SETHURAMAN J. - In this case arising under the I.T. Act, 1961, the following question has been referred:
'Whether, on the facts and in the circumstances of the case, the losses diamonds could be said to be personal effects held by the assessee for here personal use and that, therefore, no capital gains tax can be levied on the sale thereof ?'
The relevant assessment year is 1972-73. The assessee had sold loses diamonds of the value of Rs. 40,000 held by her for her personal use from a period prior to 1954. In the absence of any information regarding the original cost or the fair market value as on January 1, 1954, the ITO had estimated the value and determined the capital gains at Rs. 28,000. The assessee had claimed before the ITO that no capital gains tax was chargeable on the above sum of Rs. 28,000 because the diamonds sold by the assessee were here movable property held by the here for personal use. The ITO rejected the said claim. On appeal, the AAC, confirmed the order of the ITO. On further appeal, the Tribunal followed its earlier order in several other cases of this group, wherein a similar question has arisen. The Tribunal held that the losses diamonds held by the assessee were articles intended for personal use and that they were not liable to the included in the term 'capital asset' as defined In s. 2, cl.(14), of the I.T. Act, 1961. The result was, the Tribunal canceled the assessment of capital gains. It is this order the Tribunal that has given rise to the present reference.
One of the order of the Tribunal referred to by it para 4 of the statement of case came upon reference to this court under the W.T. Act. The question was whether loose diamonds were jewellery held for personal use. In the decision in CWT v. Arti Goenka : 121ITR632(Mad) , it was held that loose diamonds could be jewellery but they could not have been held for personal use within the meaning of s. 5(1)(viii) of the W.T. Act. Section 5(1)(viii) of the W.T. Act provided for certain specified articles and 'others articles' intended for personal or household use of the assessee being exempt from wealth-tax. In that case, the question has to be decided in the context of s. 5(1) (xv) and s. 5(1)(viii) of the W.T. Act. Section 5(1)(xv) of the W.T. Act referred to items of jewellery of a particular value being exempt from assessment. It had been held by the Supreme Court in Arundhati Balkrishnas case : 77ITR505(SC) , that any jewellery intended for personal use, even though it may not come without the scope of s. 5(1)(xv) of the W.T. Act, would fall within s. 5(1)(viii) of the W.T. Act. It is this decision which was sought to be neutralized by the amendment made to s. 5(1)(viii) of the W.T. Act so as to excluded jewellery from its scope. Applying that provision of the reported case, we went into the question as to whether loose diamonds could be held to be jewellery intended of personal use. Even on the basis that it was jewellery, we held that it could not have been intended for personal use.
Even if the said decision does not governs the present case, we may consider the question in the light of s. 2(14) of the I.T. Act as it stood at the relevant time, which it now relied on before us. The relevant portion of s. 2(14) of the I.T. Act as it was in force prior to April 1, 1973, ran as follow:
'Capital asset means property of any kind held by the an assessed whether to not connected with his business or profession, but does not include - ....
(ii) personal effect, that it to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for person use by the assessee or any member of his family dependent on him.'
The contention of the learned counsel for the assessee was that the words in brackets are not qualified or governed by the words 'held for personal use' and as the words 'jewellery' occurs within the brackets, it would stand excluded from capital assets as defined in the Act. The contention is that while, any movable property held for personal use is excepted, furniture, wearing apparel and jewellery, whether held for personal use or not, would come, in the excepted category of capital assets. The scheme of s. 2(14) if constructed property, would demonstrate the hollowness of the contention. The definition opens with the term, 'property of any kind' as capital assets. If the words were left as they were, then every asset would fall to be considered as capital assets. Hence, some asserts are excluded or excepted from the compass of capital assets. For instance, personal effect are not be treated as capital assets. Such personal effect as are intended for personal use come within the excepted category, of assets. Personal effects include wearing apparel and furniture. There is in the process, an exception upon an exception. The exception upon exception is in relation to jewellery. Such jewellery, whether held for personal use or not, is brought in effect, within the main part of the definition and excluded from the exception. We do not see how wearing apparel could be held for other than personal use. If the wearing appeared is merely an heirloom then it would be a capital asset. Similarly, furniture held for personal use would not be a capital assert, so that is sale cannot produce capital gains. But, jewellery is intended to be taken out of the above category. Whether it is intends of personal use or not, it would stand out of the exception and would come within the main category of 'movable property'. The sale of jewellery would thus be sale of capital assets and the gain would be capital gains. The question is according answered against the assessee. There will be no order as to costs.