Computer Capital asset or Personal effect

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Rahul (Querist)
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28 December 2009 I am taking coaching of DT from Mr. Vinod Gupta who said that Computer is a capital asset for an individual salaried employee. I thought there must have been a case law on this.

CA Mani

CA Mani (Expert)
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28 December 2009 [1976] 103 ITR 61 (SC)

SUPREME COURT OF INDIA

H.H. Majaraja Rana Hemant Singhji

v.

Commissioner of Income-tax

A.C. GUPTA AND JASWANT, SINGH, JJ.

The expression "personal effects" meant such items of movable property as were necessary adjuncts to an individual's own personality

"2(4A) 'Capital asset' means property of any kind held by an assessee, whether or not connected with his business, profession or vocation, but does not include- . . . . .

(ii) personal effects, that is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him;"

The expression "personal use" occurring in clause (ii) of the above quoted provision is very significant. A close scrutiny of the context in which the expression occurs shows that only those effects can legitimately be said to be personal which pertain to the assessee's person. In other words, an intimate connection between the effects and the person of the assessee must be shown to exist to render them "personal effects".

Rahul

Rahul (Querist)
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28 December 2009 Sir, so does this mean that Computer does not pertain to the assesee's person and is a Cap. asset? But i am cofused bcoz TV is a personal effect then why not Computer as they are similar.

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CA Mani

CA Mani (Expert)
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28 December 2009 What is a capital asset? The Income Tax Act defines capital assets as property of any kind held by a person, irrespective of whether the property is connected with the person's business or profession. The following are, however, not considered capital assets:

* Stock-in-trade, consumable stores or raw material held for business or professional purposes;
* Personal effects of the assessee. That is, movable property, inclusive of apparel (excluding jewellery) and furniture held for personal use;
* Agricultural land as defined by the law in India;
* Specified gold bonds issued by the government; and
* Bearer bonds issued by the government.

As apparent from the definition, the ambit of the term 'capital assets' is wide, and covers both tangible as well as intangible assets. Thus, assets like shares (equity or preference, quoted or unquoted), other securities (debentures, bonds, units of the Unit Trust of India or any other mutual fund), residential bungalows, flats, offices, land, goodwill, a share in a partnership firm, jewellery and ornaments, and tenancy rights, are classified as capital assets.

A matter of tax. The status of an asset -- whether it is a capital asset -- is very important. If an asset is a capital asset, then capital gains tax is payable on the gains arising from the sale of the asset. Gains (or losses) arising from the transfer of a capital asset are normally chargeable to tax in the year in which the transfer takes place. Thus, if a person can prove that the asset sold is not a capital asset, he will not be liable to pay capital gains tax.

The exceptions to the definition cover all stock-in-trade. This refers to all the items an assessee deals in while conducting his business. Thus, depending on the nature of business, stock-in-trade are not considered capital assets for both manufacturers and dealers. For instance, for builders, flats or shops meant for sale are not considered capital assets. Likewise, for jewellers, ornaments for sale in a jewellery shop are not considered capital assets. Again, if shares or other securities are held as stock-in-trade -- as in the case of share brokers or a dealer in shares -- the shares are not considered capital assets.

What are personal effects? Personal effects are privately-owned articles, like clothing and toiletries, meant for personal use. Thus, household items like furniture, durables like TV sets, music systems, motor cars, and scooters for personal use, can be regarded as personal effects. The main test for determining whether an asset is a personal effect is that it should be capable of being used daily, and is being used daily by the owner.