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income-tax Officer, B-ward and anr. Vs. K.P. Varghese - Court Judgment

LegalCrystal Citation
Overruled ByK.P. Varghese Vs. Income Tax Officer, Ernakulam and Anr.
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberWrit Appeal No. 127 of 1970
Judge
Reported in[1973]91ITR49(Ker)
ActsIncome Tax Act, 1961 - Sections 2(24), 45, 47, 48 and 52; Gift Tax Act, 1958 - Sections 2 and 4; Estate Duty Act - Sections 50A and 50B
Appellantincome-tax Officer, B-ward and anr.
RespondentK.P. Varghese
Advocates: P.A. Francis and; P.K. Ravindranatha Menon, Advs.
Cases ReferredTrustees v. Commissioners of Inland Revenue
Excerpt:
direct taxation - reassessment - sections 2 (24), 45, 47, 48 and 52 of income tax act, 1961 and sections 2 and 4 of gift tax act, 1958 - appeal against order quashing reassessment order - assessee's income escaped assessment as per section 147 - assessee conveyed house property to his family members - difference between fair market value and face value of consideration to be treated and assessed as capital gains - allegedly such transaction amounted to gift so cannot be assessed to tax as capital gains - such transaction amounted to transfer of capital asset for purpose of act of 1961 - assessee rightly assessed to capital gains tax - appeal allowed. - - it is a well-established principle of income-tax that 'income-tax is a levy on income. the proposition is well settled that in.....raghavan, c.j. 1. i have perused the judgment prepared by gopalan nambiyar j., and agreed to by viswanatha iyer j., but i regret that i am not able to agree with the main reasoning of my learned brother and the conclusion in the case.2. the facts which lie in a narrow compass are not disputed; and they are stated in the judgment of nambiyar j. i do not, therefore, recapitulate them.3. in the inclusive definition of ' income ' in section 2(24) of the income-tax act of 1961, 'capital gains' chargeable under section 45 are also included. and under section 5, the scope of ' total income ' is fixed; and what is provided in sub-section (1) thereof is that the total income of the previous year of a person who is a resident will include all income from whatever source derived, which is received.....
Judgment:
Raghavan, C.J.

1. I have perused the judgment prepared by Gopalan Nambiyar J., and agreed to by Viswanatha Iyer J., but I regret that I am not able to agree with the main reasoning of my learned brother and the conclusion in the case.

2. The facts which lie in a narrow compass are not disputed; and they are stated in the judgment of Nambiyar J. I do not, therefore, recapitulate them.

3. In the inclusive definition of ' income ' in Section 2(24) of the Income-tax Act of 1961, 'capital gains' chargeable under Section 45 are also included. And under Section 5, the scope of ' total income ' is fixed; and what is provided in Sub-section (1) thereof is that the total income of the previous year of a person who is a resident will include all income from whatever source derived, which is received or is deemed to be received in India by him or on his behalf in such year, or accrues or arises or is deemed to accrue or arise to him in India during such year, or accrues or arises to him outside India during such year. The deeming in this provision, obviously, does not have the effect of converting an income not received by him or which does not accrue or arise to him into an income deemed tohave been received by him or into one which is deemed to accrue or deemed to arise to him; in other words, the deeming relates to place. It is a well-established principle of income-tax that ' income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt but the substance of the matter is the income ' (vide observation of the Supreme Court in Commissioner of Income-tax v. Shoorji Vallabhdas and Co., [1962] 46 I.T.R. 144 (S.C.).) Of course, in Commissioner of Income-tax I Excess Profits Tax v. Bhogilal Laherchand, [1954] 25 I.T.R. 50; [1954] S.C.R. 444 (S.C.)., Mahajan J. has observed that the term ' deemed ' involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability. And in Navinchandra Mafatlal v. Commissioner of Income-tax, [1954] 26 I.T.R. 758, 762; [1955] 1 S.C.R. 829 (S.C.)., the Supreme Court has again observed that the ' scheme of such legislation is to bring to charge only such income as falls under certain specified heads .... and as arises or accrues or is received or is deemed to arise or accrue or to be received as mentioned in the statute.' Still further, in E. D. Sassoon and Company Ltd. v. Commissioner of Income-tax, [1954] 26 I.T.R. 27, 51, 50; [1955] 1 S.C.R. 313 (S.C.)., the Supreme Court has observed that 'income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him, though it may be received later on its being ascertained. The basic conception is that he must have a right to receive the income.' In this case, Bhagwati J. has also referred to the observation of Mukerji J., in Rogers Pyatt Shellac & Co. v. Secretary of State for India, [1924] 1 I.T.C. 363; A.I.R. 1925 Cal. 34 [F.B.]., where Mukerji J. has stated ' what is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called ' income ' '.

4. In the light of these observations of the Supreme Court, the assessee should at least have ' a right to receive the income ', when alone it can be said that the income is received by him or has accrued or arisen to him. It may also follow that the statute may, however, deem that an income which the assessee has neither received nor has a right to receive is income received by him or income which he has a right to receive and thus make such deemed income also taxable. But, this deeming, if there is such a deeming, should be specific and clear; there is no question of taxing an income on any assumption. The proposition is well settled that in interpreting taxing statutes, equitable considerations are entirely out of place, nor can taxing statutes be interpreted on any presumptions or assumptions; and that the court must look squarely at the words of the statute and interpret them in the light of what is clearly expressed without implying anything or importing any provision so as to apply any assumed deficiency (vide Commissioner of Sales Tax v. Modi Sugar Mills Ltd., [1961] 12 S.T.C. 182; [1961] 2 S.C.R. 189; A.I.R. 1961 S.C. 1047.). This decision has further laid down that a legal fiction must be limited to the purpose for which it has been enacted and cannot be extended beyond its legitimate field (vide also Commissioner of Income-tax v. Amarchand N. Shroff, [1963] 48 I.T.R. (S.C.) 59; [1963] Supp. 1 S.C.R. 699 (S.C.).).

5. Section 45 provides that ' any profits or gains arising from the transfer of a capital asset effected in the previous year shall, .... be chargeable to income-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place.' Section 48, which provides for the mode of computation of the tax and deductions, lays down that the income chargeable under the head ' Capital gains ' shall be computed by deducting from ' the full value of the consideration received or accruing as a result of the transfer of the capital asset' the following amounts. (Then the amounts to be deducted are mentioned). Section 52 of the Act, on which considerable arguments have been advanced by both sides, has to be noted. The section reads :

' Consideration for transfer in cases of under-statement.--(1) 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.

(2) Without prejudice to the provisions of Sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer. '

6. Sub-section (1) of Section 52 states that, when the conditions mentioned therein are satisfied, ' the full value of the consideration for the transfer ' shall be taken to be ' the fair market value of the capital asset'. Similarly, Sub-section (2) says that, when the conditions mentioned therein are satisfied, 'the full value of the consideration for such capital asset' shall be taken to be 'its fair market value'. In these two sub-sections, there is a deeming, namely, that the full value of the consideration for the transfer, in one case, shall be taken to be the fair market value of the capital asset and, in the other case, the full value of the consideration for the capital asset shall be taken to be its fair market value. Though there is a slight difference in the language used in the two sub-sections, the intention of the legislature is clear--that the full value of the consideration for the transfer of the capital asset shall be taken to be the fair market value of the capital asset transferred.

7. It is contended by the appellant that the full value of the consideration for the transfer of the capital asset in Section 52 is the same as ' the full value of the consideration received or accruing as a result of the transfer ' in Section 48(1). On the other hand, counsel for the respondent has contended that the language used in Section 48(1) is ' the full value of the consideration received or accruing as a result of the transfer of the capital asset' and not ' the full value of the consideration for the transfer as in Sub-section (1)', or 'the full value of the consideration for such capital asset' as in Sub-section (2) of Section 52. There is nothing in the language of these two sub-sections to show that the full value of the consideration for the transfer of the capital asset appearing in Section 52 should be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. If the legislature wanted to have that effect, it could have easily used the expression ' the full value of the consideration received or accruing' in Section 52. Since this has not been done, there is no justification for holding that the full value of the consideration, which is deemed to be the fair market value of the capital asset, in Section 52 is the full value of the consideration received or accruing: if it is so held, what is being done is ignoring the expression ' received or accruing ' in Section 48. I reiterate that what is chargeable to income-tax as ' capital gains ' under Section 45 is only the profits or gains ' arising from the transfer of a capital asset.'

8. In the case before us, the appellant has no case that the respondent received anything more than Rs. 16,500 ; the appellant has also no case that the respondent acquired, by the transfer, a right to receive anything more than this amount. The only contention of the appellant is that the full value of the consideration for the transfer of the capital asset, which is taken to be its fair market value, should again be deemed to have been the full value of the consideration received or to be accruing. As I have already indicated, if this is accepted, it will be doing violence to the language of Sections 45, 48 and 52. The consequence is that the amount of Rs. 48,500 is not ' income ' of the respondent.

9. An attempt has been made by the counsel of the appellant to contend that the heading or the marginal note of Section 52 covers only Sub-section (1) thereof and does not cover Sub-section (2), This does not appear to be correct. The marginal note is common to both the sub-sections, i. e., it is a marginal note for the entire Section 52. Of course, I am aware that the language of a section cannot be controlled by its marginal note or heading : what the marginal note or the heading can do is only to help understanding the section if there is any ambiguity in its language. The marginal note or the heading of Section 52 indicates that the section deals with consideration for transfer of a capital asset in cases of under-statement. In cases of transfer of capital assets where there is under-statement of the consideration, if the conditions mentioned in Sub-sections (1) and (2) are satisfied, the full value of the consideration shall be taken to be the fair market value of the capital asset transferred. And if the consideration that has been received by, or has accrued to, the assessee, or if the consideration that has arisen from the transfer, is more than the consideration declared, then the assessee becomes liable for tax ; for the assessee to become liable in such cases, he must have acquired a right to receive such amount. This section is to apply to cases of such under-statement of consideration where the consideration received is more, and not to cases like the one before us where nothing more is received by the assessee or where nothing more accrues to him : in such cases, no profits or gains arise from the transfer. This appears to be the scheme of these sections. Therefore, I mean, in view of the language of Section 52 and in view of its difference from the language of Sections 45 and 48, I have no hesitation in holding that what is taxable as capital gains is only the full value of the consideration received or accruing or the profits or gains arising from the transfer. And the marginal note of Section 52 is only in consonance with this interpretation. The other interpretation put forward by the appellant is not warranted by the language of Section 52, nor by its marginal note.

10. By Section 47(iii) it is provided that ' nothing contained in Section 45. shall apply to any transfer of capital asset under a gift or will or an irrevocable trust '. The term ' gift ' is not defined in the Income-tax Act; but Section 4(a) of the Gift-tax Act provides that ' 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 '. Of course, this provision is only for the purposes of the Gift-tax Act. The term 'gift' is denned in the Transfer of Property Act too. I am of opinion that, of the two definitions, the definition in the Gift-tax Act, in spite of its being only for the purposes of the Gift-tax Act, must be preferred when applied to the Income-tax Act, If the language of the Income-tax Act is so beyond doubt that an amount which had been deemed to be a gift under the Gift-tax Act is again made liable to tax under the Income-tax Act, there cannot be any doubt that the legislature has power to tax the amount a second time (see Reid's Trustees v. Commissioners of Inland Revenue, [1929] 14 T.C. 512 (C. Sa.).). But, unless such clear intention appears, unless the language clearly warrants it, it is neither proper nor correct to tax the same amount under the Income-tax Act if it has already been taxed as a gift under the Gift-tax Act. It is also my opinion that there is an intimate connection between taxing statutes like the Income-tax Act, the Wealth-tax Act, the Gift-tax Act and the Estate Duty Act. Sections 50A and 50B of the Estate Duty Act reveal this intention of the legislature; and the absence of such a provision in the Income-tax Act, in my opinion, does not indicate an intention contra, because, as I have already indicated, the language of the relevant provisions (like Sections 45, 47, 48 and 52) is clear enough to bring out this. Now that the respondent has already been taxed for the amount of Rs. 48,500 under the Gift-tax Act, I do not think the same amount can be taxed under the Income-tax Act, nor does the language of the relevant provisions, viz., Sections 45, 47, 48 and 52, warrant this.

11. On the other aspects of the case, I do not wish to say anything against the views expressed by Nambiyar J. I only wish to make it clear that the single judge, K.P. Varghese v. Income-tax Officer, B-Ward, Ernakulam [1970] 77 I.T.R. 719 (Ker.).was not justified in quashing exhibit P-5 in its entirety, because exhibit P-5 comprised other 'heads also, in respect of which the respondent raised no objection.

12. In the result, I allow the appeal only in part and set aside the quashing of exhibit P-5 regarding the other amounts referred to above, for which the respondent was liable to pay tax. In other words, I confirm the decision of the single judge in regard to the amount of Rs. 48,500 about which alone there was controversy. I also pass no orders regarding costs,

Gopalan Nambiyar, J.

13. This appeal is against the decision of a learned judge of this court in O.P. No. 3293 of 1969 quashing the assessment order (exhibit P-5) passed against the writ petitioner. The writ petitioner was assessed to income-tax for the assessment year 1966-67. By exhibit P-I notice issued under Section 148 of the Income-tax Act, 1961, he was informed that his income had escaped assessment within the meaning of Section 147 of the Act and that a reassessment was proposed. After the petitioner filed objections (exhibit P-2) he was informed by exhibit P-3 that the escaped income proposed to be assessed consisted of the difference between a sum of Rs. 65,000 representing the fair market value of a house property within the municipal limits of Ernakulam which the petitioner had conveyed to his daughter-in-law and to his five children under a sale deed dated December 25, 1965, and Rs. 16,500, the face value of the consideration for the said document. The difference between the two amounts was sought to be treated and assessed as 'capital gains',' After hearing the petitioner's objections, the proposal contained in exhibit P-3 letter was implemented in exhibit P-5 order of assessment. Aggrieved by the same, the petitioner filed the writ petition which was allowed by the learned single judge.

14. At the outset itself, I may point out that the learned judge was not justified in quashing exhibit P-5 assessment as a whole. The objection canvassed before him in the writ petition, as fairly conceded before us by counsel for the respondent, related only to the assessment to tax on 'capital gains' arising from the transaction of sale dated December 25, 1965. Exhibit P-5 order comprised other heads in respect of which assessment was made and against which there was no attack.

15. The question arising for consideration is whether the assessment to 'capital gains' was justified on the facts and circumstances. As I understood, the learned judge held that it was not, for three reasons: first that profits and gains for the purpose of assessment to capital gains tax can only be those which actually arise or accrue, and not those which can be deemed to arise or accrue from the sale of a capital asset; second, that Section 52 of the Income-tax Act has application only to a case where the consideration in a transfer is understated, the understatement being done dishonestly to escape liability; and, third, that there was .considerable force in the argument of counsel for the writ petitioner that the difference between the fair market value of the property and the consideration shown in the transfer is treated as a gift under the Gift-tax Act, and is excluded in computing capital gains by reason of Section 47(iii) of the Income-tax Act. I shall proceed to examine these reasons. While doing so, I shall also advert to the contentions raised by counsel for the respondent to sustain the order of the learned judge.

16. Section 2(24) of the Income-tax Act defines the word ' income '. The definition is inclusive, and covers any ' capital gains ' chargeable under Section 45. Section 4 of the Act charges the ' total income ' of the previous year or years to tax. Section 5 defines the scope of total income, by enacting generally, that it includes all income, from whatever source, which is received, or is deemed to be received in the year in question, or which accrues or arises or is deemed to have accrued or arisen, during the said period. In Commissioner of Income-tax v. Bhogilal Laherchand, Mahajan J., who spoke for the Supreme Court, referring to the similar provisions in Section 4 of the Indian Income-tax Act, 1922, observed:

' The term 'deemed' brings within the net of chargeability income not actually accruing but which is supposed notionally to have accrued. It involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability.'

17. Again in Navinchandra Mafatlal's case, the Supreme Court observed :

' The truth of the matter is that while income-tax legislation adopts an inclusive definition of the word ' income ' the scheme of such legislation is to bring to charge only such income as falls under certain specified heads (e.g., the 5 Schedules of the English Act of 1918 and our Section 6 read with the following sections) and as arises or accrues or is received or is deemed to arise or accrue or to be received as mentioned in the statute. The courts have striven to ascertain the meaning of the word ' income ' in the context of this scheme.'

18. In E.D. Sassoon & Co. v. Commissioner of Income-tax, after discussing the meaning of the words ' accrues ', ' arises ' and ' is received ', the Supreme Court observed at page 343 :

' It is clear therefore, that income may accrue to an assessee, without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him, though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. '

19. In the light of the above provisions of the statute and the exposition of the law by the Supreme Court in the cases noticed, I cannot accept the position contended for by counsel for the respondent, which seems, to some extent at least, to have found favour with the learned single judge, that a ' deemed income ' cannot be the subject of taxation to capital gains under the scheme of the Indian Income-tax Act.

20. Section 14 of the Act classifies the heads of income for the purpose of charge of tax and computation of income. Head E is 'Capital gains'. This head is dealt with in Sections 45 -55 (both inclusive) of the Act. -Section 45 enacts that any profits or gains arising from the transfer of the capital asset effected in the previous year, shall, save as provided in Sections 53, 54 and 54B, be. chargeable to income-tax under the head ' Capital gains ' and be deemed the income of the previous year in which the transfer took place. Section 48 of the Act reads :

'Mode of computation and deductions.--The income chargeable under the head 'Capital gains' shall be computed by deducting from the fullvalue of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.'

21. And Section 52 enacts :

' Consideration for transfer in cases of wider-statement.--(1) 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.

(2) Without prejudice to the provisions of Sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer.'

22. On a conspectus of the above sections, to my mind, what flows is that profits or gains 'arising from the transfer of a capital asset' shall be chargeable to tax as capital gains under Section 45 ; and the mode of computation provided in Section 48 shall be by deducting from ' the full value of the consideration received or. accruing, as a result of the transfer of the capital asset ', certain amounts provided by the section. And Section 52 enacts that in certain contingencies the full value of the consideration for the transfer shall be taken to be the fair market value of the capital asset [Subsection (1)] and in certain others, the full value of the consideration for such capital asset shall be taken to be its fair market value. I would straightaway ask: for what purpose is the full value of the consideration to be taken to be the fair market value To my mind it can only be for'the purpose of Sections 45 and 48 ; and that provides an organic nexus between these Sections and Section 52. But, I am told that this construction which appears to me to be plain enough, and reasonable, militates against the well-understood canons of construction of taxing statutes. It is said that the expression used in Section 48 is ' the full value of the consideration received or accruing as a result of the transfer of the capital asset ', and that Section 52, Sub-sections (1) and (2), had not bidden to treat the fair market value as the precise consideration contemplated in Section 48. For myself, I should think that the rule of harmonious construction indicates that the consideration indicated by Sections 48 and 52 is one and the same, viz., consideration for the transfer of the capital asset. In so construing the section, I do not think I do violence to the well-accepted principle that there is no equity in a taxing statute, and that nothing should be read into or implied into the plain provisions of such a statute. I repeatedly asked counsel for the respondent what sphere of operation he would assign to Section 52 if the words descriptive of the consideration occuring in Sub-sections (1) and (2) of the section were not to be taken to be the same as the words descriptive of the consideration referred to in Section 48. I did not receive any satisfactory explanation. I would recoil from any construction of the statute which not only robs Section 52 of its contents and effectiveness, but even makes it dead and otiose. And such is the effect of holding that the consideration defined by Section 52 is not the same as the one dealt with in Section 48.

23. But, I was reminded that Section 52 applies only to cases of understatement of consideration, viz., where the document of transfer does not show the real consideration received. Attention was called to the title to Section 52. The learned single judge was of the view that Section 52 should be confined in its operation to cases of understatement of consideration. Going by the language of the section, I find it impossible to so limit its operation. It authorises and sanctions a hunt for the fair market value and not for the real consideration received, irrespective of whether you can get at the latter or not. The head-note cannot control the language in the body of the section, any more than a marginal note can. The position is well-accepted ; and were authority needed for the position, I need refer only to Emperor v. Sadashiv Narayan Bhalerao, A.I.R. 1947 P.C. 82.. The head-note in its present form was there even prior to the introduction of Sub-section (2) of Section 52 by the Finance Act of 1964, and remained unaltered after the said amendment. I am also of the view that neither the speech of the Minister at the time of the introduction of the Finance Bill, nor the instructions issued by the Central Board of Revenue after the same was passed into law, showing what the Board understood to be the intendment and the effect of Section 52, should be allowed to control the plain words of the section.

24. Counsel for the respondent contended that, if Section 52 were to be read along with Section 48, for the purpose of assessing the capital gains tax, the process would involve the perpetuation of two fictions, a process not warranted by law. It was said that we have first to deem the ' full consideration ' to be the ' fair market value ' under Section 52, and next> to deem the said deemed consideration to be the capital gains, for the purpose of assessment under Section 45. Factually, I do not think a deeming twice over is either contemplated or involved. As I understand Section 52, it treats the consideration referred to in the two sub-sections therein, which is the same as the consideration referred to in Section 48, as the fair market value, and straightaway Section 48 is attracted. Even if any double deeming is involved, no authority was cited why the same is not permissible in law. The case of George N. Houry v. Commissioner of Income-tax, [I960] A.C. 36; 40 I.T.R. 413 (P.C.). and the decision in Commissioner of Income-tax v. Mukkarpillai, [1967] 64 I.T.R. 476; [1965] K.L.T. 1000 (Ker.). are both distinguishable on principle. The Privy Council case pointed out that Sections 22 and 24 of the East African Income-tax Act arc two independent charging Sections and that the one cannot be read into the other. It was also held, as a matter of construction, that the expression ' paid ' in the latter section did not extend to a notional or a fictional payment contemplated by the former. The principle of the decision was followed in Makkarpillai's case with respect to the similar, if not identical, provisions of the Indian Income-tax Act, 1922. Be it noted that the construction put upon the sections by these decisions did not eviscerate either section of the statutes, but left each with a distinct and defined sphere of operation. It was said that under Section 47(iii) of the Act the transaction in question giving rise to the capital gains has to be excluded for the purpose of Section 45. Section 47(iii) reads :

' 47. Transactions not regarded as transfer.--Nothing contained in Section 45 shall apply to the following transfers:--....

(iii) any transfer of a capital asset under a gift or will or an irrevocable trust.'

25. But the transaction hen; in question does not fall under any of the categories comprehended in the above clause. It was gaid that it would be a gift under the Gift-tax Act. Section 2(xii) of the Gift-tax Act defines the expression ' Gift ' ; and Section 4, Clauses (a) and (b), enact:

' 4. Gift (o include certain transfers,--For the purposes of this Act,--

(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 ; and

(b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee, to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor.'

26. In the light of these provisions it was said that the transaction in question, to the extent of the difference between the fair market value of the property and the consideration received for the transfer was a gift, and, therefore, cannot be treated as a transfer of a capital asset for the purpose of the Income-tax Act. I am unable to agree. The definition section, and Section 4 of the Gift-tax Act, both make it clear that they are only for the purpose of that Act. Being so, I find no warrant for reading the special provisions of the Gift-tax Act into the Income-tax Act. Nor do I find any provision in the Indian Income-tax Act, 1922, which forbids the assessment to tax for capital gains on the basis of a transfer which has been treated as gift under the Gift-tax Act. Sections 50A and 50B of the Estate Duty Act, 1953, are quite revealing and instructive in the context. They read as follows:

' 50A. Relief from estate duty where gift-tax has been paid.--Where tax has been paid under the Gift-tax Act, 1958, in respect of a gift of any property and the property is also included in the estate of the donor as property passing under this, Act, then, notwithstanding anything contained in this Act, the estate duty payable under this Act shall be reduced by an amount equal to the amount of gift-tax paid in respect of any such property under that Act.'

' 50B. Relief from estate duty where tax has been paid on capital gains.--Where any property on which estate duty is leviable under this Act is transferred within a period of two years following the death of the deceased and tax under the Income-tax Act, 1961, has been paid in respect of the capital gains arising from such transfer, the estate duty payable shall be reduced by a sum which bears to the total amount of tax so paid the same proportion as the amount paid towards estate duty out of the proceeds of the transfer bears to the gross proceeds of such, transfer :

Provided that the Board may, on an application of the accountable person, extend the period of two years aforesaid if it is satisfied that the accountable person had sufficient cause for not effecting the transfer of the property within that period.'

27. I am not prepared to make good the absence of similar provisions in the Income-tax Act, 1961, by judicial legislation. I find no warrant for the proposition that because the difference between the market value and the consideration paid would constitute a gift under the Gift-tax Act, the same cannot be assessed to tax as capital gains under the Income-tax Act.

28. Counsel for the respondent contended that the case was really governed by Section 52(1) of the Act and there was no finding or recording of opinion that the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of liability under Section 45. The learned single judge was of the view that it is unnecessary to set out the jurisdictional condition in the notice or the proceedings, and that the satisfaction of the officer can well be made out de hors these. The learned judge also found that the impugned action was in fact taken under Sub-section (2) of Section 52 and not under Sub-section (1). On both these aspects I record my agreement with the learned judge. The provisions of Section 52(2) are without prejudice to the provisions of Section 52(1); and once the conditions stated therein are satisfied as they undoubtedly are, there is no question of looking for the officer's satisfaction or belief that the transfer was made with the object of avoidance or reduction of tax liability as required by Section 52(1).

29. It was argued that to permit the assessment to income-tax on the ground of capital gains in respect of the transfer here involved, and, at the same time to assess the difference between the market value and consideration received to gift-tax under the Gift-tax Act, would amount to double taxation. As pointed out in Reid's Trustees v. Commissioners of Inland Revenue, there is nothing inconsistent in principle in making the same sum subject to two different taxes under two different enactments. The statutes therein involved were the Income-tax Act and the Estate Duty Act. Besides, the scheme of taxation to income-tax is different from that under the Gift-tax Act. It is the income that accrues or arises or is deemed to accrue or arise as a result of the transfer that is subject to assessment under the Income-tax Act. It is the transaction of the gift itself, i.e., the transaction used for transmission of title that is assessed under the Gift-tax Act. So understood, there is no question of double taxation.

30. In view of my finding that Section 52 of the Income-tax Act, 1961, must be read along with Sections 45 and 48 to give it free play and to prevent its being rendered otiose, and that Section 47(iii) of the Act cannot avail the respondent in this case, I am of the opinion that exhibit P-5 order in so far as it assessed the petitioner to capital gains tax was correct. I would, therefore, allow this appeal and direct a dismissal of O.P. No. 3293 of 1969. In the circumstances, I would direct the parties to bear their respective costs throughout.

Viswanatha Iyer, J.

31. agree.

BY COURT

32. In accordance with the majority decision, this writ appeal is allowed and O.P. No. 3293 of 1969* will stand dismissed. The parties will bear their costs throughout.


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