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September 11, 2020

Know Income Tax Implications When You Sell Your Silver Utensils

by CA Shivam Jaiswal in Income Tax

Know Income Tax Implications When You Sell Your Silver Utensils

Silverware or Silver Utensils are defined as any metal spoons, knives, forks and other utensils that you use to eat, or tableware, dishes and serving pieces that are made of or coated with silver. Silver utensils which are held for use in the kitchen or in the dining room are treated as personal effects and not capital assets. However silver bars, sovereign, bullion and silver coins are not treated as personal effects and hence these are capital assets.

What do you mean by personal effects?

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 excludes jewellery, paintings, drawings and works of art held for personal use by the assessee or any member of his family dependent on him.”

It was 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.

Personal effects would include movable property such as wearing apparel, furniture, household articles, utensils, vehicles, etc. held for personal use. Jewellery which has been excluded from personal effects would include ornaments made of gold, silver, platinum or any other precious metal, precious or semi-precious stones and any articles set in any such stones.

Are Silver Utensils Personal Effects?

While any gain on sale of any silver ornaments would attract capital gains tax, would the position be any different in case of silver utensils? It has been held by a number of Courts and Tribunals that where silver utensils transferred by a taxpayer are ordinarily intended for personal or household use, such silver utensils constitute personal effects and therefore, the profit or gain arising therefrom is not taxable as capital gains.

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The case of CIT vs. H.H. Maharani Ushadevi (SC)

  • The Supreme Court held that, in the present case, the jewellery was to be worn on the person of the assessee.
  • It would, in any event, form a part of the personal effects of the assessee.
  • For example, clothes meant for use at wedding or formal occasions are not used daily. Yet they are stitched for personal use of the wearer and as such they would form a part of his personal effect. Merely because from the nature of the property it can be used on ceremonial occasions also, it does not follow that the property is not held by the taxpayer for personal use.
  • In the premises, since the definition of “Capital asset” in Section 2(14) does not include personal effects including jewellery, the High Court rightly came to the conclusion that on the facts found by the Tribunal, the items of jewellery in question were the personal effects of the assessee held for personal use by her and were, therefore, excluded from the definition of the term capital asset.
  • As Such, profits and gains arising from the sale of these items was not taxable under the provisions of Section 45.

The case of Himatlal C. Valia vs. CIT (Gujarat High Court)

  • The assessee held 790 silver items of dinner sets. The question was whether the assessee can be subjected to tax on capital gains.
  • The case of the assessee was that the capital asset sold by him were his ‘personal effects’ and excluded from the definition of ‘capital asset’ by virtue of section 2(14)(ii) of the Income Tax Act.
  • Gujarat HC held that, the silverwares were articles to be used on the dinner table. They were obviously intended for personal use of the assessee and his family members.
  • Such silver dinner items were not frequently used was a fact which was totally irrelevant.
  • As held by the Supreme Court in the case of Maharani Ushadevi (supra), even if the personal effects were occasionally used as and when dinners were arranged for the family and guests, it would nonetheless be the ‘personal effects’ of the assessee.
  • HC found no justification for the Tribunal to remand the matter to the AO to ascertain the total number of members of the assessee’s family and identify those who were dependent upon him to allow deduction in respect of value of only 1 set each for the assessee and the said members of his family.
  • It was difficult to understand why there should be such rationing of personal effects of the assessee for the purpose of giving benefit of the exclusion clause contained in section 2(14).
  • If the assessee had more than 1 dinner sets which were intended to be used by him and his family members, as and when dinner parties are arranged, there was nothing in the provisions of section 2(14) to assign such restricted meaning to the words “personal effects” used in clause (ii) of section 2(14).
  • The dinner set items/articles were intended for personal use of the assessee and his family members and guests. Therefore, the silverware was to be considered as personal assets and hence would not be taxed.

Jayantilal A. Shah vs K.N. Anantharam Aiyar (1985)

  • Bombay HC held that, In the present case, the Commissioner had applied a restrictive test not warranted by section 2(14) of the Income-tax Act.
  • He had held that because these articles were not normally in daily use, they could not be considered as personal effects.
  • This appeared to be an incorrect test because all personal effects need not be used daily.
  • So long as they are meant for personal use, they will have to be considered as personal effects.
  • Since the decision of the Commissioner was based on a misleading decision of the Supreme Court in the case of H. H. Maharaja Rana Hemant Singhji v. CIT, there was an error apparent on the face of the record.
  • Therefore, the silver utensils were to be considered as personal assets and hence would not be taxed.

Therefore, referring to the above cases it can be deduced that silver utensils are to be considered are personal assets the sale of which will not be chargeable to capital gains.

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