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Issues:
- Interpretation of section 52(1) of the Income-tax Act, 1961 - Application of section 52(2) in determining capital gains liability - Burden of proof on the Revenue for invoking section 52(2) Analysis: The judgment pertains to a reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1964-65. The Appellate Assistant Commissioner canceled the Income-tax Officer's order regarding capital gains, stating that the transfer was not made with the intention of tax avoidance but for the benefit of a relative out of love and affection. The Tribunal also found that section 52(1) did not apply as there was no evidence of tax avoidance in the transfer. The Department argued that section 52(2) was applicable, but the Tribunal dismissed the appeal, noting that the previous decisions were based on section 52(1) and not section 52(2. The main question referred to the court was whether section 52(2) was applicable in this case. Section 52(1) deals with transfers made to connected persons with the intention of tax avoidance, requiring the Income-tax Officer to have a reason to believe in such avoidance. The Supreme Court's ruling in K. P. Varghese v. ITO emphasized that section 52(1) does not apply if the fair market value exceeds the consideration received, without evidence of tax avoidance intentions. Section 52(2) allows for adjustments if the fair market value exceeds the declared consideration by a specified percentage. However, the burden of proof lies with the Revenue to show understatement of consideration. The Tribunal found that section 52(2) could not be invoked in this case as there was no evidence of understatement or concealment by the assessee. Therefore, the court answered the question in favor of the assessee, concluding that neither section 52(1) nor section 52(2) applied to the transaction in question. In agreement with the above analysis, the court decided that the Revenue failed to establish tax avoidance or understatement of consideration, leading to the dismissal of the departmental appeal. The judgment highlights the importance of evidence and burden of proof in invoking provisions related to capital gains taxation under the Income-tax Act, 1961.
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