Prem Narain and Co. vs Commissioner of Income Tax (C) , Ludhiana

Following question has been referred for opinion of this Court by the income tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated 26-9-1980 in ITA No. 278 of 1979, in respect of assessment year 1975-76 :--

"Whether in the absence of any evidence on record to prove that the consideration of the impugned plot had been understated by the assessee with the object of avoidable or reduction of his tax liability, the Tribunal erred in law in holding that the provisions of section 52(2) were applicable to the case of the assessee ?

Facts noticed by the Tribunal in the statement of case are :--

The assessee-firm had purchased a plot No. 71-D, Sarabha Nagar, Ludhiana, admeasuring 1239 sq. yards on 8-10-1969 for Rs. 44,337. This plot was sold on 10-6-1974 to one Shri Devinder Singh s/o Shri Sadhu Singh for Rs. 55,755. Thus, a profit of Rs. 11,418 was shown on this transaction. The average sale price as per sq. yard came to Rs. 45. The income tax Officer made certain enquiries and found that the fair market value of the assets transferred by the assessee as on the date of transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer of such capital assets. He referred the matter to the Inspecting Assistant Commissioner, Central, Ludhiana, and sought his permission for action u/s 52(2) for enhancing the capital gains and tax thereon by taking the rate of Rs. 55 per sq. yard as against Rs. 45 per sq. yard shown by the assessee. After taking the approval of the Inspecting Assistant Commissioner, the income tax Officer computed the capital gains by adopting the sale consideration at Rs. 55 per yard. While determining the sale consideration being the fair market value at Rs. 55 per sq. yard, the income tax Officer relied on the following sale transactions :--

Sr. No.

Plot No.

Area of Plot (sq. yd.)

Sale Rate per sq. yd.

Registry No.

Date

(i)

11-D

980

Rs. 67

592

April, 1974

(ii)

10-D

980

Rs. 62

591

-do-

(iii)

47-C

649.5

Rs. 64

-do-

(iv)

31-G

714

Rs. 63

-do-

(v)

140-H

793 33

Rs. 60

-do-

From the above transaction, the income tax Officer noticed that the rate of sale in April 1974 by the other sellers ranged between Rs. 62 and Rs. 67 per sq. yard against which he had adopted the sale rate of Rs. 55 per sq. yard. According to the Commissioner of income tax (Appeals) , the lower rate adopted by the income tax Officer took care of the assessees contention of odd dimensions and also bigger area of the plot. He, therefore, confirmed the order of the income tax Officer. The assessee preferred appeal before the Tribunal. The Tribunal for the reasons recorded in paras 9 and 10 of its order dismissed the appeal by the assessee. It has observed that the income tax Officer had quoted the instance of sale of plots near about the time when the plot of the assessee was sold and on that basis adopted the rate of Rs. 55 per sq. yard for sale of plot. When worked on this basis, the sale consideration which had to be considered to be the fair market value in the context of the facts stated above, gave a difference of Rs. 12,390 between the sale consideration and the fair market value as worked out by the Commissioner of income tax (Appeals) in para 5 of this order. The provisions of section 52(2) were, therefore, held to be attracted.

We have heard learned counsel for the parties and perused the record.

Section 52(2) of the income tax Act, 1961 (for short, ''the Act'') , relevant for the assessment year in question, is reproduced below :--

52(2) Without prejudice to the provisions of sub-section (1) , if in the opinion of the income tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspection Assistant Commissioner, be taken to be its fair market value on the date of its transfer;

Learned counsel for the assessee challenged the view taken by the authority and submitted that there was no basis for opinion that market value of the plot exceeded the value of consideration declared by the assessee by not less than 15 per cent. Reliance has been placed on judgment of the Hon''ble Supreme Court in K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, in support of the submission that it was not enough for the revenue to show that the fair market value of the property exceeded the consideration declared by the assessee by not less than 15 per cent but the revenue had further to show that there was understatement of consideration by the assessee.

In K. P. Varghese''s case (supra) , it was observed :--

"We must, therefore, hold that sub-section (2) of section 52 can be invoked only where the consideration for the transfer has been under-stated by the assessee or, in other words, the consideration actually received by the assessee in more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is an understatement or concealment of the consideration in respect of the transfer. Sub-section (2) has no application in the case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration....." (p. 618)

The same view was followed in Commissioner of Income Tax, Bombay Vs. Godavari Corpn. Ltd., , Commissioner of Income Tax Vs. Dr. Karni Singh, , Commissioner of Income Tax Vs. Mahajan International, , India Leather Corporation (P.) Ltd. (No. 2) Vs. Commissioner of Income Tax, , Commissioner of Income Tax Vs. Sushila Mittal and Others, and Commissioner of Income Tax Vs. Mrs. Indira K.P. Singh, and recently by this Court in ITR No. 37 of 1990, dated on 19-4-2006], Prem Narain v. CIT.

In the present case, no such finding has been recorded. Fair market value of the plot was estimated on the basis of some sale transactions at nearby places. It has not been held that there was any understatement of consideration. It is not the case of the revenue that the assessee had not correctly declared or disclosed the consideration or that there was any concealment or suppression. In view of the above, the question referred is answered in favour of the assessee and against the revenue.