Understated consideration rule: section 52(2) applies only when actual transfer price concealment is proved, not mere market-value disparity.

Section 52(2) of the Income-tax Act, 1961 applies only where understatement of the real transfer consideration is proved, not merely because the fair market value of a capital asset exceeds the declared sale price by 15% or more. Reading the provision with sections 45, 48 and related transfer provisions, the Karnataka HC held that the statutory language targets actual concealment of consideration shown in the deed, and cannot be invoked on market-value disparity alone. The court therefore rejected the Revenue's contention that a numerical difference by itself is enough and confined the provision to cases where higher consideration was actually received but not disclosed.

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Issues: Whether section 52(2) of the Income-tax Act, 1961 applies merely because the fair market value of a capital asset on the date of transfer exceeds the declared sale consideration by 15% or more, even where there is no evidence that any amount over and above the sale deed consideration was actually received.

Analysis: The provision was construed in the context of the scheme of capital gains taxation under sections 45 and 48 and the companion provisions relating to transfers not chargeable as capital gains. The Court held that the words used in section 52(2), especially the expressions referring to the consideration "declared" by the assessee, indicate a case of actual understatement of consideration, not a mere disparity between market value and sale price. Reliance was placed on the statutory context, the marginal note, the need to keep section 47(iii) and section 52 in harmony, and the rule that provisions in pari materia may be read together. The Court rejected the revenue's contention that a 15% difference by itself conclusively attracts tax, and held that the provision is aimed at cases where a higher amount was actually received but a lower amount was shown in the deed to suppress income.

Conclusion: Section 52(2) does not apply to a bona fide transfer for inadequate consideration where no concealed consideration is shown to have been received; it applies only where understatement of the real consideration is proved. The answer to the first referred question is in the negative, against the revenue and in favour of the assessee.

Ratio Decidendi: Section 52(2) of the Income-tax Act, 1961 is attracted only when the declared consideration in a transfer deed is shown to be lower than the actual consideration received or agreed to be received, and not where the sale price is merely below fair market value without proof of understatement.

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