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Issues: (i) Whether section 52 of the Income-tax Act, 1961 applied to compute capital gains on the basis of fair market value where a capital asset was transferred for consideration less than market value; (ii) whether the writ petition was maintainable under article 226 of the Constitution of India despite the statutory appellate remedy.
Issue (i): Whether section 52 of the Income-tax Act, 1961 applied to compute capital gains on the basis of fair market value where a capital asset was transferred for consideration less than market value.
Analysis: Capital gains under section 45 are chargeable on profits or gains arising from the transfer of a capital asset, and section 48 computes such gains with reference to the full value of the consideration received or accruing. Section 52 was construed as a provision aimed at cases of understatement of consideration, particularly where the transfer was effected to avoid or reduce tax liability. The Court held that the provision did not authorise taxation on a notional gain merely because the fair market value exceeded the stated consideration. It also relied on the statutory setting, the exclusion of gifts from section 45 by section 47, the departmental circular, and the practical inconsistency that would arise if bona fide transfers for inadequate consideration were treated as yielding fictional gains.
Conclusion: Section 52 had no application, and capital gains had to be computed on the basis of the actual consideration received; the assessment on the difference between the market value and the sale price was not sustainable.
Issue (ii): Whether the writ petition was maintainable under article 226 of the Constitution of India despite the statutory appellate remedy.
Analysis: Although the existence of an alternative remedy is ordinarily a material factor against exercise of writ jurisdiction, the Court held that this limitation is one of discretion and policy, not an absolute bar. Where the assessing authority assumes jurisdiction on an erroneous view that brings within tax something which is not income under the Act, the resulting order is a jurisdictional error amenable to certiorari. On the admitted facts, the impugned assessment rested on a misconception of the charging provisions and therefore involved absence of lawful authority.
Conclusion: The writ petition was maintainable, and the Court could interfere under article 226.
Final Conclusion: The impugned reassessment was quashed because the transfer could not be taxed on a notional market-value basis under section 52, and the High Court was entitled to grant relief in writ jurisdiction.
Ratio Decidendi: Capital gains can be assessed only on actual profits or gains arising from the transfer of a capital asset, and a provision aimed at understatement of consideration cannot be used to create a fictional gain absent statutory language clearly authorising such taxation.
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