1. This reference is made at the instance of the Commissioner of Income-tax, Nagpur under s. 256(1) of the I.T. Act, 1961. The question referred by the Tribunal are as follows :
'1. Whether, on the facts and the circumstances of the case, the Appellate Tribunal was correct in holding that the provisions of section 52(2) were not applicable to the instant case ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that there was no capital gain taxable under section 52 of the Income-tax Act, 1961, arising to the assessee on the sale of property for the year under consideration ?'
2. The assessee was one of the co-owners of a building known as 'Sandoz Building' at Bombay. During the assessment year 1974-75, the building was sold by all the co-owners to H. H. Dr. Syedna Taher Saifuddin Memorial Foundation, Bombay, for consideration of Rs. 35,00,000. The ITO, having taken the view that there was reason to believe that the fair market value of the property on the date of transfer exceeded the apparent consideration by more than 15%, made a reference under s. 55A of the I.T. Act to the District Valuation Officer, Bombay, directing him to make a report on the value of the building on the date of its transfer.
3. The District Valuation Officer made a report that the fair market value of the said property was estimated at Rs. 65,08,000. The ITO took recourse to the provisions of s. 52(2) of the I.T. Act and adopted the fair market value as the full value of the consideration for the purpose of computing capital gains from the transfer of the said building. The assessee, who had 8% share in the building sold, was thus assessed for capital gains at Rs. 2,77,786. Making allowance for the basic exemption of Rs. 5,000, long-term capital gains were estimated at Rs. 2,72,786.
4. The assessee filed an appeal before the AAC. In the meantime, the question with regard to the fair market of the property in question had come up before the Appellate Tribunal in acquisition proceedings and, there, the fair market value of the property was fixed at Rs. 37,47,315.75. Following this decision, the AAC held that the provisions of s. 52(2) of the I.T. Act were not applicable and he directed the ITO to compute capital gains by adopting the sale consideration at Rs. 35,00,000 which was the consideration disclosed in the document. This decision of the AAC has been confirmed by the Tribunal, while dismissing the appeal filed by the Department. Arising out of this order of the Tribunal, the question reproduced earlier have been referred to this court.
5. The law with regard to the applicability of s. 52(2) of the I.T. Act has now been settled by the Supreme Court in K. P. Varghese v. ITO : 131ITR597(SC) .
6. The Supreme Court has taken the view that s. 52(2) can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving such understatement of concealment is on Revenue. It is also pointed out that sub-s. (2) of s. 52 has no application to the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him.
7. The facts, as they appear in this reference, indicate that the ITO had invoked the provisions of s. 52(2). But as it now transpires, there is no material to show that the consideration has been understand or that the full value of the consideration is shown at a lesser figure than that actually received by the assessee. The burden to prove the circumstances on which the provisions of s. 52(2) can be attracted was on the Department. It is not in dispute that there is no material on which the department can rely in order to invoke the provisions of s. 52(2). For the purpose of this reference, the Department is also bound by the finding recorded in the acquisition proceedings that the fair market value did not exceed Rs. 37,47,315.75. In view of that finding, the AAC and the Tribunal were clearly justified in holding that there was no case for invoking the provisions of s. 52(2) and that the capital gain had to be determined on the footing that the consideration for the property in question was Rs. 35,00,000. In this view of the matter, the questions referred are answered as follows :
Question No. 1 in the affirmative and in favour of the assessee.
Question No. 2 in the affirmative and in favour of the assessee.
8. There will be no order as to costs in this reference.