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Issues: (i) whether section 52(2) of the Income-tax Act, 1961 could be invoked to compute capital gains in the absence of proof that the declared sale consideration was understated; (ii) whether section 47(iii) of the Income-tax Act, 1961 exempted the transfer from capital gains tax because gift-tax had been levied on the same transfer under the Gift-tax Act, 1958.
Issue (i): Whether section 52(2) of the Income-tax Act, 1961 could be invoked to compute capital gains in the absence of proof that the declared sale consideration was understated.
Analysis: The provision was construed in the light of the settled interpretation that it applies only where the Revenue establishes that the stated consideration is not the real consideration passing between the parties. On the facts, no understatement of consideration was proved. The decision was consistent with the earlier view that section 52 cannot be applied merely because the declared value differs from market value.
Conclusion: Section 52(2) could not be invoked. This issue was answered in favour of the assessee and against the Revenue.
Issue (ii): Whether section 47(iii) of the Income-tax Act, 1961 exempted the transfer from capital gains tax because gift-tax had been levied on the same transfer under the Gift-tax Act, 1958.
Analysis: Section 47(iii) was held to govern actual gifts, not deemed gifts arising from a transfer treated as a gift for gift-tax purposes. The levy under the Gift-tax Act on the difference between declared and market value did not convert the transaction into a gift within the scope of section 47(iii).
Conclusion: Section 47(iii) did not apply. This issue was answered in favour of the Revenue and against the assessee.
Final Conclusion: The reference was disposed of by holding that capital gains could not be computed by invoking section 52(2) on these facts, but exemption under section 47(iii) was unavailable where the transfer was only a deemed gift.
Ratio Decidendi: Section 52(2) applies only when understatement of actual consideration is proved, and section 47(iii) applies only to actual gifts, not deemed gifts.
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