By TIOL News Service

AHEMDABAD, JUNE 20, 2017: THE ISSUE BEFORE THE COURT IS - Whether an assessee can be denied exemption u/s 5(1)(xii) of Wealth tax Act on his 'gold empanelled horse chariot', merely because it was used personally on rare ceremonial occasions. NO is the verdict.

Facts of the case:

The assessee is an individual and is a member of the erstwhile royal family of Vadodara. The assessee owned a horse chariot popularly referred to as Baggi. This Baggi had substantial gold contents. The case of the assessee was that Baggi was a work of art and was, therefore, exempt from wealth tax u/s 5(1)(xii) of Wealth Tax Act, 1957. The case of assesse was that he had inherited the said article as a member of the royal family. The Baggi was used by his father and grandfather on important ceremonial occasions, and it was otherwise operational. It contained gold panels on the sides of the seat for the royalty. According to the assessee, there was exquisite engraving and embossing on these gold panels, which contained figures of animals like elephants and horses. The department however held a belief that the article in question was meant for personal or household use and would therefore fall within Clause (viii) of Sub-section (1) of Section 5. Consequently, as per the first proviso, since this article contains gold, the exemption would not be available. While framing the assessment on the wealth tax return filed by the assessee for the A.Y 1972-73, the AO disallowed the claim of exemption and included the value of gold estimated at Rs.9,07,525/- for the purpose of computing assessee's total wealth. The AO, however, did not record any reasons. He merely rejected the claim and made the addition without any discussion.

On appeal, the CIT(A) visited the site where the Baggi was kept. Having inspected the article, he was of the opinion that the engraving and embossing on the gold panels was exquisite. The art work was breathtaking. The designs contained figures of animals like elephants and horses and the extended figures were hollow from behind and not made of solid gold. The use of gold was therefore incidental and the assessee did not intend to pack the article with solid gold. The CIT(A) therefore held that the article would fall under Clause (xii) of Sub-section (1) of Section 5 of the Wealth Tax Act and would, therefore, qualify for the exemption claimed by the assessee. On further appeal, the ITAT was of the opinion that article was covered under Clause (viii) of Sub-section (1) of Section 5 of the Act since it was intended for personal use. Further, since the article contained gold, the exclusion clause of the first proviso to the said Clause (viii) would apply. The Tribunal noted that CIT (Appeals) was not justified in granting exemption by taking recourse to Clause (xii), treating the royal coach as a 'work of art'. Merely because there were exquisite engraving and embossing on the gold panels used in the royal coach and the work done was of superior artistic quality would not by itself exclude the operation of the proviso appended below clause 5(1)(viii) for bringing the royal coach, which was an article for personal use of the assessee, within the ambit of taxation for wealth tax purposes.

On appeal, the HC held that,

++ the expression 'work of art' is not defined under the Act. In the case of SB. Zainab Noorul Sayeeda and Others, Division Bench of Andhra Pradesh High Court considered a question whether the Tribunal was correct in law in allowing exemption under Clause (xii) of the Wealth Tax Act in respect of certain items of jewellery which were claimed to represent the art treasures originally belonging to the Nizam family of Hyderabad, which was later on settled in a trust. In this context, the Court observed that if the case falls under any of the exemptions, the assessee would be entitled to benefit of exemption under Clause (xii) of Sub-section (1) of Section 5 and the revenue was not correct in contending that once it is established that the article is a jewellery, even if it is a work of art, the same is to be included in the net wealth of the assessee. This judgment, therefore, approached the term “work of art” to mean a painting, sculpture or other productions in the fine arts, one of high quality, which is constructed or composed with manifest skills. The Court referring to the Halsbury's Laws of England and Sampath Iyengar's commentary on taxation observed that for work of art, there must be an element of human skill employed in making of the article and the result of the human skill should be apparent in the article to regard them as works of art. Not every article manufactured manually can be regarded as a work of art and there must be some artistic innovation which would turn them into works of art. In the present case, the CIT(A) had visited the site and found that the engravings on the panels of the Baggi are exquisite and of breathtaking beauty. The Tribunal did not disturb these findings. In fact, the Tribunal proceeded on the footing that even if the article was one of “work of art”, being an article for personal use would not qualify for exemption under Clause (xii). While the CIT(A) has pursuant to his personal inspection found the article to be one of the “work of art” by applying the parameters, which we do not find incorrect, and when the Tribunal has not disturbed these findings, we would conclude that the Baggi presents the “work of art”;

++ once it is so held, the article would fall under Clause (xii) of Sub-section (1) of Section 5. Merely because incidentally it may also fall in Clause (viii), by itself, would not destroy its very essence of an article of “work of art”. Being an exemption clause, the Court would apply the provision which furthers the intention of the legislation rather than frustrating it. This was so held and observed by a Division Bench of Allahabad High Court in the case of S.N.Kackar. The issue can be looked from a slightly different angle. As is bound to happen, when several exemption entries are provided in the Legislature, a particular article or a thing may fall in more than one of them. Since incidental overlapping is unavoidable, the attempt on the part of the Court in such case would be to ascertain in which clause the article would more appropriately be covered. Clause (xii), as noted, provides for exemption in case of works of art of archeology, scientific or art collection, books or manuscripts, not intended for sale. If any “work of art” can be incidentally also be put to personal use, it would not destroy its very essence or basic character of being an art work. By very nature of things its use may be rare or on special occasions. The element of such an article being one of personal use would be wholly incidental. In the present case itself, the assessee has been pointing out that the Baggi was not meant for ordinary or daily use. Though functional, it would be used on rare ceremonial occasions. That fact that it can be put to such a use was wholly incidental to the article being a “work of art”. The Tribunal, in our opinion, therefore committed an error in holding that even if the article was one of “work of art”, since it is possible to be put to personal use, it would get ejected from Clause (xii) and would fall only under Clause (viii) of Sub-section (1) of Section 5 of the Act. The question framed is answered in favour of the assessee.

(See 2017-TIOL-1133-HC-AHM-WT)