1977 (8) TMI 25 - HC - Income Tax

Court rules in favor of assessee, directs revenue to pay costs including advocate's fee.

The court held that neither Section 52(1) nor Section 52(2) of the Income-tax Act were applicable in the case. The correct amount of capital gain to be ... Capital Gains Tax, Income Tax Act, Market Value Issues Involved:1. Applicability of Section 52(1) of the Income-tax Act.2. Applicability of Section 52(2) of the Income-tax Act.3. Determination of the correct amount of capital gain to be assessed.Detailed Analysis:Issue 1: Applicability of Section 52(1) of the Income-tax ActThe primary question was whether the transfer of equity shares by the assessee to his brother was effected with the object of avoiding tax liability or reducing it. Section 52(1) requires two main conditions: the transferee should be directly or indirectly connected with the assessee, and the Income-tax Officer should have reason to believe that the transfer was made to avoid or reduce tax liability under Section 45. The Tribunal found that the transfer was not made with the object of reducing tax liability. This finding of fact, being final unless shown to be erroneous in law or unsupported by evidence, led the court to conclude that Section 52(1) was not applicable.Issue 2: Applicability of Section 52(2) of the Income-tax ActSection 52(2) operates independently of Section 52(1) and applies when the fair market value of a capital asset transferred by an assessee exceeds the full value of the consideration declared by not less than 15%. The court examined whether the 'controlling interest' expected to accrue to the assessee could be considered part of the fair market value. It concluded that the controlling interest could not be construed as income chargeable under the head 'Capital gains.' The court also noted that the full value of the consideration means the actual amount received by the transferor, and in this case, it was not alleged that the assessee received more than what was declared. Thus, Section 52(2) was also deemed inapplicable.Issue 3: Determination of the Correct Amount of Capital Gain to be AssessedThe Income-tax Officer had initially determined the capital gains at Rs. 1,75,043, based on the fair market value of the shares. However, the Tribunal held that neither Section 52(1) nor Section 52(2) was applicable and that the correct amount of capital gain to be assessed was Rs. 15,756 as declared by the assessee. The court supported this view, emphasizing that the provisions of Section 52 are attracted only where the transfer is effected with the object of avoiding or reducing tax liability and not where the full value of the consideration received is declared.Conclusion:The court concluded that the Tribunal was correct in holding that neither the provisions of Section 52(1) nor Section 52(2) were applicable. The correct amount of capital gain to be assessed was Rs. 15,756 as declared by the assessee. The revenue was directed to pay costs to the assessee, with an advocate's fee of Rs. 250.