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Commissioner of Income-tax Vs. Pradyuman Kumar Kachhawa, - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference Nos. 12 to 15 of 1978
Judge
Reported in(1986)54CTR(Raj)25; [1985]156ITR105(Raj); 1985(1)WLN570
ActsIncome Tax Act, 1961 - Sections 52(2)
AppellantCommissioner of Income-tax
RespondentPradyuman Kumar Kachhawa, ;smt. Shushila Devi, ;yaswant Singh and Mahendra Singh
Appellant Advocate J.P. Joshi and; J.L. Daga, Advs.
Respondent Advocate S.K. Kakkar and; A.K. Rajvanshi, Advs.
Excerpt:
.....52(2)--application of--no case of revenue that assessee made understatement of consideration of sale or consideration disclosed was less than amount actually received--held, one requirement of section 52(2) was not satisfied and tribunal was justified in directing ito to compute capital gains on basis of consideration declared by assessee in return.;as it is not the case of the revenue in the present case that any understatement of the consideration has been made by the assessee or that the amount disclosed as consideration in the documents of sale was less than the amounts actually received by the asses by way of consideration for sale and so one of the requirements of section 52(2) was not satisfied.;reference answered in favour of assessee - section 2(k), 2(1), 7 & 40 & juvenile..........brought on record to show that the assessee has in fact received something more than the apparent sale consideration and, therefore, section 52(2) has no application.12. as it is not the case of the revenue in the present case that any understatement of the consideration has been made by the assessee or that the amount disclosed as consideration in the documents of sale was less than the amounts actually received by the assrssncs by way of consideration for sale and so one of the requirements of section 52(2) was not satisfied. in this view of the matter, the tribunal was perfectly justified in holding that the provisions of section 52(2) of the i.t. act were not attracted to the present case and in directing the ito to compute the capital gains on the basis of the consideration.....
Judgment:

Dwarka Prasad, J.

1. These four income-tax references arise out of the order of the AAC, Ahmedabad Bench ' C ', camp at Jodhpur dated March 18, 1975, holding that the provisions of Section 52(2) of the I.T. Act, 1961 (hereinafter referred to as ' the Act '), were not attracted to the case of the assessees and directing the ITO to compute the capital gains on the basis of the consideration declared by the assessee in each of the four cases.

2. The facts which have given rise to these references may be briefly stated:

One Anand Singh Kachhawa purchased a plot of land situated at Sansar Chandra Road in the City of Jaipur, measuring 4,500 sq. yards on May 31, 1958, in the name of his sons, Yaswant Singh and Mahendra Singh, in equal shares, and two separate sale deeds were executed in the names of Yaswant Singh and Mahendra Singh for a plot of land measuring 2,250 sq. yards each. Yaswant Singh made a gift of 450 sq. yards of land by a registered gift deed dated June 3, 1969, to Geeta, wife of his younger brother, Mahendra Singh. Mahendra Singh also made a gift of about 749 sq. yards each, to Sushila Devi, wife of Yaswant Singh, and Pradyuman Singh, minor son of Yaswant Singh, by a registered gift deed dated July 29, 1969. On August 2, 1969, Yaswant Singh, Mahendra Singh and Sushila Devi sold the aforesaid land owned by them to M/s. Balkishan Commercial Company of Calcutta by separate sale deeds. While Yaswant Singh sold his land at Rs. 45 per sq. yard, Mahendra Singh sold his land at Rs. 55 per sq. yard and Sushila Devi sold the land belonging to her at Rs. 40 per sq. yard. Pradyuman Singh also sold his land to M/s. Balkishan Commercial Company by a registered sale deed dated April 9, 1970, at Rs. 40 per sq. yard.

2. Yaswant Singh, Mahendra Singh, Sushila Devi and Pradyuman Singh disclosed capital gains made by them as a result of the aforesaid transactions of sale in their returns pertaining to the assessment year 1970-71. The ITO, in the course of assessment proceedings, felt that the assessees had sold their lands at a very low rate as compared to the prevailing market rate in the area in which the lands in question were situated. According to ITO, the lands sold by the assessees were situated in the vicinity of the important business locality of Jaipur, namely, Mirza Ismail Road, and he took into consideration four instances of sale and mortgage of lands situated on the Mirza Ismail Road and came to the conclusion that the rates at which the lands were sold by the assessees were very low. After seeking the approval of the IAC of Income-tax, Jodhpur Range, Jodhpur, the ITO served notices upon the assessees, invoking the provisions of Section 52(2) of the Act. After the assessees had filed their replies, the ITO held that the market value of the lands in question, at the time when they were sold, was Rs. 160 per sq. yard and in arriving at the aforesaid decision, he relied upon three transactions of sale and one instance of mortgage of nearby lands situated on Mirza Ismail Road and adopted the highest rate of Rs. 160 per sq. yard, fetched by the sale by public auction held in January 1969, of a plot of land on which a building ' Kalyan Bhawan ' has been constructed as indicative of the prevailing market price of land in the nearby vicinity.

3. The ITO also held that the cross-gifts made by Yaswant Singh and Mahendra Singh to the dependants of another brother were covered by Section 64(ii) of the Act, and as such the capital gains earned on the sale of plots of land standing in the names of Sushila Devi and Pradyuman Singh were also held to be taxable in the hands of Yaswant Singh and Mahendra Singh.

4. On appeal, the AAC of Income-tax, instead of adopting .the rate of Rs. 160 per sq. yard as fair market value of the lands sold by the asses-sees, held that it would be reasonable to adopt the market value of the lands in question at Rs. 100 per sq. yard, on the basis of yet another one of the four instances of sale and mortgage relied upon by the ITO. The assessees preferred further appeals and the Department also filed appeals. All these appeals were heard by the Income-tax Appellate Tribunal, Ahmedabad Bench ' C ' (hereinafter called ' the Tribunal '), at its camp at Jodhpur and were decided by the order dated March 18, 1975. The Tribunal observed that the four instances of sales and mortgage relied upon by the ITO and the AAC related to lands situated on the Mirza Ismail Road, which was an important business and commercial centre at Jaipur, but the lands in question were situated on a 20' wide road, known as Sansar Chandra Road, off Mirza Ismail Road. As such, the Tribunal held that the value of the plots of land situated on the Mirza Ismail Road, whether on sale or mortgage, did not reflect the prevailing market rate in respect of the lands in question, which were situated on Sansar Chandra Road, because the lands in question could not be considered to be similarly situated to the instances of sale and mortgage relied upon on behalf of the Revenue. The Tribunal also rejected the seven instances relating to transactions of sale relied upon by the assessees on the ground that six sales out of them related to small plots of land. The Tribunal held that the assessees have failed to prove that the seven instances relied upon by them were comparable instances of sale of lands in the locality. Thus, the Tribunal came to the conclusion that there was no satisfactory evidence on record to prove that the consideration specified in the sale deeds executed by the assessees did not represent the fair market value of the lands sold. The Tribunal, therefore, dismissed the appeals filed by the Revenue but partly allowed the appeals preferred by the assessees, holding that the provisions of Section 52(2) of the Act were not attracted and there was no justification for adopting higher value for the sale of the lands sold than that declared by the assessees, for the purposes of computation of capital gains. The Tribunal, therefore, directed the ITO to compute the capital gains made by the assessees afresh on the basis of the value of the lands disclosed in the sale deeds made by the assessees. The finding of the ITO in respect of the other question relating to the application of Section 64(3) of the Act was affirmed and it was held that the cross-gifts made by Yaswant Singh in favour of Smt. Geeta and Mahendra Singh in favour of Sushila Devi and Pradyuman Singh were interconnected and they formed part of a single transaction and that the authorities below were justified in computing the capital gains arising out of the sale of lands made by Smt. Geeta and Sushila Devi and Pradyumau Singh as income in the hands of Yaswant Singh and Mahendra Singh, respectively.

5. The Tribunal refused to make a reference on the application under Section 256(1) of the Act, but on an application made by the Commissioner of Income-tax, Rajasthan, Jaipur, under Section 256(2) of the Act, this court by its order dated April 4, 1977, directed the Tribunal to draw up a statement of the case and refer the following question of law to this court for its opinion:

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of Section 52(2) of the Income-tax Act, 1961, were not attracted in this case and further in directing the Income-tax Officer to compute the capital gains on the basis of the consideration declared by the assessees? '

6. In accordance with the aforesaid directions of this court, the Income-tax Appellate Tribunal has made the reference by its order dated September 28, 1977, and has referred the aforesaid question of law for the opinion of this court.

7. Section 52 of the Act, with which we are concerned in the present case, runs as under :

'52. (1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assesses 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. '

8. The provisions of Section 52(1) enable the computation of capital gains arising out of a transfer of a capital asset with reference to its fair market value as on the date of transfer ignoring the amount of consideration shown by the assessee if the following two conditions are satisfied :

(1) The transferee should be a person who is directly or indirectly connected with the assessee, and

(2) 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 to tax on capital gains.

9. In the present case, as the transferee is undoubtedly not a person directly or indirectly connected with the assessee, the provisions of Section 52(1) are not attracted. The case of the learned counsel for the Revenue is that the provisions of Sub-section (2) of Section 52 are attracted to the present case. However, it may be pointed out that for the applicability of Sub-section (2) of Section 52, it is not enough that the fair market value of the capital asset transferred by the assessee, as on the date of the transfer, should exceed the full value of the consideration declared in respect of the transfer by not less than 15% of the value so declared, but it is further necessary that the full value of the consideration in respect of the transfer should have been understated or shown at a lesser figure than that actually received by the assessee. Thus, Sub-section (2) of Section 52 of the Act has no application to the case of a non-benefit transaction of sale or transfer of capital assets, where the consideration in respect of the said transaction has been correctly declared or disclosed by the assessee, even if the condition of more than 15% difference between the fair market value of the capital asset on the date of transfer and the full value of the consideration declared by the assessee is fulfilled. If the Revenue seeks to bring the case within the provisions of Sub-section (2) of Section 52, it must show not only that the fair market value of the capital asset exceeds, as on the date of transfer, the full value of the consideration declared by the assessee by not less than 15% of the value so declared, but also that the consideration has been understated and the assessee has actually received more than what has been declared by him. This aspect of the matter has been clearly pointed out by their Lordships of the Supreme Court in K. P. Verghese v. ITO : [1981]131ITR597(SC) . It has been held in the aforesaid case by the Supreme Court that Sub-section (2) of Section 52 cannot be invoked by the Revenue unless there is an understatement of the consideration received by the assessee in respect of the transfer and the burden of proving such understatement is on the Revenue. Once it is established by the Revenue that the consideration for the transfer has been understated or the consideration actually received by the assessee is more than what has been declared or disclosed by him or there has been concealment of consideration, then Sub-section (2) is immediately attracted, subject to the condition that the difference between the consideration disclosed in respect of the transfer of the capital asset and the fair market value thereof on the date of the transfer is more than 15%. Their Lordships proceeded to observe as under in K. P. Varghese's case (pp. 614, 618, 617 of 131 ITR):

' There are two distinct conditions which have to be satisfied before Sub-section (2) can be invoked by the revenue and the burden of showing that these two conditions are satisfied rests on the revenue. It is for the revenue to show that each of these two conditions is satisfied and the revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15% or more the full value of the consideration declared in respect of the transfer and the first condition is, therefore, satisfied. The revenue must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the revenue cannot ask the court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15% difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration. The fulfilment of the second condition has, therefore, to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before Sub-section (2) can be invoked and the burden of doing so is clearly on the revenue. It is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much a condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and the second condition is fulfilled...... This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration .........

Moreover, if Sub-section (2) is literally construed as applying even to cases where the full value of the consideration in respect of the transfer is correctly declared or disclosed by the assessee and there is no understatement of the consideration, it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view-point can be rationally considered as capital gains or any other type of income. It is a well settled rule of interpretation that the court should as far as possible avoid that construction which attributes irrationality to the Legislature. Besides, under entry 82 in List I of the Seventh Schedule to the Constitution, which deals with ' Taxes on income other than agricultural income ' and under which the I.T. Act, 1961, has been enacted, Parliament cannot ' choose to tax as income an item which in no rational sense can be regarded as a citizen's income or even receipt. Sub-section (2) would, therefore, on the construction of the revenue, go outside the legislative power of Parliament and it would not be possible to justify it even as an incidental or ancillary provision or a provision intended to prevent evasion of tax '.'

10. Thus it has been firmly established by the aforesaid decision of their Lordships of the Supreme Court that Sub-section (2) of Section 52 cannot be invoked only where the consideration disclosed for the transfer was less than the fair market value of the capital asset transferred by more than 15%, unless it is shown that the consideration for the transfer has been understated by the assessee or that the consideration actually received by the assessee is more than what is disclosed or declared by him and the burden of proving the concealment or the understatement is on the revenue. In the present case, the Tribunal has found as a fact that it has not been stated, on behalf of the Revenue that the assessee has made an understatement or, in other words, the amount disclosed by him as having been received by way of consideration for the transfer of the lands in question was less than the amount actually received by the assessee. Therefore, even if the first leg of the requirement of Sub-section (2) of Section 52 might be considered to have been fulfilled, namely, that the difference between the value of the capital asset declared and the fair market value thereof is more than 15%, yet as it is not the case of the Revenue that there has been any understatement in the value of the capital asset or that the assessee has disclosed lesser amount than the amount actually received by him as the consideration for the transfer of the capital asset, the second leg of the requirement contained in Section 52(2) cannot be held to be satisfied. As such, the case does not fall within the provisions of Section 52(2) of the Act.

11. The decision of their Lordships of the Supreme Court in Varghese's case : [1981]131ITR597(SC) was followed by their Lordships of the Bombay High Court in CIT v. Ramkrishna Ramnath Properties Pvt. Ltd. : [1984]147ITR742(Bom) , and it was held in that case that as there was no material existing to support the actual understatement, Section 52 was not applicable to the case. The same view was also taken by their Lordships of the Allahabad High Court in CIT v. Balram Pmsad : [1984]150ITR687(All) and the decision of the Supreme Court in Verghese's case : [1981]131ITR597(SC) was followed. It was held in that case that no material has been brought on record to show that the assessee has in fact received something more than the apparent sale consideration and, therefore, Section 52(2) has no application.

12. As it is not the case of the Revenue in the present case that any understatement of the consideration has been made by the assessee or that the amount disclosed as consideration in the documents of sale was less than the amounts actually received by the assrssncs by way of consideration for sale and so one of the requirements of Section 52(2) was not satisfied. In this view of the matter, the Tribunal was perfectly justified in holding that the provisions of Section 52(2) of the I.T. Act were not attracted to the present case and in directing the ITO to compute the capital gains on the basis of the consideration declared by the assessees in their return, subject to the condition that the capital gains arising out of the sale of lands made by Shrimati Geeta and Smt. Sushila Pevi and Pradyuman Singh should be considered as income in the hands of Yaswant Singh and Mahendra Singh, respectively.

13. In the result, the question referred to us is answered in the affirmative, in favour of the assessee and against the Revenue.

14. The parties are left to bear their own costs.


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