. Hence, it is very important for a taxpayer to know the correct significance of the expression “personal effects” and also to understand the circumstances in which an item normally known as “personal effects” could cease to be so and become a “capital asset” instead. The Supreme Court of India in the case of H.H. Maharaja Rana Hemant Singhji v. CIT (1976) 103 ITR 61, 64(SC) has held as under:

A close scrutiny of the context in which the expression occurs shows that only those effects can legitimately be said to be personal, which pertai to the assessee’s person. In other words, an intimate connection between the effects and the person of the assessee must be shown to exist, to render them “personal effects.”

The enumeration of articles like wearing apparel and furniture mentioned by way of illustrations in the above quoted definition of “personal effects” shows, that the legislature intended only those articles to be included in the definition, which were intimately and commonly used by the assessee.
The meaning assigned to the expression “personal effects” in various dictionaries also lends support to this view.

In the case before the Supreme Court, the question was whether sovereign, silver bars and rupee coins, which were used on special occasions of worship, could be designated as effects for personal use. Bearing in mind the aforesaid meaning assigned to the expression in various dictionaries and cases, the, Supreme Court held that silver bars or bullion can by no stretch of imagination be deemed to be “effects” meant for personal use. The sovereigns and silver coins may have been used for religious rituals, as a matter of pride or ornamentation but such uses cannot be characterised as personal use.

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