Commissioner of Income Tax vs Tibruz Mustafa Bilgen

Ramanujam, J.—At the instance of the Revenue, the following two questions have been referred to this court for its opinion by the Income

Tax Appellate Tribunal :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income Tax Officer was not

justified in invoking the provisions of section 52(2) of the Income Tax Act, 1961, to arrive at the capital gains of Rs. 1,89,014 and assess it u/s 45

of the Income Tax Act ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 1,89,014 is not

taxable to capital gains in view of section 47(iii) of the Income Tax Act, 1961, as gift-tax has been levied on the assessee u/s 4(a) of the Gift-tax

Act, 1958, on the very same transfer ?

The assessee in this case is an individual and she was a co-owner of a property in Mount Road, Madras, with 38/72 shares. The said property

is said to have been sold for a sum of Rs. 5,00,000 in the previous year ended on March 31, 1970, corresponding to the assessment year 1970-

The assessee elected to adopt the market value as on January 1, 1954, for the purpose of capital gains and the market value was put at Rs.

4,00,000. The Income Tax Officer found that the assessee inherited the property from her father, late Shri Mustafa, and in the estate duty

assessment relating to the said Shri Mustafa, the value of the property has been finally fixed at Rs. 8,39,000. The Income Tax Officer, therefore,

invoked the provisions of section 52(2) of the Income Tax Act, adopted the fair market value as Rs. 8,39,000 and worked out the capital gains

accordingly and the assessee''s share was determined at Rs. 1,89,014. Deducting the basic exemption of Rs. 5,000, the chargeable capital gains

were worked out at Rs. 1,84,014.

The Income Tax Officer acting as the Gift-tax Officer also initiated proceedings and brought to tax the difference between the consideration

shown in the document at Rs. 5,00,000 and the market value of Rs. 8,39,000 as a gift within the meaning of section 4(a) of the Gift-tax Act. The

assessee''s share of gift was determined at Rs. 1,45,958.

The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner in relation to the Income Tax appeal

accepted the plea of the assessee and held that the Income Tax Officer was not justified in invoking the provisions of section 52(2) as there was no

proof of undervaluation and the Revenue has not established that the sale price stated in the document of sale was different from the actual sale

consideration that passed between the parties. In the gift-tax appeal, the Appellate Assistant Commissioner held that the case fell squarely u/s 4(a)

of that Act and the assessee was not, therefore, entitled to any relief.

The assessee as well as the Revenue appealed to the Tribunal, the assessee against the order of the Appellate Assistant Commissioner

upholding the gift-tax assessment and the Revenue against the order of the Appellate Assistant Commissioner holding that section 52(2) of the

Income Tax Act cannot be invoked on the facts and circumstances of the case.

The Tribunal sustained the gift-tax assessment. It, however, in relation to the Income Tax assessment, found that as no understatement of the

consideration has been established, section 52(2) cannot be invoked in this case. In support of the said view, the Tribunal has referred to the

decision of this court in Sundaram Industries Private Ltd. Vs. Commissioner of Income Tax, . The Tribunal also held that in view of the gift-tax

assessment on the difference between the fair market value of the property and the declared value treating it as a gift, section 47(iii) of the Income

Tax Act stood attracted and, therefore, sections 45 and 52 cannot be invoked in this case.

The question is whether the decision of the Tribunal in respect of the Income Tax assessment could legally be sustained. According to the

Tribunal, section 52 could be invoked by the Income Tax Officer for the purpose of assessing the capital gains only if the stated consideration is

less than the actual consideration that passed between the parties in respect of the transaction and if the stated consideration had not been shown

to be different from the actual consideration that passed between the parties, then there is no room for invoking section 52. The Tribunal sought

support for the said view from a decision of this court in Sundaram Industries Private Ltd. Vs. Commissioner of Income Tax, . The view taken by

this court in Sundaram Industries Private Ltd. Vs. Commissioner of Income Tax, has been followed in the subsequent decisions of this court in

Commissioner of Income Tax Vs. Rikadas Dhuraji and Another, and ADDITIONAL COMMISSIONER OF Income Tax, MADRAS Vs. P. S.

KUPPUSWAMY AND OTHERS., . The Supreme Court in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, has also accepted

that view as correct. In view of the said uniform view taken by the courts with reference to the interpretation of section 52 of the Income Tax Act,

the view taken by the Tribunal should be taken to be quite in accordance with the true legal position.

As a matter of fact, even apart from what has been stated above, in respect of two of the other co-owners of the same property, identical

questions arose in T.C. No. 122 of 1976 Commissioner of Income Tax Vs. Jankut Mustafa Bilgen, , and T.C. No. 668 of 1976 (CIT v. Durney

Mustafa Bilgen) and this court by its judgment dated October 10, 1979, has held that the facts and circumstances of the case do not call for the

application of section 52 of the Income Tax Act as understatement of the consideration has not been established in that case.

Regarding the applicability of section 47(iii) of the Income Tax Act, 1961, the view taken by the Tribunal cannot be sustained as that section

deals only with actual gifts and not deemed gifts as has been held in Commissioner of Income Tax Vs. Bharani Pictures, . In T.C. Nos. 122 and

668 of 1976 referred to above, this court answered the first question in those cases, which was the same as the first question in this case in the

affirmative and against the Revenue, but answered question No. 2, which was also the same as in this case, in the negative and in favour of the

Revenue. On the question of applicability of section 47(iii), we are inclined to agree with the view taken in those cases having regard to the fact that

the language employed therein will apply only to actual transfers and not to deemed transfers. If section 47(iii) was intended to apply to deemed

transfers as well, the Legislature would have made the position clear by specifically including deemed transfers within its scope. Therefore,

following the said decisions of this court rendered on October 10, 1979, in T.C. Nos. 122 and 668 of 1976, and in Commissioner of Income Tax

Vs. Bharani Pictures, , we have to answer question No. 1 in the affirmative and against the Revenue and question No. 2 in the negative and in

favour of the Revenue. There will be no order as to costs.