Section 52(1) cannot apply without proof of understated consideration or tax-avoidance motive in the transfer.

Section 52(1) applies only where the transferee is connected with the assessee and there is material to show understatement of consideration with a view to avoiding or reducing capital gains liability. A mere difference between market value and declared value, even if separately assessed to gift tax, is not enough to substitute fair market value as the full value of consideration. In the absence of a clear finding that more than the stated consideration was actually received or that the transfer was structured to avoid capital gains tax, invocation of section 52(1) is unjustified. The capital gains addition was therefore deleted in favour of the assessee.

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Issues: Whether the Revenue was justified in invoking section 52(1) to substitute the fair market value of the capital asset as the full value of consideration and levy capital gains tax.

Analysis: Section 52(1) applies only where the transferee is connected with the assessee and there is reason to believe that the transfer was effected to avoid or reduce liability under section 45. That provision operates on an understatement of consideration, and the Revenue must show not merely a lower stated value but material indicating that more than what was declared was actually received. The mere fact that the difference between market value and declared value was assessed to gift-tax did not by itself attract capital gains under section 52(1). On the facts, the assessment order contained no clear finding that the assessee received more than the stated consideration or that the transaction was effected to avoid capital gains tax.

Conclusion: The invocation of section 52(1) was not justified and the deletion of the capital gains addition was / correct in law; the issue is decided in favour of the assessee.

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