1981 (9) TMI 1 - SC - Income Tax

Held that sub-s. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such an understatement or concealment is on the revenue

Issues Involved:
1. Interpretation of Section 52(2) of the Income Tax Act, 1961.
2. Applicability of Section 52(2) in cases of bona fide transactions.
3. Burden of proof on the Revenue for understatement of consideration.
4. Validity of reassessment under Section 148 based on the interpretation of Section 52(2).

Detailed Analysis:

1. Interpretation of Section 52(2) of the Income Tax Act, 1961:
The principal question in this case is whether the understatement of consideration in a property transfer is necessary to attract Section 52(2) of the Income Tax Act, 1961, or if it suffices for the Revenue to show that the fair market value of the property exceeds the declared consideration by at least 15%. The court emphasized that the task of interpreting a statutory provision is not merely mechanical but involves discovering the Legislature's intent. The court rejected a strictly literal interpretation of Section 52(2), which would lead to unreasonable and absurd consequences. Instead, it held that the provision must be construed in the context of its purpose, which is to address cases of understatement of consideration in property transfers.

2. Applicability of Section 52(2) in Cases of Bona Fide Transactions:
The court ruled that Section 52(2) applies only where there is an understatement of consideration. It does not apply to bona fide transactions where the consideration is correctly declared. The court noted that the intent behind Section 52(2) was to counter tax evasion through the understatement of consideration, not to penalize honest transactions. This interpretation is supported by the marginal note to Section 52, which reads "Consideration for transfer in cases of understatement," and the legislative history, including the Finance Minister's speech explaining the amendment.

3. Burden of Proof on the Revenue for Understatement of Consideration:
The court held that the burden of proving understatement of consideration lies with the Revenue. It is not enough for the Revenue to show that the fair market value exceeds the declared consideration by 15% or more; they must also prove that the consideration was understated. The court emphasized that the Revenue cannot ask the court to presume understatement merely because the fair market value exceeds the declared consideration by 15% or more. Each condition must be independently established by the Revenue.

4. Validity of Reassessment under Section 148 Based on the Interpretation of Section 52(2):
The court found that in the present case, the Revenue did not contend that the property was sold for more than the declared consideration of Rs. 16,500. It was common ground that the transaction was bona fide and the consideration was correctly disclosed. Therefore, Section 52(2) did not apply, and the Income Tax Officer (ITO) had no reason to believe that any part of the income had escaped assessment, rendering the notice under Section 148 and the subsequent reassessment without jurisdiction. The court quashed the reassessment order and allowed the appeal, restoring the order of the single judge who had initially quashed the reassessment.

Conclusion:
The court concluded that Section 52(2) of the Income Tax Act, 1961, applies only in cases where there is an understatement of consideration in a property transfer. The burden of proving such understatement lies with the Revenue. In the absence of any understatement, bona fide transactions are not subject to the provisions of Section 52(2). The reassessment order in the present case was quashed as it was based on an incorrect interpretation of Section 52(2). The appeal was allowed, and the Revenue was ordered to pay the costs of the assessee throughout.

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