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Commissioner of Income-tax Vs. P. Suryanarayana (Deceased) by L.R. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 318 of 1966 (Reference No. 80 of 1966)
Judge
Reported in[1973]88ITR321(Mad)
ActsIncome Tax Act, 1961 - Sections 45, 48 and 52
AppellantCommissioner of Income-tax
RespondentP. Suryanarayana (Deceased) by L.R.
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateS. Padmanabhan ;for Subbaraya Iyer, Sethuraman and ;Padmanabhan, Adv.
Cases Referred(Sivakam Co. Private Ltd. v. Commissioner of Income
Excerpt:
- - but, the assessee contended that the object of the transfer was not the avoidance or reduction of tax, which was one of the essential requisites for the application of section 52 and that the transfer was effected for consideration, love and affection......officer rejected the assessee's plea and proceeded to fix the fair market value of the 15,000 shares transferred to the sons at rs. 6 per share and determined the capital gain on that basis. there was an appeal to the appellate assistant commissioner, who not only sustained the reasoning of the income-tax officer that section 52 of the income-tax act applied to the case, but also gave an additional reasoning that even if section 52 had no application, section 48 will stand attracted to the case. according to him the term 'value' occurring in section 48 meant market value and the shares had rightly been valued at rs. 90,000 and not rs. 75,000. the matter was taken in appeal to the tribunal. the tribunal, however, rejected the reasoning given by the appellate assistant commissioner.....
Judgment:

Ramanujam, J.

1. The assessee, one Suryanarayana, owned a number of shares in India Cements Ltd., of the face value of Rs. 5 per share. Out of these, 30,000 shares were sold to strangers at the rate of Rs. 6 per share which happened to be the market value of those shares at that time. The assessee also transferred 15,000 shares to his three sons for Rs. 75,000 at the rate of Rs. 5 per share. In his return for the assessment year 1962-63, he included the capital gain in respect of the transfer of shares to the strangers but did not admit any income as capital gain in respect of the transfer of shares made by him in favour of his sons. The Income-tax Officer proposed to invoke Section 52 of the Income-tax Act in respect of the transfer of shares made by the assessee to his sons. But, the assessee contended that the object of the transfer was not the avoidance or reduction of tax, which was one of the essential requisites for the application of Section 52 and that the transfer was effected for consideration, love and affection. But the Income-tax Officer rejected the assessee's plea and proceeded to fix the fair market value of the 15,000 shares transferred to the sons at Rs. 6 per share and determined the capital gain on that basis. There was an appeal to the Appellate Assistant Commissioner, who not only sustained the reasoning of the Income-tax Officer that Section 52 of the Income-tax Act applied to the case, but also gave an additional reasoning that even if Section 52 had no application, Section 48 will stand attracted to the case. According to him the term 'value' occurring in Section 48 meant market value and the shares had rightly been valued at Rs. 90,000 and not Rs. 75,000. The matter was taken in appeal to the Tribunal. The Tribunal, however, rejected the reasoning given by the Appellate Assistant Commissioner that the case will fall under Section 48, on the ground that the words 'full value of the consideration received' in Section 48 meant only the actual consideration received by the assessee, and not the market value. This view of the Tribunal appears to us to be quite in consonance with the decision of the Supreme Court in Commissioner of Income-tax v. George Henderson & Co. Ltd., : [1967]66ITR622(SC) Considering the applicability of Section 52 of the Act to the transfer of shares by the assessee to his sons, the Tribunal, however, felt that, the object of the transfer of shares by the assessee to his sons was not with a view to avoid or reduce his tax liability under Section 45 of the Act and that, therefore, even though the transferees were directly connected with the assessee, Section 52 could not be invoked. We are of the view that on the specific findings given by the Tribunal that the object of the transfer was not with a view to avoid or reduce the assessee's liability to pay tax on the capital gains under Section 45, the conclusion of the Tribunal that Section 52 will not be attracted appears to be inescapable. This view of the Tribunal seems to be quite in accord with the decision of this court in Sundaram Industries Pvt. Ltd. v. Commissioner of Income-lax, : [1969]74ITR243(Mad) and that of the Kerala High Court in K. P. Varghese v. Income-tax Officer, : [1970]77ITR719(Ker) . We have also recently considered the scope of the corresponding provision in Section 12B, proviso, in the Income-tax Act, 1922, and have taken the same view in T.C. No. 79 of 1966 and batch. (Sivakam Co. Private Ltd. v. Commissioner of Income-tax, : [1973]88ITR311(Mad) ).

2. In view of the consistent view taken in the above decisions, we uphold the view of the Tribunal and answer the reference against the revenue with costs. Counsel's fee rupees two hundred and fifty.


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