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Commissioner of Income-tax Vs. Jagdamba Charity Trust - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 64 of 1977
Judge
Reported in[1986]158ITR157(Delhi)
ActsIncome Tax Act, 1961 - Sections 47(iii), 52(2) and 256(1)
AppellantCommissioner of Income-tax
RespondentJagdamba Charity Trust
Excerpt:
- .....that if gift-tax is charged with respect to a particular transaction on the basis that it is deemed gift, then the same transaction cannot be treated as subject to capital gains. in other words, to the extent that the real value of the sale exceeds the nominal value of the sale, there can either be capital gain or there can be a deemed gift. if a deemed gift is to be charged, the gift-tax act applies, but if the excess amount is to be subjected to capital gains, then section 52(2) will come into operation and that too in the limited way in which the supreme court has found it fit to apply in varghese's case : [1981]131itr597(sc) . in view of the admitted position that gift-tax proceedings were taken in this transaction, we have to say that this case is covered by shiv shankar lal's.....
Judgment:

D.K. Kapur, J.

1. In the case of the present reference under sections 256(1) of the Income-tax Act, 1961, which relates to the assessment year 1972-73, the question referred is :

'Whether, on the facts and in the circumstance of the case, the Tribunal was legally correct in holding that capital gains tax was not livable and in excluding the capital gains for assessment ?'

2. The facts of the case show that the assessed had made a small profit from the sale of investments but on an examination of the case, the Income-tax Officer found that sales of ordinary and deferred shares of Dalmia Dadri Cement Ltd. was shown to be at the rate of Rs. 11 and Rs. 1.10, respectively, and the transferor and the transferee of the shares were also interconnected being connected with Shri R. Dalmia. He was also of the view that the shares have been changing hands on the sweet will Of Shri Dalmia. The correct price of the shares was worked out at Rs. 67.43 for ordinary shares and Rs. 6.74 for deferred shares and thus capital gain was computed at Rs. 2,25,699.

3. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer as also the application of section 52(2) of the Income-tax Act. The quantum of capital gain was reduced to Rs. 1,65,379 as a result of recalculation of the value of shares.

4. There was a further appeal to the Tribunal where several points were urged. One of the points was that section 52(2) of the Act was not applicable on the ground that the same shares had also been subjected to gift-tax proceedings. Following the ratio of this High Court's decision in Shiv Shankar Lal's case [1974] 94 ITR 269, it was held that if gift-tax was charged, then capital gains were not chargeable. This was because of section 47(iii) of the Act. The Tribunal also referred to the case of Bharat Development Pvt. Ltd. v. ITO for 1970-71 and pointed out that there was a reference in that case to the High Court.

5. Learned counsel for the parties have brought to our notice that this aforementioned reference in that case of CIT v. Bharat Development Pvt. Ltd. was decided as ITR No. 247 of 1975 on February 24, 1984 : [1986]158ITR159(Delhi) (infra). It was there held that the question did not really arise because in the other proceedings, M/s. Bharat Development Pvt. Ltd. had been held to be a dealer in shares and, thereforee, the question of capital gain did not arise. However, there is a discussion to some extent regarding the question now before us. It has also been pointed out there that the Supreme Court had decided the application and conditions for applying section 52(2) in K.P. Varghese v. ITO : [1981]131ITR597(SC) . There was, thereforee, some support for the answer given by the Tribunal to the referred question in the judgment of the Tribunal in this particular case.

6. The third point we have to deal with is whether it is not concluded against the Department that if gift-tax is charged with respect to a particular transaction on the basis that it is deemed gift, then the same transaction cannot be treated as subject to capital gains. In other words, to the extent that the real value of the sale exceeds the nominal value of the sale, there can either be capital gain or there can be a deemed gift. If a deemed gift is to be charged, the Gift-tax Act applies, but if the excess amount is to be subjected to capital gains, then section 52(2) will come into operation and that too in the limited way in which the Supreme Court has found it fit to apply in Varghese's case : [1981]131ITR597(SC) . In view of the admitted position that gift-tax proceedings were taken in this transaction, we have to say that this case is covered by Shiv Shankar Lal's case : [1974]94ITR269(Delhi) and there is also another case of a similar type, viz., CIT v. Avtar Mohan Singh : [1982]136ITR645(Delhi) .

7. Even assuming that this view of a deemed gift was not to apply, the case would be covered by Varghese's case : [1981]131ITR597(SC) , decided by the Supreme Court. The question is accordingly answered in favor of the assessed and against the Department. The parties will bear their own costs.


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