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Issues:
- Interpretation of Section 263 of the Income-tax Act, 1961 - Application of Section 52 of the Act in assessing capital gains - Commissioner's power to revise an order passed by the Income-tax Officer - Determining fair market value for assessment purposes Interpretation of Section 263: The High Court of Karnataka addressed the interpretation of Section 263 of the Income-tax Act, 1961, which empowers the Commissioner to revise orders if they are erroneous and prejudicial to revenue. The court emphasized that for the Commissioner to set aside an order, two conditions must be met: the order must be erroneous, and it must prejudice revenue. These conditions are crucial for revising an order. Application of Section 52 in Assessing Capital Gains: The case involved the application of Section 52 of the Act, which consists of two sub-sections. Sub-section (1) pertains to transfers for less than market value with tax avoidance intent, while sub-section (2) deals with deeming capital gains when fair market value exceeds declared consideration by 15%. The court highlighted that sub-section (2) allows taxing on deemed capital gains, even if no actual gains were realized, based on the Income-tax Officer's opinion of fair market value exceeding declared value by 15%. Commissioner's Revision Power: The court analyzed the Commissioner's power to revise an Income-tax Officer's order under Section 263. It was established that the Commissioner can only revise an order if there is material to conclude that a specific provision, such as sub-section (2) of Section 52, applies and the Officer failed to apply it. Without such material, the Commissioner cannot revise the order. Determining Fair Market Value: Regarding the determination of fair market value for assessment purposes, the court examined the Commissioner's assertion of the market value of shares at Rs. 16.90 per share. The assessee disputed this, stating the shares were partly paid-up and not market-quoted. The Commissioner failed to establish that the declared value was less than fair market value by over 15%, as required by sub-section (2) of Section 52. As a result, the Tribunal rightly set aside the Commissioner's order. In conclusion, the High Court answered the referred question affirmatively against the department, indicating that the Tribunal's decision was correct. The assessee was awarded costs for the reference, emphasizing the importance of meeting the statutory conditions for revising assessment orders and accurately determining fair market value for tax assessment purposes.
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