1983 (1) TMI 22 - HC - Income Tax

Summary

Issues:
1. Applicability of section 52(2) of the Income-tax Act, 1961.
2. Determination of capital gains on the sale of property.

Analysis:

The judgment delivered by the High Court of Bombay pertains to a reference made under section 256(1) of the Income-tax Act, 1961, by the Commissioner of Income-tax, Nagpur. The questions referred by the Tribunal revolved around the applicability of section 52(2) and the determination of capital gains arising from the sale of a building. The building, known as "Sandoz Building" in Bombay, was sold by co-owners to a foundation for Rs. 35,00,000 during the assessment year 1974-75. The District Valuation Officer estimated the fair market value of the property at Rs. 65,08,000, leading to the Income Tax Officer (ITO) adopting this value under section 52(2) for computing capital gains. The assessee, with an 8% share, was assessed for capital gains at Rs. 2,72,786 after allowing for exemptions.

The assessee appealed to the Appellate Tribunal, which determined the fair market value of the property at Rs. 37,47,315.75 in acquisition proceedings. Subsequently, the Appellate Tribunal held that section 52(2) was not applicable, directing the ITO to compute capital gains based on the sale consideration of Rs. 35,00,000. This decision was upheld by the Tribunal, leading to the reference before the High Court of Bombay.

The Supreme Court's decision in K. P. Varghese v. ITO clarified that section 52(2) applies only when the consideration for a capital asset transfer is understated by the assessee, placing the burden of proof on the Revenue. In this case, there was no evidence to suggest understatement of consideration. The absence of material to invoke section 52(2) and the established fair market value of the property led the High Court to affirm the Tribunal's decision. Consequently, the High Court answered both questions in favor of the assessee, concluding that section 52(2) was not applicable, and capital gains were to be computed based on the disclosed consideration of Rs. 35,00,000. No costs were awarded in this reference.