Gopal Rao Ekbote, C.J.
1. This is an appeal from the judgment of our learned brother, Alladi Kuppuswami J, given in W. P. No. 5876/70 (Buragadda Satyanarayana v. Income-tax Officer : 96ITR57(AP) ) on February 1, 1972, whereby the learned judge allowed the writ petition and quashed the assessment order of the Income-tax Officer, dated September 28, 1968.
2. The facts, in outline, are that the petitioner filed a revised return of income-tax on February 10, 1967, for the assessment year 1964-65. He included therein an amount of capital gains liable to tax under Section 45 of the Income-tax Act to the extent of Rs. 15,958 and after deducting an initial exemption of Rs. 5,000, Rs. 10,958 was disclosed as taxable income. This capital gains, it is said, had accrued on account of sale of a site with sheds, godowns and shops.
3. The total cost of the site as well as the building constructed thereon came to Rs. 64,042. For purposes of construction of the buildings the petitioner borrowed Rs. 50,206.49 from his divided sons and Messrs. B. Satyanarayanamurthy and Sons, Guntur. For the discharge of these debts the petitioner sold the said site and the structures thereon for a total consideration of Rs. 80,000. The sale deed was executed on April 15, 1963, in favour of his divided sons. He contended that the sale value mentioned in the sale deed is the actual consideration received by him. The transaction was real and genuine, effected with the object of discharging the debts.
4. While so, the Income-tax Officer, Tenali, issued a notice to the petitioner on June 24, 1968, asking the petitioner to value the site and buildings which he sold to his sons.
5. The petitioner filed his objections. He mentioned the value of the buildings and the site as Rs. 86,380. The variation in his opinion was small. He (the assessee), therefore, said that the reassessment would not be warranted.
6. The Income-tax Officer finalised the assessment of the petitioner for the year 1964-65 on September 28, 1968. He estimated the market value at Rs. 1,14,000. He fixed the taxable capital gains at Rs. 44,960 after allowing the usual exemption. He levied a tax of Rs. 6,905 on the capital gains. Super-tax also was imposed on the capital gains to the tune of Rs. 4,885.
7. No appeal was preferred against this assessment order by the petitioner. It became final.
8. On November 18, 1970, the petitioner filed this writ petition questioning the correctness of the assessment order on various grounds.
9. Before the learned single judge it was contended that the petitioner was assessed to gift-tax in respect of the transaction on the basis that the property was not transferred for adequate consideration. Therefore, the difference between the market value and the consideration of the sale deed, that is to say, Rs. 34,000, was deemed to be a gift. The gift-tax was, therefore, levied on the said amount, and, therefore, it would not be permissible thereafter to levy income-tax on capital gains in respect of the same transaction.
10. This argument found favour with the learned judge. He held that the word 'gift' appearing in Section 47(iii) of the Income-tax Act, since not defined in the said Act, means as defined in the Gift-tax Act. The gift-tax authority having treated the difference as gift and having levied gift-tax, the learned judge felt that it was not permissible to levy income-tax on the capital gains in respect of the same amount. The same amount cannot at the same time be treated as gift and transfer resulting in capital gains. He observed : 96ITR57(AP) :
'Reading the two Acts (the Gift-tax Act and the Income-tax Act) together, the true position would be that the tax on capital gains would be leviable treating the transaction as a transfer for a sum of Rs. 80,000 on the difference between Rs. 80,000 and the cost of the capital asset after making permissible deductions, and gift-tax would be leviable on the difference between Rs. 1,14,000 and Rs. 80,000.'
In the view which the learned judge took, he did not advert to the other arguments which the learned advocate for the petitioner had advanced before him.
11. In this appeal by the department the first contention was whether the definition of gift under the Gift-tax Act can be imported for the purpose of understanding the word 'gift' employed in Section 47(iii) of the Income-tax Act. This argument was advanced on the supposition that if on a certain transaction gift-tax was levied under the Gift-tax Act, then capital gains tax cannot be levied on such a transaction. We find it difficult to accept this approach as correct.
12. Section 45 of the Income-tax Act relates to 'capital gains'. According to that section 'any profits or gains arising from the transfer of a capital asset effected in the previous year shall............be chargeable toincome-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place.
13. Even a cursory reading of that section would indicate that some profits or gains must have arisen from transfer of the capital asset and it is this profit or gain that is considered to be income of the previous year and is made chargeable to tax as capital gains.
14. Section 47, however, exempts from the operation of Section 45 'any transfer of a capital asset under a gift', In other words, Section 45 would not apply to any transfer of a capital asset under gift. Section 45, therefore, must apply to a transfer which is not a gift in order to attract tax on capital gains.
15. In this case, as seen from the facts narrated in the writ petition itself, there was no gift at all. The father had executed a sale deed in favour of his divided sons. It was a case of pure transfer which clearly comes within the purview of Section 45. We fail to see how to such a plain case, the provisions of Section 47(iii) of the Income-tax Act would apply. The assessee never pleaded that the sale is in fact a gift.
16. The contention, however, was that since the word 'gift' is defined in the Gift-tax Act to mean 'transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer or conversion of any property referred to in Section 4 deemed to be a gift under that section', the sale deed must be deemed to be a gift even for purposes of the Income-tax Act. To say the same thing, in other words, what was contended was that inasmuch as the sale deed was treated as a deemed gift and taxed under the Gift-tax Act, the word 'gift' appearing in Section 47(iii) of the Income-tax Act must be understood in that sense alone and the difference between the actual cost and market value must be deemed to be a gift though it is not 'gift' as understood under the general law. We find it almost impossible to accept this contention.
17. Firstly, the term gift as defined in Section 2(xii) of the Gift-tax Act is meant only for the purposes of that Act and not for the purposes of any other Act. The definition of the word 'gift' is in two parts. The first part broadly approximates with the general definition of the word 'gift' in the Transfer of Property Act. The second part creates a fiction. This is made more explicit in Section 4(1) of the Gift-tax Act, which relates to 'gifts to include certain transfers'. The opening words of that section say, 'For the purpose of this Act' and goes on to enjoin, '(a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor.'
18. Although thus the transaction under consideration was a simple sale, for purposes of the Gift-tax Act, in view of Section 4(1), the difference was deemed to be a gift made by the transferor because there was difference of Rs. 34,000 between the consideration mentioned in the sale deed and the actual market value of the property so transferred.
19. The learned judge, however, has erred in assuming that the taxable amount under both the Acts is Rs. 34,000. For the purpose of the Gift-tax Act, it was Rs. 34,000 but for the purpose of the Income-tax Act, the difference between the actual cost, i.e., Rs. 64,042, and the market value, i.e., Rs. 1,14,000, was Rs. 44,960. That being the capital gains, the tax was levied on that amount. There is thus no question of treating the same amount 'as a gift and as a transfer resulting in a capital gain'.
20. We are unable to understand how because of this deeming provision made exclusively for the purpose of the Gift-tax Act, it can be imported for the purpose of understanding the word 'gift' employed under Section 47(iii) of the Income-tax Act. The scope of the two Acts is entirely different. One taxes the income and the other taxes the gifts or deemed gifts. The legislative programme in regard to these two enactments materially differs. There is no justification for contending that since the two Acts form parts of an integrated system of taxation and as both the Acts are administered by the same officers, the two Acts must be read together. We find it difficult to infer from either of the Acts that the legislature did not intend to charge income-tax on an amount which is liable to gift-tax. There is no provision in the Income-tax Act incorporating the said provisions of the Gift-tax Act in the Income-tax Act, which would have made those provisions as part of the Act. There is no indication anywhere that these two Acts should be read together. Even for purposes of construction of Section 47(iii), there is no provision which by reference would bring into effect Section 2(xii) of the Gift-tax Act for construing Section 47(iii) of the Income-tax Act. We are, therefore, clear that neither the definition of the word 'gift' appearing in Section 2(xii) of the Gift-tax Act nor the deeming provision embodied in Section 4(1) of that Act can be used for the purpose of understanding the word 'gift' used in Section 47(iii) of the Income-tax Act. Section 2(xii) and Section 4 of the Gift-tax Act are enacted only for the purpose of that Act and their purport cannot be imported for the purpose of ascertaining as to what is exempted by way of gift from the operation of Section 45 of the Income-tax Act.
21. In this connection, it is well to remember that it is always unsatisfactory and generally unsafe to seek the meaning of words used in one Act of Parliament in the definition clause of the other statute although dealing with matters more or less cognate and even when enacted by the same legislature. When Section 2(xii) of the Gift-tax Act defines the word 'gift', it should be confined as a general rule to interpret the word defined for that Act only and not to explain or define the meaning of the word 'gift'in the other statute, i.e., Income-tax Act, particularly when these two statutes are not in pan materia. We have, therefore, to gather the meaning of the word 'gift' used in Section 47(iii) of the Income-tax Act from the scope and purview of the Act. It is quite relevant to mention that in the 1922 Income-tax Act, this very word 'gift' was used. Thus, there was no scope to import the artificial meaning given to that word in the Gift-tax Act because the later Act came into force in 1958, a long time after. The same word is used in the 1961 Act which must convey the same meaning as in the 1922 Act. Although the Gift-tax Act came in 1958, the Income-tax Act, 1961, does not make any reference to it but uses the language of the 1922 Act. It rules out the possibility of an intendment to import the artificial meaning to the word 'gift'. The language is plain. The meaning we are giving does not do any violence to the object or purpose of the Income-tax Act. It would not, therefore, be proper to import an artificial definition of another Act to define the word 'gift' used in Section 47(iii) of the Income-tax Act.
22. Assuming without so holding that Section 47(iii) should not be understood in a broad sense and the word 'gift' should be given a narrow interpretation, even then we fail to see how the sale deed, which has been executed in this case, can escape capital gains tax. Whether the word 'gift' is to be given a wider meaning, as we have said it ought to be given or whether it is to be given a narrow meaning, as is canvassed before us, what would be exempted from the operation of Section 45 of the Income-tax Act nevertheless would be only a gift and not a deemed gift and in no case a sale. Merely because it is a deemed gift for the purpose of Section 2(xii) read with Section 4 of the Gift-tax Act, it is beyond our comprehension as to how that deeming clause would exempt the assessee from paying the capital gains tax.
23. Now where the legislature says that 'something should be deemed to have been done 'which in truth has not been done, it creates a legal fiction. The court is entitled to ascertain for what purpose and between what persons the statutory fiction is to be resorted to. Once that is ascertained, the court is bound to give full effect to the statutory fiction. It should be carried to its logical conclusion. This can be determined from the actual words used in creating the fiction. But it must be borne in mind that legal fictions are created for a particular and definite purpose. Its area is always limited. They are, therefore, to be limited to the very purpose for which they are created and to nothing more. They should not and cannot be extended beyond their legitimate field. Thus, when Section 2(xii) read with Section 4 of the Gift-tax Act creates a fiction only for the purpose of that Act, its operation cannot be extended to altogether a different Act. There are no words in Section 47(iii) of the Income-tax Act to apply such fiction to that provision. In other words, the 'gift' in Section 47(iii) cannot also mean a 'deemed gift' as mentioned in Section 2(xii) and Section 4 of the Gift-tax Act. We have to read something more in this provision which is not permissible. We are, therefore, clear in our mind that Section 47(iii) of the Income-tax Act, when it used the word 'gift', it meant the transfer made without any consideration as is generally understood and not what is meant for the purpose of the Gift-tax Act. Since the transfer in question is a sale and not a gift, Section 47(iii) of the Income-tax Act does not apply to the instant case.
24. It must follow that to such a transfer Section 45 of the Income-tax Act applies.
25. The learned judge had relied on K.P. Verghese. v. Income-tax Officer : 77ITR719(Ker) in support of his view. It was common ground that on appeal the judgment of the learned single judge of the Kerala High Court reported in K.P. Verghese v. Income-tax Officer : 77ITR719(Ker) has been set aside in Income-tax Officer v. K. P. Verghese : 91ITR49(Ker) . The Full Bench supports the view which we have now taken.
26. The question then is whether Section 52 of the Income-tax Act has been properly pressed into service by the Income-tax Officer.
27. The scope of Section 52 is very clear. Section 52 itself says that:
'Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer.'
In order to attract Section 52, therefore, two things must co-exist. Firstly, the person who acquired a capital asset from the assessee must be directly or indirectly connected with the assessee. Secondly, the Income-tax Officer must have reason to believe that the transfer was effected with the object of avoidance or reduction of liability of the assessee under Section 45 of the Act. It is already seen that Section 45 applies to transfers excluding gifts and other transfers mentioned in Section 47. If that is so, then Section 52 must necessarily apply only to such transfers covered by Section 45 and which are not excluded by Section 47. Transfer by gift and transfer for consideration with understatement of value are two incompatible things. Thus, when Section 47(iii) exempts gifts from the purview of Section 45, Section 52 would have no application to cases of gift. Since in this case it was a sale and not a gift, Section 52 would apply only when the above-said two conditions are satisfied. It was notdisputed before us that the transferees under the sale deed are the sons of the assessee. The first requirement, therefore, is fully satisfied.
28. The argument, however, was directed only against the second requirement. It was argued that merely because there was a difference between the market value and the consideration of the sale deed, it could not legitimately be inferred that the transfer was effected with the object of avoidance or reducing the liability of the assessee under Section 45 of the Act. We are unable to accept this contention. Apart from the fact that there was gross under-valuation of the property at the time the sale deed was executed, the relationship of the parties would not leave any one in doubt that the sale deed was effected, apart from trying to avoid the payment of stamp duty and registration charges, also to avoid or in any case to reduce the liability of the assessee under Section 45 of the Act. It could not be shown to us as to what further finding was required for the Income-tax Officer to act under Section 52 of the Act. In our opinion, the order of the Income-tax Officer and the counter clearly establish that the requirements of Section 52 were fully satisfied.
29. It is quite relevant to mention that when notice was issued to the assessee he did not raise any objection on the score that the Income-tax Officer had no reason to believe that the transfer was effected with the object of avoiding or reducing the liability of the assessee. In fact, in response to the notice, a statement of valuation was submitted to him. That apart, after the assessment was made and served upon the assessee, he did not take any steps to question its correctness either by filing an appeal within the prescribed time as is provided under the Income-tax Act or to file any writ petition under Article 226 of the Constitution to this court. He allowed the assessment to become final and absolute in so far as he was concerned. It is only when a learned single judge of the Kerala High Court held the view that Section 2(xii) read with Section 4 of the Gift-tax Act can be combinedly read with Sections 45, 47 and 52 of the Income-tax Act and stated that when once gift-tax is levied, capital gains tax cannot be levied, that the present petition is filed with the hope that the High Court would interfere in spite of the fact that the statutory remedy available to the petitioner has not been availed of and there has been unexplained enormous delay of more than two years in filing the writ petition in this court. We are not satisfied that there were proper reasons for the petitioner for not filing the appeal; nor are we satisfied that there has been sufficient cause for coming to this court late. On the other hand, we have every reason to believe that the petitioner was satisfied that the Income-tax Officer had decided the primary questions correctly and after assuming the jurisdiction under Section 52 passed the assessment order validly. In no other way, the petitioner's conduct as mentioned abovecan be explained. We are, therefore, not inclined to go into this question now to find out whether the jurisdictional fact was properly decided by the Income-tax Officer. Even otherwise, as stated above, the Income-tax Officer rightly came to the conclusion under Section 52 and since the petitioner himself surrendered to the qualified jurisdiction of the Income-tax Officer and bargained for the order of assessment and thereafter kept quiet for considerably a long time without adopting the statutory remedies, he cannot now be permitted to turn round and question its validity.
30. For the reasons stated above, we find it difficult to agree with the contention of the learned judge that the Gift-tax Act and the Income-tax Act have to be read jointly and the word 'gift' to be understood in the manner in which the learned judge has understood. No other argument was advanced before us. We find no merits in the writ petition. We would, accordingly, allow the appeal, set aside the judgment of the learned judge and dismiss the writ petition with costs. Advocate's fee Rs. 100 in each court.