1985 (4) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 52(2) of the Income-tax Act, 1961.
2. Computation of capital gains based on the consideration declared by the assessees.
3. Taxability of cross-gifts under Section 64(ii) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Section 52(2) of the Income-tax Act, 1961:

The primary issue was whether the provisions of Section 52(2) of the Income-tax Act, 1961, were applicable to the case of the assessees. The Income Tax Officer (ITO) had invoked Section 52(2) on the grounds that the fair market value of the lands sold by the assessees exceeded the declared consideration by more than 15%. However, the Tribunal observed that the lands in question were situated on Sansar Chandra Road, which was different from the more commercially valuable Mirza Ismail Road. The Tribunal concluded that the fair market value of lands on Mirza Ismail Road could not be used to determine the value of lands on Sansar Chandra Road. The Tribunal also noted that there was no evidence to prove that the assessees had received more consideration than what was declared. Citing the Supreme Court's decision in K.P. Verghese v. ITO, it was established that for Section 52(2) to apply, the Revenue must prove not only that the fair market value exceeded the declared value by more than 15%, but also that the consideration was understated. Since the Revenue failed to prove any understatement, the Tribunal held that Section 52(2) was not applicable.

2. Computation of Capital Gains Based on the Consideration Declared by the Assessees:

The Tribunal directed the ITO to compute the capital gains based on the consideration declared by the assessees in their returns. The Tribunal dismissed the Revenue's appeals and partly allowed the assessees' appeals, holding that there was no justification for adopting a higher value for the lands sold than that declared by the assessees. The Tribunal's decision was based on the lack of satisfactory evidence to prove that the consideration specified in the sale deeds did not represent the fair market value of the lands sold. The Tribunal's directive was in line with the Supreme Court's ruling in K.P. Verghese v. ITO, emphasizing that the burden of proving understatement of consideration lies with the Revenue.

3. Taxability of Cross-Gifts under Section 64(ii) of the Income-tax Act, 1961:

The ITO had also held that the cross-gifts made by Yaswant Singh and Mahendra Singh to the dependents of each other were covered by Section 64(ii) of the Act, and thus the capital gains earned on the sale of plots standing in the names of Sushila Devi and Pradyuman Singh were taxable in the hands of Yaswant Singh and Mahendra Singh, respectively. The Tribunal affirmed this finding, stating that the cross-gifts were interconnected and formed part of a single transaction. Consequently, the capital gains arising from the sale of lands by Sushila Devi and Pradyuman Singh were rightly considered as income in the hands of Yaswant Singh and Mahendra Singh, respectively.

Conclusion:

The High Court upheld the Tribunal's decision, answering the referred question in the affirmative, in favor of the assessees and against the Revenue. The court confirmed that the provisions of Section 52(2) of the Income-tax Act, 1961, were not attracted in this case and directed the ITO to compute the capital gains based on the consideration declared by the assessees. The court also upheld the taxability of capital gains from cross-gifts under Section 64(ii) of the Act. The parties were left to bear their own costs.