Vintage car sale is subject to capital gains tax if there's no proof of its personal use: Bombay High Court

The Bombay High Court recently held that a vintage car sold by a Mumbai taxpayer was not his personal effect and was subject to capital gains tax, as there was no proof of its personal use [Narendra Bhuva v Assistant Commissioner of Income Tax, Mumbai].

The Court held that personal effects must be shown to be intimately and commonly used, not just owned or capable of such use.

A Division Bench of Chief Justice Alok Aradhe and Justice Sandeep Marne, while upholding the capital gains tax on the sale of a 1931 Ford Tourer, observed that the mere a capability of a car to be used a personal effect would not make it a personal effect under the tax laws.

“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 Court held.

In this case, Narendra Bhuva, a salaried employee, bought a 1931 Ford Tourer vintage car around 1983 for ₹20,000 and sold it in 1992 for ₹21 lakh.

He did not declare the profit in his tax return for that year, claiming the car was a personal asset and exempt from capital gains tax.

The Assessing Officer rejected the claim in 1994 and added ₹20.8 lakh to his taxable income as business income.

While the Commissioner of Income Tax (Appeals) partly accepted Bhuva’s position, noting the car was listed in wealth tax returns and not depreciated, the Income Tax Appellate Tribunal (ITAT) disagreed.

It found no evidence of personal use and restored the addition. Bhuva then appealed to the Bombay High Court.

His counsel argued that the income tax department had accepted the vintage car as a personal asset in earlier tax proceedings. They stated that the car’s upkeep costs were reflected in his personal withdrawals, and no part of the vehicle had been used for commercial purposes.

The Court, however, found these arguments unconvincing. It noted that that as per the tribunals findings, the car was not parked at Bhuva’s residence.

Moreover, it noted that there was no proof of expenses on repairs or running the car, and that the assessee regularly used a company-provided vehicle.

The Court pointed to a finding of the ITAT which noted that the assesse claimed to have bought the car out of pride. While acknowledging that it may have been a prized possession, the tribunal found it hard to see how that alone could qualify as personal use.

"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 tribunal had noted

The High Court agreed with this analysis, that owning something for pride does not amount to the kind of personal use required under the law for tax exemptions.

Subsequently, it rejected the appeal, noting that the assessee failed to show any evidence to prove personal use of the vintage car.

Advocate Vipul Joshi with advocate Prashant Ghumare instructed by Namrata S Kasale appeared for Bhuva

Advocate Prakash Chhotaray with advocate Sangita Choure appeared for Revenue.

[Read Order]