Section 52(2) understatement test: Revenue must prove concealed consideration before the deeming provision can apply.

Section 52(2) of the Income-tax Act applies only when the Revenue proves that consideration for transfer of a capital asset was understated or concealed to avoid or reduce tax liability. The burden of establishing such understatement lies on the Revenue, and the statutory fiction cannot be invoked where the transaction is honest, bona fide, and the actual consideration received has been correctly disclosed. On the stated facts, there was no material to show understatement, so section 52(2) could not be applied against the assessee.

---

---

Issues: Whether section 52(2) of the Income-tax Act, 1961 could be invoked in the absence of proof that the assessee had understated consideration or intended to avoid or reduce tax liability.

Analysis: The reference was governed by the principle that section 52(2) applies only where the Revenue proves that the consideration for transfer of a capital asset has been understated or concealed. The provision has no application to an honest and bona fide transaction in which the consideration actually received has been correctly disclosed. The burden of establishing understatement lies on the Revenue, and in the absence of such material the statutory fiction cannot be applied.

Conclusion: Section 52(2) could not be invoked. The issue was decided against the Revenue and in favour of the assessee.

---