Tax avoidance proviso under capital gains law requires an existing liability and proof of avoidance intent at transfer.

The proviso to section 12B(2) applies only where a transfer is made with the object of avoiding or reducing an existing liability under section 12B. If the capital gains charging provision was not operative on the date of transfer, that requisite object cannot be attributed to the transferor in relation to a liability not then in existence. Absent material showing actual avoidance, the proviso cannot be invoked against the assessee-firm on a transfer of shares to its partners.

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Issues: Whether the transfer of shares by the assessee-firm to its partners was made with the object of avoidance or reduction of liability under section 12B of the Income-tax Act, 1922.

Analysis: The applicability of the proviso to section 12B(2) depended on proof that the transfer was effected with the object of avoiding or reducing liability under section 12B. The provision imposing capital gains tax was not operative on the date of the transfer, and the requisite object or intention could not be attributed to the assessee in relation to a liability that was not then in existence. There was also no material showing any actual avoidance by the assessee-firm to support invocation of the proviso.

Conclusion: The transfer was not made with the object of avoidance or reduction of liability under section 12B, and the answer was in the negative.

Ratio Decidendi: The proviso to section 12B(2) applies only when, at the time of transfer, the assessee acted with the object of avoiding or reducing an existing liability under section 12B; such object cannot be inferred where the charging provision was not operative on the date of transfer.

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