Capital gains cannot be computed on notional value absent proof of understatement and tax avoidance.

Capital gains under section 12B of the Indian Income-tax Act, 1922 were taxable only on the actual consideration received for the transfer. Where the assessee disclosed a sale price for buses and route permits, the revenue could not substitute a notional or estimated market value unless it proved understatement of consideration and an element of tax avoidance. On the facts noted, no material showed that any amount over and above the disclosed consideration had been received or that the transaction was designed to reduce capital gains tax. The disclosed consideration was therefore accepted and notional capital gains could not be assessed.

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Issues: Whether capital gains could be brought to tax by substituting a notional or fair market value for the disclosed sale consideration in the absence of proof of understatement or tax-avoidance.

Analysis: The reference concerned transfer of buses and route permits for a disclosed consideration of Rs. 2,60,000. The revenue sought to ignore that figure and to compute capital gains on a higher estimated value. The Tribunal had found that there was no material to show that the assessee had received any amount higher than the disclosed consideration or that the transaction was structured to avoid or reduce capital gains tax. In applying section 12B, the controlling principle is that only actual capital gain can be taxed. Unless the revenue establishes understatement of consideration and the requisite tax-avoidance element, the disclosed consideration cannot be displaced by a fictional or notional figure.

Conclusion: The disclosed consideration had to be accepted, no understatement was proved, and section 12B could not be invoked to assess notional capital gains. The questions were answered in the affirmative and against the revenue.

Ratio Decidendi: Under section 12B of the Indian Income-tax Act, 1922, capital gains can be taxed only on the actual consideration received, and the disclosed price cannot be replaced by an value unless understatement of consideration and tax-avoidance are proved by the revenue.

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