Court rules loose diamonds not exempt under Wealth-tax Act, not for personal use.

The court held that loose diamonds owned by the assessee were not exempt under section 5(1)(viii) of the Wealth-tax Act and were not considered articles intended for personal use. The court interpreted "jewellery" broadly to include loose diamonds, thus excluding them from the exemption. It was determined that loose diamonds, unless set in a form that can be worn, do not qualify as articles intended for personal use. The decision favored the revenue, and the CWT, Madras, was awarded costs of Rs. 500.

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Issues Involved:
1. Whether loose diamonds owned by the assessee are exempt under section 5(1)(viii) of the Wealth-tax Act.
2. Whether the loose diamonds are articles intended for the personal use of the assessee.

Detailed Analysis:

Issue 1: Exemption of Loose Diamonds under Section 5(1)(viii) of the Wealth-tax Act

The assessee, a lady, submitted wealth-tax returns for the assessment years 1967-68, 1968-69, and 1969-70, claiming that the value of jewellery, gold ornaments, and loose diamonds should be exempt under section 5(1)(viii) of the W.T. Act. The WTO rejected this claim based on a Patna High Court decision, while the AAC allowed it following a Supreme Court decision. The Tribunal initially supported the AAC's decision but later rectified it to include the value of gold ornaments and jewellery in the wealth-tax assessments. The CWT then referred the questions to the High Court.

Section 5(1)(viii) of the W.T. Act, prior to its amendment in 1971, exempted "furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee." The Supreme Court in CWT v. Arundhati Balkrishna held that jewellery intended for personal use was exempt under this section. However, the 1971 amendment explicitly excluded jewellery from this exemption, effective retrospectively from April 1, 1963.

The High Court examined whether loose diamonds fall under the term "jewellery." Dictionaries and a British case (In re Whitby) indicated that "jewellery" includes gems and loose stones. The court concluded that the term "jewellery" in section 5(1)(viii) should be interpreted broadly to include loose diamonds, thereby excluding them from the exemption.

Issue 2: Classification of Loose Diamonds as Articles Intended for Personal Use

The court referred to the Supreme Court's decision in H.H. Maharaja Rana Hemant Singhji v. CIT, which clarified that "personal effects" must be normally, commonly, or ordinarily intended for personal use. The Bombay High Court in G.S. Poddar v. CWT held that articles must be intended for personal or household use according to the ordinary habits and customs of the assessee's class or family.

Applying this principle, the court found that loose diamonds, intended for use in ornaments, cannot be considered articles of personal use unless they are set in a form that can be worn. The expression "intended for personal use" requires the article to be capable of such use at the relevant date. Loose diamonds, not being wearable, do not meet this criterion.

Conclusion

The court concluded that loose diamonds are not exempt under section 5(1)(viii) of the W.T. Act and are not articles intended for personal use. The questions were answered in the negative, favoring the revenue. The CWT, Madras, was entitled to costs of Rs. 500.

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