Commissioner of Income Tax vs Jankut Mustafa Bilgen

Sethuraman, J.—At the instance or the Commissioner of Income Tax, the following two questions have been referred to this court:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income Tax Officer was not

justified in invoking the provisions of Section 52(2) of the Income Tax Act, 1961, to arrive at the capital gains and assess u/s 45 of the Income Tax

Act, the sum Rs. 2,26,417 ? and

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that a sum of Rs. 2,26,417 is not taxable

to capital gains in view of Section 47(iii) of the Income Tax Act, 1961, as gift-tax has been levied on the assessee u/s 4(a) of the Gift-tax Act,

1958, on the very same transfer?

The assessee, who is an individual, admitted capital gains of Rs. 47,500 on the sale of property in Mount Road for the assessment year 1970-

7.1, for which the previous year ended on March 31, 1970. In this property, the assessee had 38/72 shares. The property was sold for Rs.

5,00,000, The fain market value of the property as on January 1, 1954, was claimed to be Rs. 4,00,000 and the assessee claimed an additional

sum of Rs. 10,000 as brokerage. It is on this basis the return was filed. The Income Tax Officer, however, took the view that the fair market value

of the property as on the date of sale was much more and in the estate duty assessment of the assessee''s father, the Tribunal had fixed the

(market) value of the same property at Rs. 8,39,000. The Income Tax Officer, therefore, applied the provisions of Section 52(2) of the Income

Tax Act, 1961, and with the prior approval of the Inspecting Assistant Commissioner determined the capital gains at Rs. 4,39,000 and brought to

tax 38/72 shares thereof in the assessee''s hands. The amount so assessed came to Rs. 2,26,417.

In the gift-tax assessment in regard to the same transaction, the Gift-tax Officer treated the difference between the estimated market value of Rs.

8,39,000 and the consideration set out, i.e., Rs. 5,00,000, in the sale deed as (deemed) gift and he levied gift-tax accordingly. The assessee

appealed to the Appellate Assistant Commissioner both against the Income Tax assessment and also against the gift-tax assessment. The Appellate

Assistant Commissioner held in the Income Tax appeal that Section 52(2) of the Income Tax Act, 1961, was not applicable and he directed the

Income Tax Officer to recompute the capital gains on the basis of the sale price being Rs. 5,00,000. In the appeal against the gift-tax assessment,

the Appellate Assistant Commissioner upheld it relying on Section 4(1) of the Gift-tax Act. While the Income Tax Officer appealed to the Tribunal

against the Appellate Assistant Commissioner''s order in the Income Tax appeal, the assessee appealed to the Tribunal against the order in the gift-

tax appeal. Both the appeals were dealt with together by the Tribunal and the Tribunal confirmed the order of the Appellate Assistant

Commissioner in the gift-tax proceedings. It was held that Section 4(1)(a) of the Gift-tax Act was applicable to the facts of the case so as to justify

the assessment on the basis of the market value of the property being Rs. 8,39,000 as against Rs. 5,00,000 set out in the document of sale. As

regards the Income Tax appeal, the Tribunal held that before applying Section 52(2), it should be shown that there was an understatement of

consideration, and that in the present case, there was no such understatement of consideration which was actually received. In other words, the

Tribunal''s view was that unless the assessee had received Rs. 8,39,000, the consideration as shown in the document of sale would have to be

accepted. The result was that the order under the Income Tax Act applying Section 52(2) was held to be bad. The matter as regards the gift-tax

assessment has become final as there is no reference against the Tribunal''s order in the gift-tax appeal. The Commissioner of Income Tax has

brought the assessment to capital gains on reference to this court.

As regards the first question, it is not in dispute that in ADDITIONAL COMMISSIONER OF Income Tax, MADRAS Vs. P. S.

KUPPUSWAMY AND OTHERS., , an identical question of applicability of Section 52(2) has been considered and that the answer in the light of

that decision should be against the Department. We, therefore, answer the first question in the affirmative and in favour of the assessee.

The second question does not really call for an answer in view of the answer given above. The point raised is whether the exemption u/s 47(iii)

of the Income Tax Act, 1961, would be available. This question has been considered in T.C. No. 220/75 and T.C. No. 221/75 in our judgment

dated February 16, 1979 Commissioner of Income Tax Vs. Bharani Pictures, and if an answer to this question is called for, it would have to be

answered in the negative and against the assessee. The reference is answered accordingly. There will be no order as to costs.