Sanjiv V. Kudva vs Commissioner of Income Tax

M. Rama Jois, J.—This income tax reference - arises out of proceedings for the levy of capital gains tax on the assessee who is an individual. Pursuant to the direction given by this Court in Civil Petition No. 40 of 1976 dated 23-11-1976, the following two questions of law have been referred for the opinion of this Court by the Appellate Tribunal, Bangalore Bench: 1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in its view that the provisions of section 52(2) of the income tax Act, 1961, are attracted to the instant case?

Whether, on the facts and in the circumstances of the case, the determination of the value of the properties in question right in law?

The assessee had purchased a plot of 25,003 sq. yds. in the city of Bangalore for a sum of Rs. 3,55,000 from Indian Radiators Ltd. on 25-8-1959. In the year 1965-66, the assessee sold the property to three persons. The particulars relating to the sale, the date of sale as also the market value of the property as on 31-3-1964, according to the valuation made by the valuers, in connection with the assessment to wealth-tax are as follows:

Sold to

Plot

Sale price

Date of sale

Market value as on 31-3-1964 as per value

Rs.

Rs.

Canara Public Conveyance (P.) Ltd.

Plot of 6,522 sq. yds.

90,000

17-2-1966

1,12,000

Hindustan Milk Food Manufactures Ltd.

Plot of 6,522 sq. yds.

3,75,000

23-9-1965

3,00,000

Aroor Ram Mohan Rao & 7 others (Aroor Family)

Plot of 10,746 + 1,213 sq. yds.

1,40,000

15-11-1965

1,92,000

The ITO found that the sale price of items 1 and 3 above was less than the market value even as on 31-3-1964. He called upon the assessee to show cause as to why the difference between the price for items 1 and 3 sold and the market value of the property as on the date of sale should not be subjected to capital gains tax u/s 45 of the income tax Act (hereinafter referred to as "the Act"). The assessee objected to the proposal. He pointed out that though items 1 and 3 had been sold for a lower price, in the aggregate, the assessee had made sufficient gains if the sale price of the second item was also taken into account. He pointed out that the total market value of all the three items as on 31-3-1964 was Rs. 6,04,000. Whereas the total sale value of the three items came to Rs. 6,05,000. The ITO noticed that item 1 measuring 6,522 sq. yds. had been given on perpetual lease to Canara Public Conveyance (P.) Ltd. (hereinafter referred to as "CPC") on a rental of Rs. 600 per month and subsequently the property was sold for a sum of Rs. 90,000 only. He noticed that the assessee was the managing director of the CPC and was associated with it right from its inception and, therefore, there was direct connection between the assessee and the CPC. The ITO ascertained the market value of the property by capitalising the rental income and arrived at the value of Rs. 1,12,000 and this was also the value of the plot which had been fixed by the valuers as on 31-3-1964 for purposes of wealth-tax. The ITO, therefore, considered that as the market value of the property as on the date of sale of the first item to CPC was Rs. 1,12,000, and it was sold only for Rs. 90,000 in view of the connection between the assessee and the CPC and also because the difference between the two figures exceeded 15 per cent, both the subsections of section 52 of the Act were attracted. However, there was no finding that the assessee had received any money as consideration for the sale of the property from the CPC over and above the amount mentioned in the sale deed. As regards the third item, namely, the plot sold to Aroor Ram Mohan Rao and others of Aroor family, the ITO, after ascertaining the sale statistics of the sites in the vicinity as also the evidence given by an estate agent, came to the conclusion that the market value of the site as on the date of sale, i.e., 15-11-1965 was Rs. 30 per sq. yd. and on this basis came to the conclusion that in view of section 52(2), the sale consideration of the site sold to the Aroor family must be taken to Rs. 3,35,000 as against Rs. 1,40,000 shown in the sale deed. In this case also the ITO did not have any evidence and consequently did not record any finding that any money over and above the capital consideration mentioned in the sale deed had been received by the assessee. However, he fixed capital gains liability on the basis of the difference of the amount between the price mentioned in the sale deed and the market value of the property as ascertained by him as on the date of sale relying on sub-section (2) of section 52.

The matter was taken up in appeal before the AAC. The appellate authority accepted the plea of the assessee that there was no connection between the assessee and the CPC having regard to the fact that the CPC was a limited company and, therefore, section 52(1) was not attracted. However, he came to the conclusion that as regards the first item of property, its sale for Rs. 90,000 was for a value lesser than the market value of the property and as the difference was more than 15 per cent, the sale consideration for purposes of capital gains had to be computed on the basis of the market value of the property on the date of sale in view of sub-section (2) of section 52. As regards the third item, the appellate authority observed that there had been an upward trend in the price of landed property since 1954 in the city of Bangalore owing to the influx of people from different parts of the country, and, therefore, the market value as fixed by the ITO was sound. He rejected the appeal. Aggrieved by the said order, the assessee preferred second appeal before the Appellate Tribunal. The Tribunal affirmed the orders of the assessing authority and the appellate authority with a slight modification by reducing the market value of the land sold to Aroor family from Rs. 30 per sq. yd. to Rs. 25 per sq. yd. Before the Tribunal the assessee relied on the decision of this Court in the case of Additional Commissioner of Income Tax, Mysore Vs. M. Ranga Pai and Others, in support of his contention that in the absence of evidence of understatement of the valuation, provisions of subsection (2) of section 52 would not be attracted. The Tribunal, however, distinguished the said decision on the ground that the decision in Ranga Pai''s case (supra) depended on the peculiar facts of that case. After the decision of the Tribunal, as the request of the assessee for referring the suggestions mentioned earlier to this Court was rejected by the Tribunal, the assessee approached this Court by means of a civil petition and pursuant to the order of this Court, the questions have been referred for the opinion of this Court.

Before considering the rival contentions urged for the parties, it is convenient to refer to the relevant provisions of the Act. u/s 14E of the Act, capital gains are treated as a source of income liable to tax. Section 2 (24) of the Act defines "income" as including capital gains chargeable to tax u/s 45 of the Act. Section 45 is the charging section as far as capital gains are concerned. It provides that any profits or gains arising from the transfer of 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. Certain exemptions are provided under sections 53, 54, 54B and 54D of the Act with which we are not concerned. Section 48 of the Act is the section which provides for mode of computing capital gains. It provides 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 (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. Subsections (1) and (2) of section 52 reads as follows:

Consideration for transfer in cases of understatement. - (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 u/s 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 Jess than fifteen percent 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:

Sub-section (1) of section 52 was in existence as section 52 at the time when the Act was enacted, there being no second sub-section. Subsection (2) of section 52 was introduced by the Finance Act, 1964 with effect from 1-4-1964. There is not much controversy about the interpretation of sub-section (1) of section 52 in view of its clear wordings. The section was also interpreted by the Supreme Court in the case of I.C.I. (India) Private Ltd. Vs. The Commissioner of Income Tax, West Bengal, The Supreme Court observed that necessary ingredients of section 52 (which is now sub-section (1) of section 52) are as follows:

(i) there should be a direct or indirect connection between the person who acquires a capital asset and the assessee;

(ii) the income tax Officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains;

(iii) if the first two conditions are satisfied then the full value of consideration for the transfer can be taken to be the fair, market value of the capital asset on the date of the transfer. (p. 713)

In the present case, however, the question referred for our opinion depends on the interpretation of sub-section (2) of section 52. It is argued for the revenue by its learned counsel Shri S.R. Rajasekhara Murthy that in view of the wording of sub-section (2) of section 52 the mere existence of a difference of 15 percent or more between the market value of the property as ascertained by the ITO as on the date sale and the actual price incorporated in the sale deed is sufficient to incur the liability for payment of capital gains tax on such difference of amount and that existence of such difference itself is conclusive proof of the fact that there has been understatement of valuation i.e., a sum lower than the one actually received has been mentioned in the sale deed. Per contra Shri Sarangan, learned counsel for the assessee, argued that the condition imposed in subsection (1), namely, the existence of material to hold that there has been an understatement of consideration with the intention to avoid tax on capital gains is equally applicable to sub-section (2) of section 52 and the only difference between the two sub-sections was, while sub-section (1) is attracted only in cases where there has been direct or indirect connection between the vendor and the vendee, sub-section (2) is attracted in all cases of sales where the difference between the market value of the property as on the date of the sale and consideration for sale mentioned in the sale deed is 15 percent or more irrespective of the fact whether there was any direct or indirect connection between the vendor and the vendee. He submitted that the answer to the question was concluded by the decision of this Court in the case of Ranga Pai (supra).

Learned counsel for the revenue, however, argued that the case of Ranga Pai (supra) was decided on the peculiar facts of the said case and, therefore, the said decision cannot be taken as precedent. He further argued that reliance placed on the marginal note to interpret the provisions of sub-section (2) of section 52, the language of which is clear and unambiguous, was clearly impermissible, in view of the decision of the Supreme Court in The Western India Theatres Ltd. Vs. Municipal Corporation of The City of Poona, and in Board of Muslim Wakfs, Rajasthan Vs. Radha Kishan and Others,

We are unable to agree with the learned counsel for the revenue that the case of Ranga Pai (supra) is distinguishable and should be confined to the facts of that case. The learned counsel for the assessee is right in his sub mission that the decision in Ranga Pai''s case (supra) fully covers the question of interpretation of sub-section (2) of section 52 arising for consideration in this case. In the said case, Venkatesha Pai, the father of Ranga Pai, had purchased a house property situated in the city of Mangalore for a sum of Rs. 25,000 on 24-3-1950 from Manel Raghunatha Naik, who sold it when he was in financial difficulties. But according to Ranga Pai, there was an oral agreement between the vendor and the vendee that the latter would execute a deed of reconveyance of the same property for the same amount in favour of the vendor at any time when the vendor was in a position to pay the amount of Rs. 25,000. It so happened, father of Ranga Pai as also the vendor died and thereafter in the year 1963 M. Ranga Pai reconvened the property to Manel Mukunda Naik, son of Manel Raghunatha Naik, for the same amount of Rs. 25,000 respecting the agreement entered into by his father. The ITO was of the view that the sale of the property was for an inadequate consideration and, therefore, subjected the difference of the amount between the market value of the property in the year 1963 and Rs. 25,000 for which consideration reconveyance deed was executed, to gift-tax under the provisions of the Gift-tax Act, 1958. Thereafter, the ITO, under a direction issued by the Commissioner u/s 263 of the Act, subjected the difference of the amount between the market price of the property as on the date of reconveyance and the sum of Rs. 25,000 for which it was reconveyed, which exceeded 15 per cent, to capital gains tax under sub-section (2) of section 52. When the matter reached this Court, it was contended for the revenue that even though the property had been actually reconveyed for Rs. 25,000 only and no amount over and above the sale consideration was received by the assessee, the difference was liable to capital gains in view of sub-section (2) of section 52. This Court interpreted sub-section (2) of section 52 and held that the evidence regarding understatement as well as avoidance of tax, which was a condition precedent for invoking sub-section (1) of section 52, was equally applicable to sub-section (2) of section 52, even though there was no specific condition incorporated in section 52 as the object of section 52, as revealed from the marginal note, was to deal only cases of understatement and observed that difference between the two sub-sections was as follows:

In order to attract sub-section (1), there should be indirect or direct relation between the vendor and the vendee whereas for invoking sub-section (2) no such relationship is necessary.

In order to invoke sub-section (2) of section 52, the difference between the market value of the property as on the date of sale and the consideration mentioned in the sale deed should be 15 percent or more whereas such a condition was not necessary to invoke sub-section (1).

In that view of the matter, the Court held that, as on the facts of Ranga Pai''s case (supra), there was no evidence of making an understatement of the valuation in the sale deed, sub-section (2) of section 52 was not applicable. Therefore, it is clear that the point arising for consideration in this reference is concluded by the decision in Ranga Pai''s case (supra).

It is true that in interpreting sub-section (2) of section 52 reliance was placed by this Court on the marginal note of the section. According to the learned counsel for the revenue, such a course was not permissible in view of decisions of the Supreme Court in Western India Theatres'' case (supra) and Muslim Wakf Board v. Radha Kishan (supra). It is true that marginal note cannot be relied on for purposes of interpreting a section in a manner so as to change its meaning. But the heading or marginal note to a section is regarded as preamble to the concerned section and though it cannot control the plain words of the section, it may explain ambiguous words and if there is any doubt in the interpretation of the words of the section, the heading certainly helps the Court to resolve that doubt as observed by the Supreme Court in Bhinka and Others Vs. Charan Singh, It is for this purpose the marginal note was used in Ranga Pai''s case (supra). It should, however, be pointed out that this Court had also placed reliance on the circular issued by the CBDT in exercise of its power u/s 119 of the Act which is binding on all the subordinate authorities - Navnitlal C. Javeri Vs. K.K. Sen, Appellate Assistant Commissioner of Income Tax, ''D'' Range, Bombay, and Ellerman Lines Ltd. Vs. Commissioner of Income Tax, West Bengal, Calcutta, and it was held that the said circular gave the indication that sub-section (2) of section 52 was not intended to cover bona fide transactions. This Court also referred to the statement of the Finance Minister while moving the Finance Bill, 1964 in which also he assured that subsection (2) of section 52 was not intended to cover bona fide transfers, but did not rely on it on the ground that it was not a material relevant for interpreting the provision. But as held by the Supreme Court in The Sole Trustee, Lok Shikshana Trust Vs. The Commissioner of Income Tax, Mysore, recourse can be had to the speech by the mover of the Bill in Parliament for ascertaining the real meaning of a statutory provision in case of doubt. This Court also observed that the acceptance of the interpretation suggested for the revenue would render section 47(iii), which excludes gifts from the purview of section 45, otiose. Decision in Ranga Pai''s case (supra) was rendered on 2-5-1975. It is not disputed that the said decision is not taken in appeal and is being followed by the department all these years. In Ranga Pai''s case (supra), this Court agreed with the view taken by Issac, J. in K.P. Varghese Vs. Income Tax Officer, B-Ward and Others, distinguishing the majority view taken to the contrary in appeal against the said decision in Income Tax Officer, B-Ward and Another Vs. K.P. Varghese, Subsequently, the view taken by this Court in Ranga Pai''s case (supra) has been agreed to by the Madras High Court in ADDITIONAL COMMISSIONER OF Income Tax, MADRAS Vs. P. S. KUPPUSWAMY AND OTHERS., and by the Andhra Pradesh High Court in Addl. Commissioner of Income Tax Vs. S.R.Y. Ankineedu Prasad, and by the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Smt. Sethani Godwaribai, However, in view of the submission made for the revenue, we proceed to have a second look at the provisions of section 52.

Before proceeding further, it is necessary to state that the department is not in a position to contend that the assessee has received any money over and above the consideration mentioned in the two sale deeds. Learned counsel for the revenue, however, made a feeble attempt to make out that there has been a finding by the Tribunal about the understatement of valuation. But on going through the order of the Tribunal, we are satisfied that the submission made by the learned counsel for the revenue is based only on the difference between the market value and the sale consideration mentioned in the sale deed and there is no iota of evidence to the effect that the assessee had received any money over and above the amounts mentioned in the sale deeds. There is no finding by any one of the authorities that the assessee had received any amount beyond the consideration mentioned in the two sale deeds. Therefore, we proceed to consider the question of law on the basis that the assessee had received only the amount mentioned in the sale deeds and that the market value fixed by the authorities was also correct and that the difference between the two figures exceed 15 percent.

As stated earlier, as far as section 52(1) is concerned, it gets attracted only when the vendor and the vendee are directly or indirectly related to each other and there has been an understatement of valuation in the sale deed with the intention of avoiding capital gains tax. Coming to the wording of sub-section (2), at first sight it appears that the only condition necessary to incur the liability to pay capital gains on effecting sale of a capital asset is that the difference between the value mentioned in the sale deed and the fair market value is not less than 15 per cent, even though the seller has received only the amount mentioned in the sale deed. This means that the moment the ITO ascertains the market value of a capital asset sold by its owner and finds that the difference between the market value of the sale price mentioned in the sale deed is 15 percent or more, it must be treated as capital gains in addition to the gains calculated on the basis of the price mentioned in the sale deed. Even though, in fact and in truth, the vendor has sold only for the price mentioned in the sale deed. It is difficult to accede to the submission that the legislation, which is intended to levy tax on capital gains received or accrued to a person, has incorporated a provision to tax even if there is no gain either received or accrued, just because the owner has sold the property for a lower price. Circumstances are not wanting where persons either on account of urgent need for various reasons, including financial difficulties or on account of ignorance or having been misled by some one, might sell their property for a price lesser than the market value, the difference being more than 15 per cent. It is also natural that when a person on account of his own urgency wants to sell the property immediately he is likely to get a lower offer. Similarly, it is not unnatural that a person though not willing to gift away his property may be willing to sell his property for a lesser value out of his affection or regard to a person or his noble occupation or for laudable purpose and such value may be lesser by more than 15 percent of the fair market value. The question for consideration is, is the provision intended to make such persons liable to pay the tax for capital gains for the act of selling the property for a lesser value under unavoidable circumstances or with good intention as indicated above and to subject them to additional burden? Obviously not. According to sub-section (2) of section 52, if the fair market value of the capital asset transferred by an assessee, as on the date of transfer, exceeds the full value of the consideration declared by the assessee in respect of such transfer by an amount of not less than 15 percent of the value so declared, the full value of consideration for such capital asset shall be taken to be its fair market value as on the date of transfer. The words "consideration declared by the assessee" and the words "value so declared" used in sub-section (2) and in particular the word "declared'''' at both places is significant. It presupposes that the actual value received is the "undeclared value" which is something different and higher than the value declared in the sale deed. Any doubt in this regard is removed by the marginal note to the section which reads "Consideration for transfer in cases of understatement". Because it is only in a case where the vendor having received a higher amount as consideration for the transfer of a capital asset makes an understatement of consideration in the sale deed obviously to avoid capital gains tax on the difference of amount and to retain it as unaccounted money, the amount mentioned in the sale deed can be regarded as the declared value and the amount actually received as the undeclared value. In a case where the consideration actually recorded in the sale deed was also the amount actually received by the vendor, merely because the fair market value exceeds by 15 percent of the actual sale consideration, it cannot be said that it was a case of understatement or that the consideration declared is different from undeclared consideration which is non-existent. Therefore, in our view, the word "declared" used in section 52(2) is significant which leads to the construction of that provision to the effect that it attracts a case in which it is established that a vendor has declared a lower consideration in the deed transferring his capital asset having received a higher amount as consideration. This construction fully receives support from the provision of section 47(iii) of the Act, which reads:

Nothing contained in section 45 shall apply to the following transfers:

(i) ****

(ii) ****

(iii) Any transfer of a capital asset under a gift or will or an irrevocable trust;"

[Emphasis supplied by us]

The meaning of the word "gift", as given in Webster''s Third New International Dictionary at page 956, is a voluntary transfer of real or personal property without any consideration or without any valuable consideration". The definition of "gift" given in section 122 of the Transfer of Property Act is also identical. If the word "gift" was intended to be used in section 47(iii) in the above sense, then there was no necessity to use it at all, i.e., there was no necessity to except "gift" out of the provisions of section 45 as that section speaks of profit or gain arising out of transfer of a capital asset and, therefore, question of taking "gift" out of section 45 would not arise. Therefore, in order to make the provision meaningful, the word "gift" used in section 47(iii) should be given the same meaning as is given to that word in the Gift-tax Act which gives an extended meaning by including a transfer of property for inadequate consideration also within its meaning. The word "gift" is defined in section 2 (xii) of that Act which has to be read with section 4 of that Act. The definition and relevant part of section 4(1) of the Gift-tax Act reads as follows:

In this Act, unless the context otherwise requires, -

****

(xii) ''gift'' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money''s worth, and (includes the transfer of conversion of any property referred to in section 4, deemed to be a gift under that section;

****

4.(1) 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.

If this definition is invoked to understand the meaning of the word "gift" used in section 47(iii), section 45 and consequently all other provisions pertaining to capital gains incorporated in the income tax Act including section 52 would not all be applicable to cases of transfer of capital assets for inadequate consideration. The objection of the learned counsel for the revenue, however, was that the word "gift" has been defined in the Gift-tax Act only for purposes of that Act and the said definition cannot be invoked for understanding the said word used in the income tax Act. We are unable to agree with this submission for two reasons:

It is a well recognised rule of construction that it is permissible to give meaning to a word used in a later enactment the same meaning given to it in an earlier enactment if both the Acts are in pari materia.

If the word "gift" u/s 47(iii) is not given the meaning as used in the Gift-tax Act, the use of that word in section 47(iii) by the Legislature would be rendered meaning less and otiose. This is not a permissible rule of construction. An effort should always be made so as to give meaning to all parts of the provisions and to make the whole of it effective and operative - Sirajul Haq Khan and Others Vs. The Sunni Central Board of Waqf, U.P. and Others,

As regards the rule of construction regarding words used in a later enactment by resorting to the provisions in an earlier enactment, Craies on Statute Law (7th Edition) at pages 134 and 141 states:

"Statutes in pari materia. - Where Acts of Parliament are in pari materia, that is to say, are so far related as to form a system or code of legislation the rule as laid down by the twelve judges in Palmer''s case [1785] 1 Leach C.C. 4th Ed. 355, is that such Acts ''are to be taken together as forming one system, and as interpreting and enforcing each other''.

In the American case of United Society v. Eagle Bank [1829] 7 Conn. 457, 470, Honore, J. said:

''Statutes are in pari materia which relate to the same person or thing, or to the same class of persons or things. The word ''par'' must not be confounded with the word ''similies''. It is used in opposition to it, as in the expression magis pares sunt quam similes, intimating not likeliness merely, but identity. It is a phrase applicable to the public statutes or general laws made at different times and in reference to the same subject.''

As Knight Bruce, LJ. said, in Ex. P. Copeland [1852] 22 L.J., Bank 17, 21, upon the question of construction arising ''upon a subsequent statute on the same branch of the law, it is perfectly legitimate to use the former Act, though repealed''. ''For this'', continued he, ''I have the authority of Lord Mansfield, who in R. v. Loxdale [1758] 1 Burr. 445, 447, thus lays down the rule, ''Where there are different statutes in pari materia though made at different times, or even expired and not referring to each other, they shall be taken and construed together as one system and as explanatory of each other."

****

Presumption from use of same language in later act. - It has been held that, where the Legislature has given to words a statutory definition in one statute, and has used the same words in a similar connection in a later statute dealing with the same subject-matter, it may be presumed, in the absence of any context indicating a contrary intention, that the same meaning attaches to the words in the later as is given to them in the earlier statute."

[Emphasis supplied by us.]

Principles on the same lines are also set out in Maxwell on Interpretation of Statutes (12th Edition) at pages 66 and 68-69:

Light may be thrown on the meaning of a phrase in a statute by reference to a specific phrase in an earlier statute dealing with the same subject-matter.

****

The same words or phrases, when used in Acts dealing with the same subject-matter, often bear the same meaning. So Lord Parker, CJ has said that it is a ''fair inference'' that ''agricultural land'' means the same thing in the Agricultural Act, 1947, the Agricultural Holdings Act, 1948, and even the Vehicles (Excise) Act, 1949; Cross, J. has said that it would be ''very astonishing'' if ''premises'' meant different things in the Landlord and Tenant Acts of 1927 and 1954; and Lord Dilhorne L.C. found it ''inconceivable that Parliament intended that a different interpretation should be given to the words ''obtained credit'' in the Bankruptcy Act, 1914 from that given to the same words in the Debtors Act, 1869''.

****

In Fendoch Investment Trust Co. v. IRC [1945] 2 All. ER 140 (HL), Lord Simonds (at p. 144) sounded a note of warning (more recently echoed by Harman, LJ.) in connection with the use of statutes in pari materia when construing a tax statute. ''I do not doubt that in construing the latest of a series of Acts dealing with a specific subject-matter, particularly where all such Acts are to be read as one, great weight should attached to any scheme which can be seen in clear outline and amendments in later Acts should if possible be construed consistently with that scheme. But this is a principle which can easily be pressed too far in the consideration of a body of legislation... in which, if any prevailing motive can be found, it is in the attempt, as each loophole for escape from taxation is discovered, to close it as firmly as possible.

The Supreme Court has also observed in the case of Muslim Wakf Board (supra) that interpretation of the provisions of an enactment with reference to the provisions of another enactment is permissible when the two Acts are in part materia. This principle was applied by this Court in relying on the definition of "industry" defined in the Industrial Disputes Act to interpret the said word in the Trade Union Act as it was not defined in the latter - Central Machine Tool Institute v. Asstt. Labour Commissioner ILR [1979] 1 Ker. 484. From the principles set out above, it is clear that where two legislations are in pari materia in that they deal with the same subject matter and are meant to enforce each other, it is permissible to assign the meaning given to a word in an earlier enactment to the same word used in a later enactment. Bearing in mind the above principle as also the word of caution given by Lord Simonds regarding the application of the principle to taxing statutes, we consider its applicability to this case. The Gift-tax Act was enacted in the year 1958 and the income tax Act was enacted in the year 1961 by the Parliament. Both the enactments impose direct taxes and are administered by the same administrative agency, i.e., the income tax Department or the CBDT. In particular, the provisions of the income tax Act insofar as it relates to capital gains and the provisions of the Gift-tax Act, are enacted to impose taxes in the context of transfer of property from one to another by sale or gift, respectively. In the case of transfer by sale, the provisions are intended to tax the gains calculated on the basis of the sale value minus the actual cost, cost of improvement and expenses incurred in connection with the sale transaction, whereas in the case of transfer by way of gift the gift-tax is levied on the value of the property as on the date of gift, irrespective of the lesser value for which it was acquired. The Legislature gave an enlarged definition for the word "gift" in the Gift-tax Act so as to include every sale for inadequate consideration so as to prevent evasion of gift-tax by clothing gift in the form of sale for a notional consideration. It is for this reason that every sale for inadequate consideration had been defined as a gift and the provisions of the Gift-tax Act were made applicable, the Legislature deliberately excepted the gifts out of the provisions of section 45, by section 47(iii). If the contention suggested for the revenue that every sale of capital asset for inadequate consideration also falls within the purview of section 52(2), if the fair market value as on the date of sale exceeds 15 percent of the consideration actually received, is accepted, section 47(iii) would be rendered meaningless, which is not a permissible rule of interpretation. On the other hand, by giving the word "gift" used in section 47(iii) the same meaning as given in the Gift-tax Act, there would be complete harmony between section 47 and section 52. Every sale for inadequate consideration falls within the meaning of the word "gift" and consequently it would attract the levy of gift-tax and outside the purview of capital gains tax and every sale in which there is understatement of the value falls within the mischief of section 52 and attracts capital gains tax and not the provisions of the Gift-tax Act. The provisions would be complimentary to, and enforcing, each other. Hence, we hold that the word "gift" used in section 47(iii) should be given the same meaning as given to it in the earlier Gift-tax Act, and consequently neither section 45 nor section 52 are attracted to a case of transfer of capital asset for inadequate consideration.

It is also pertinent to point out that the acceptance of the literal construction suggested for the revenue would lead to incongruous and absurd results as demonstrated by the following illustrations:

If the cost of acquisition of a capital asset is Rs. 50,000 and the vendor and the vendee are strangers and the fair market value of the property as on the date of the sale as deter mined by the ITO is Rs. 1,00,000.

If it is found to have been sold for a fancy price of Rs. 1,20,000 which was paid by the purchaser owing to its special use for him and which price no other party would have paid and the evidence is also available to that effect but the consideration shown in the sale deed was Rs. 70,000, then, applying section 52(2), the sale consideration has to be taken only at Rs. 1,00,000, i.e., less than the actual consideration received for computation of capital gains.

If it is sold only for Rs. 90,000 and it is also proved, but the sale consideration shown in the sale deed is Rs. 70,000, then for purposes of computing capital gains, the sale value has to be taken at Rs. 1,00,000 only, i.e., Rs. 10,000 more than the actual amount received.

If there is an agreement to sell the property shortly after the property is acquired for a sum of Rs. 60,000 and for one reason or the other, the vendor failed to execute the sale deed and consequently the purchaser filed a suit for specific performance and secured a decree for specific performance of the agreement, and consequently the sale deed is executed after a period of five years on which date the fair market value of the property is Rs. 1,00,000 even though the sale deed is executed for a sum of Rs. 60,000 pursuant to the decree of the civil court and only a sum of Rs. 60,000 was received by the seller he will have to pay capital gains tax on a sum of Rs. 40,000 not gained or received by him.

Learned counsel for revenue was not in a position to dispute that the consequence of acceptance of his construction of section 52(2) would have the effect as indicated in the above illustrations. Therefore, in our opinion, sub-section (2), like sub-section (1), of section 52 is inapplicable to sales for inadequate consideration.

Before concluding we consider it necessary to observe that section 52 is not happily worded. Both sub-sections say that under the conditions stated therein, the fair market value as on the date of transfer of capital asset shall be taken to be the full value of consideration. It stops there without indicating as to what purposes. It nowhere states that such a value should be deemed to be the consideration received for purposes of computation of capital gains u/s 48 and for levy of capital gains tax u/s 45. The wording is not clear. Further, appropriately such a provision should have figured as a proviso to section 48. In view of the interpretation placed by us on section 52(2), it appears to us that the difference of 15 percent between the fair market value of the property and the sale consideration declared in the sale deed mentioned in sub-section (2) of section 52 as a ground for invoking the said provisions only means that existence of such a circumstance would furnish the clue and constitute the basis for the ITO to initiate proceedings for levy of capital gains tax on that basis and to make an investigation and enquiry and if on such investigation and enquiry there is evidence of the vendor having received any amounts more than the amount mentioned in the sale deed, to levy capital gains tax on such amount. In our opinion, ultimately the capital gains liability has to be fixed only if the value declared in the sale deed is proved to be lower than the undeclared value received or agreed to be received and to the extent of the value so received or agreed to be received. To put it differently, a case which falls under subsection (2) of section 52 is one in which there has been concealment of income, which would also attract the penal provisions contained in section 271(1) of the Act and not the one in which transfer of capital asset was for inadequate consideration, which obviously means that there was no concealment of any income, and, therefore, to which section 271(1) is not attracted.

In the result, we reiterate the view taken by this Court in Ranga Pai''s case (supra) and hold that sub-section (2) of section 52 applies to cases of understatement of valuation made in the sale deed, to wit, where there is in truth a capital gain, but it is concealed by declaring a lower price in the deed of transfer, with an intention to make unaccounted gains and avoidance or reduction of capital gains tax and not to cases of transfer for inadequate consideration, whatever be the reason, resulting in the avoidance of the receipt of capital gains itself. For the aforesaid reasons, we answer the first question in the negative, i.e., against the revenue and in favour of the assessee. In view of our answer to the first question. We consider it unnecessary to answer the second question.