HC holds vintage car sale taxable under capital gains for lack of proof of personal use

The person who had sold the car claimed that the car was for his personal use and appealed to the high court seeking relief from the capital gains tax charged on the sale. Stating that he couldn’t prove the personal utility of the vintage car, the court concluded that the purchase was for ‘pride of possession’ and upheld the application of the tax

MUMBAI: The Bombay High Court had recently directed the Income Tax Department to charge the sale of a vintage car, Ford Tourer, with capital gains tax that was bought for ₹20,000 in 1983 and sold for ₹21 lakh in 1994. The person who had sold the car claimed that the car was for his personal use and appealed to the high court seeking relief from the capital gains tax charged on the sale. Stating that he couldn’t prove the personal utility of the vintage car, the court concluded that the purchase was for ‘pride of possession’ and upheld the application of the tax.

Bombay High Court (Anshuman Poyrekar/HT PHOTO)

The incident dates back to 1993, when a salaried person, Narendra Bhuva, filed returns on his income for the year 1992-93, declaring a total income of ₹2,79,440. The then assessing officer of the Income Tax Department noticed that Bhuva had purchased a vintage car, 1931 Ford Tourer, in 1983 for ₹20,000 and had sold it for ₹21 lakh, which he claimed as the sale of personal property and was exempted from wealth tax. Not accepting the claim, the assessing officer charged him ₹2,08,000 tax on the sale in 1994.

Following this, Bhuva appealed to the commissioner of income tax against the capital gains tax charged on the sale, stating that the car was for his personal use. Noting that vintage cars could not be used often owing to their high maintenance costs, the commissioner accepted the claim and exempted him from paying the tax.

Subsequently, aggrieved by the commissioner’s decision, the revenue department challenged it in the Income Tax Appellate Tribunal (ITAT), which set aside the commissioner’s order stating that the car was not used for ‘personal affect’, mandating Bhuva to pay the capital gains tax on the sale of the vintage car. Following this, Bhuva appealed to the high court, seeking relief for the tax, claiming that the ITAT could not justify that the vintage car was not his personal asset and said that the gain was not taxable under ‘capital gains.’ In his appeal, he also claimed that the ITAT did not take into account his bank records, which reflected the car’s maintenance costs.

In the hearing on August 14, the division bench of chief justice Alok Aradhe and justice Sandeep Marne upheld the ITAT’s decision, emphasising that Bhuva failed to provide evidence regarding the vintage car being put to personal use, justifying the addition of capital gains tax.

The court, while dismissing Bhuva’s appeal, also pointed out that the car was not parked at his residence, it wasn’t used even occasionally and that Bhuva was using his company car for daily commute. Also taking into account that Bhuva couldn’t prove his expenditure on the car’s maintenance and repairs, the court concluded that the car was purchased for the ‘pride of possession’ and upheld the tax charges.