Jigar M. Patel
International Tax Attorney
Silver has attained an all-time high. On 1st April, 2001, 1kg of 999 touch silver was tagged at Rs.7,215. Last weekend closed with price of silver in Ahmedabad at Rs.1,86,800. With a jump of nearly 26 times in less than 25 years, this precious metal has even outshone the BSE Sensex, which has galloped 21 times, from around 4,000 to 84,000.
Sale of Silver Utensils – a Tax-Free Boon?
Holding of silver utensils for personal use has been a common tradition with families in India. It’s time for head of the household to take stock of the family holding of such utensils at a time when price of silver has sky-rocketed.
Infact, it may be a prudent decision, even to liquidate some of this precious commodity, if deemed necessary. What would be the tax impact on such sale, may be the next logical question? Too good to believe, but it is true! Gain on sale of silver utensils, without any limit whatsoever is totally tax-free!
Understanding the Logic for Tax-Exemption
Taxable capital gains represent any profit or gain arising from the transfer of a capital asset. If the asset giving rise to the gain is not a capital asset within the meaning of the Income-tax Act, the same would not attract any tax liability. As per Section 2(14) ‘personal effects,’ excluding jewellery, are not treated as capital assets. 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.
While silver ornaments would be covered within the scope of jewellery, going by the above definition, silver utensils would clearly remain beyond the scope of inclusion in the same. It has also been judicially well settled that sale of silver utensils constitutes transfer of personal effects and therefore, any gain arising therefrom cannot be logically treated as capital gain chargeable to tax.
Courts have held that silverwares comprising of dinner sets intended for personal use of the taxpayer, his family members and guests are to be treated as personal effects, irrespective of the size of the family and the fact that these items were not used frequently. There is nothing in Section 2(14) to assign such restricted meaning to the term ‘personal effects.’
Capital Gains Ratio squarely applicable for Tax-Exempt Gifts
Specified gifts in kind received from non-relatives are treated as taxable under Section 56(2), where the annual threshold limit of Rs.50,000 is exceeded. The specified list of taxable gifts in kind includes jewellery. Jewellery for the purpose refers to the definition under section 2(14) as mentioned hereinabove.
Keeping in view the fact that silver utensils, thus not being covered within the scope of Section 56(2), gifts of the same received by a person from even a non-relative, would logically not attract any tax liability in respect of the value of such gifts.
Watch-out before you claim any Exemption
While the legal proposition for tax exemption of silver utensils, both in case of sale or gift is sound, it needs to be borne in mind that a taxpayer would be very much expected to convincingly explain to the tax authorities, the logical source of acquisition and holding of such utensils in case of sale and genuineness in case of gift. Where this cannot be satisfactorily supported, the perilous consequences of tax treatment as unexplained income would undoubtedly land the taxpayer in double trouble.
