Vintage Car Sale Liable to Capital Gains Tax if No Proof of Personal Use: Bombay HC [Read Order]

In a recent ruling, the Bombay High Court held that the sale of a vintage car is liable to capital gains tax if the assessee cannot prove that the car was used for personal purposes.

Narendra I. Bhuva, the assessee, had purchased a 1931 Ford Tourer vintage car in 1983 for Rs. 20,000 and sold it in 1992 for Rs. 21,00,000. In his return for the assessment year 1992-93, he claimed that the car was a personal effect and that the gain from its sale was not taxable.

The Assessing Officer treated the profit of Rs. 20,80,000 as taxable, holding that the car was not a personal effect. The Commissioner of Income Tax (Appeals) partly allowed the assessee’s appeal, observing that the car was shown as a personal asset in wealth tax returns, no depreciation was claimed, and that vintage cars are not commonly used.

The revenue challenged this order before the Income Tax Appellate Tribunal. The Tribunal reversed the Commissioner’s decision and held that the assessee had failed to prove personal use.

The tribunal pointed out that the car was not even parked at his residence, no expenses for running or maintenance were shown, the car never participated in rallies, and pride of possession does not amount to personal use.

Challenging the ITAT order, the assessee’s counsel argued before the High Court that the car was accepted as a personal asset by the department and that the Tribunal’s finding was perverse. The revenue’s counsel argued that without evidence of personal use, the car could not be treated as a personal effect.

The Division Bench of Chief Justice Alok Aradhe and Justice Sandeep V. Marne observed that under Section 2(14) of the Income Tax Act, capital assets exclude personal effects, which means movable property intimately and commonly used by the assessee.

The court relied on the Supreme Court ruling in H.H. Maharaja Rana Hemant Singhji v. CIT (1976), which explained that “personal effects” are items closely connected with a person, such as apparel or furniture, and not assets kept merely for pride or display.

The court explained that capability of personal use is not enough, actual personal use must be shown. It observed that in earlier cases involving silver utensils, even occasional use was accepted, but here the assessee failed to prove any use at all.

The court further observed that showing the car in wealth tax returns or not claiming depreciation was irrelevant, and that a salaried employee owning a vintage car as pride of possession cannot be equated with personal use.

As the assessee failed to prove that the car was personally used, the High Court upheld the Tribunal’s decision and ruled that the vintage car was a capital asset. The gain on its sale was taxable as capital gains. The appeal was dismissed and the interim application was also disposed of.

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