Vintage Car Not Exempt from Capital Gains Tax Without Proof of Personal Use: Bombay High Court

Vintage Car Not Exempt from Capital Gains Tax Without Proof of Personal Use: Bombay High Court

Introduction

The Bombay High Court has held that a vintage car sold by a taxpayer is subject to capital gains tax if there is no proof of its personal use. The court upheld the capital gains tax on the sale of a 1931 Ford Tourer, observing that a car's mere capability for personal use does not make it a personal effect under tax law.

Factual Background

The taxpayer, Narendra Bhuva, purchased a 1931 Ford Tourer vintage car in 1983 and sold it in 1992 for a significant profit. He claimed that the car was a personal asset exempt from capital gains tax. The Assessing Officer rejected this claim, adding the profit to his taxable income.

Procedural Background

The taxpayer appealed to the Commissioner of Income Tax (Appeals), which partly accepted his position. However, the Income Tax Appellate Tribunal (ITAT) found no evidence of personal use and restored the addition. Bhuva then appealed to the Bombay High Court.

Issues

1. Whether a vintage car can be considered a personal effect exempt from capital gains tax?

2. Whether the taxpayer provided sufficient evidence to prove personal use of the vintage car?

Contentions of the Parties

• Taxpayer's Contention: Bhuva argued that the vintage car was a personal asset exempt from capital gains tax, claiming it was not used for commercial purposes and that upkeep costs were reflected in personal withdrawals.
• Revenue's Contention: The revenue argued that Bhuva failed to provide evidence of personal use, the car was not parked at his residence, and he regularly used a company-provided vehicle.

Reasoning and Analysis

A Division Bench of Chief Justice Alok Aradhe and Justice Sandeep Marne observed that:

• Personal effects must be shown to be intimately and commonly used, not just owned or capable of use.
• Mere capability of a car for personal use does not automatically make it a personal effect.
• Owning something for pride of possession does not constitute personal use required under the law for tax exemptions.

Implications

This judgment clarifies that taxpayers must provide evidence of personal use to claim exemption from capital gains tax on personal effects. It also emphasizes the importance of maintaining records to support tax claims.

Outcome

The court rejected the appeal, noting that the taxpayer failed to show evidence of personal use of the vintage car, thereby upholding the capital gains tax on its sale.

Representation

In this case the assessee was represented by Mr. Prashant Ghumare instructed by Ms. Namrata S. Kasale, Advocate. Meanwhile the respondent was represented by Mr. Prakash C. Chhotaray with Ms. Sangita Choure, Advocates.