1993 (3) TMI 8 - HC - Income Tax

Summary

Issues Involved:
The judgment deals with the interpretation and application of section 52(2) of the Income-tax Act, 1961 in relation to the capital gains arising from the sale of parts of the property known as Binai House, Ajmer, for the assessment years 1974-75 and 1975-76.

Assessment Year 1974-75:
The property known as Binai House was sold and repurchased by the assessee, who then sold parts of it to different persons. The Income-tax Officer determined higher fair market values for some portions based on valuation officer's assessment. The capital gains were computed accordingly. Appeals were made against these assessment orders, arguing against the understatement of consideration. The Income-tax Appellate Tribunal concluded that section 52(2) could not be applied without proving mala fide intent or understatement of consideration as per the conditions laid down by the Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597. The Tribunal found no evidence of understatement, leading to the decision in favor of the assessee.

Assessment Year 1975-76:
Similar to the previous year, the Income-tax Officer observed subsequent sales of the property at higher values but failed to establish understatement of consideration. The Tribunal reiterated the Supreme Court's stance that section 52(2) cannot be invoked without proving understatement of consideration. Referring to CIT v. Shivakami Co. Pvt. Ltd. [1986] 159 ITR 71, the Tribunal emphasized the need for concrete evidence of understatement to tax actual gains. Consequently, the Tribunal ruled in favor of the assessee for this assessment year as well.

Conclusion:
Based on the precedents set by the Supreme Court in K. P. Varghese and CIT v. Shivakami Co. Pvt. Ltd., the High Court upheld the Tribunal's decision that section 52(2) of the Income-tax Act was not applicable to the capital gains from the sale of Binai House for the assessment years 1974-75 and 1975-76. The judgment favored the assessee, emphasizing the importance of proving understatement of consideration before invoking the said provision.