1977 (6) TMI 24 - HC - Income Tax

High Court clarifies application of Income-tax Act, 1961 | Genuine transactions not subject to Section 52(2)

The High Court held that Section 52(2) of the Income-tax Act, 1961 was not properly applied as there was no understatement of consideration in the ... - Issues Involved:1. Construction and applicability of Section 52(2) of the Income-tax Act, 1961.2. Determination of the full value of consideration received by the assessee for computation of capital gains under Section 52(2).Detailed Analysis:Issue 1: Construction and Applicability of Section 52(2) of the Income-tax Act, 1961The Tribunal held that the necessary ingredient for invoking Section 52(2) had not been established. The Tribunal observed that the Income-tax Officer must investigate and find out the full consideration received by the assessee for the transfer of the capital asset. If the consideration declared by the appellant was the full value of the consideration for the transfer of such capital assets and if there was no understatement of consideration received with a view to dishonestly evade tax liability, Section 52(2) cannot be invoked. The Tribunal set aside the assessment, noting that the correct computation of the capital gains had not been made by the Income-tax Officer.The High Court reviewed the Tribunal's decision and concluded that there was no suggestion in the assessment order or in the order on appeal by the Appellate Assistant Commissioner that the consideration shown by the assessee was incorrect or that the assessee received any additional amount not declared in the return. The Court emphasized that Section 52(2) is not applicable if there is no understatement of consideration. The Court referred to earlier cases under the 1922 Act, which established that the provision was intended to apply only to cases of understatement of consideration and not to cases where a higher gain is estimated to arise.The Court also noted that Section 52(1) and Section 52(2) were designed to stop the avoidance of capital gains tax. Both provisions use identical language, and therefore, the same interpretation should govern both. The Court concluded that Section 52(2) would not apply to honest and genuine transactions where there is no understatement of consideration.Issue 2: Determination of the Full Value of Consideration Received by the AssesseeThe Tribunal directed the Income-tax Officer to determine the full value of consideration received by the assessee for the computation of capital gains under Section 52(2) by setting aside the assessment. The High Court found that the Tribunal's direction for a de novo enquiry was not proper as there was no suggestion that any extra amount had been received by the assessee. The Court held that the de novo enquiry would be an exercise in futility and thus, the Tribunal did not act properly in setting aside the assessment.The High Court reframed the first question to clearly bring out the dispute between the parties: 'Whether, on the facts and in the circumstances of the case, Section 52(2) of the Income-tax Act, 1961, was properly appliedRs.' The Court answered this question in the negative, ruling against the revenue.Conclusion:The High Court concluded that Section 52(2) of the Income-tax Act, 1961, was not properly applied in the cases under consideration. The Court emphasized that the provision applies only to cases of understatement of consideration and not to genuine transactions where the declared consideration is the actual consideration received. The assessment orders were not set aside for de novo consideration as it would be an exercise in futility. The respondents were entitled to their costs, with counsel's fee set at Rs. 250 each in T. N Nos. 278 and 282 of 1972.