Bombay HC Rules Vintage Car Sale Proceeds Taxable Unless Proven As Personal Asset

Mumbai: The Bombay High Court has ruled that proceeds from the sale of a vintage car are taxable unless the taxpayer can prove that the car was actually used as a personal asset.

Vintage Car Sale Profits Taxed by HC

A bench of Chief Justice Alok Aradhe and Justice Sandeep Marne clarified that just because a car is capable of being used personally, it cannot automatically be treated as a “personal effect” and excluded from capital assets. The onus lies on the taxpayer to demonstrate that the vehicle was indeed for personal use.

Case Background: Narendra Bhuva

The case concerned an assessee, Narendra Bhuva, who had purchased a vintage car for Rs 20,000 and later sold it for Rs 21 lakh. The assessee argued before the Assessing Officer (AO) that the car was shown as a personal asset in his wealth tax returns, where such assets were exempt, and hence should not be taxed. However, the AO added the profit of Rs 20.8 lakh as the assessee’s income from business. After his demise, his son, Mehool Bhuva, continued the litigation.

AO Treats Sale as Business Income

Bhuva challenged the AO’s decision before the Commissioner of Income Tax (Appeals) [CIT(A)], which partly allowed his plea. The CIT(A) noted that vintage cars are rarely used because of high maintenance costs, and since the assessee had shown the vehicle as a personal asset in wealth tax returns, the profit should not be taxed as business income. Accordingly, the AO’s addition was deleted.

CIT(A) Initially Favors Assessee

The Revenue challenged this before the Income Tax Appellate Tribunal (ITAT), which reversed the CIT(A)’s order. The ITAT held that the assessee had not demonstrated that the vintage car was used as a personal effect and restored the AO’s decision to treat the sale proceeds as taxable income.

ITAT Reverses CIT(A) Decision

The assessee challenged this before the HC arguing that the department itself had accepted the car as a personal asset in earlier years, as maintenance expenses were debited to his capital account under personal withdrawals.

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Bombay HC Upholds ITAT Ruling

Rejecting this argument, the bench said that mere treatment in wealth tax returns or non-claiming of depreciation could not prove personal use. “What needed to be proved is that the car was actually used as a personal asset by the assessee. He failed to adduce any evidence of such use,” the judges observed.

Holding that the ITAT had rightly reversed the CIT(A)’s finding, the court dismissed the assessee’s appeal.