1977 (12) TMI 45 - AT - Income Tax

Issues Involved:
1. Taxability of capital gains on the sale of shares.
2. Applicability of section 52(2) of the Income Tax Act, 1961.
3. Valuation method for shares.
4. Treatment of land transactions as business income.
5. Deduction under sections 80-L and 80-O of the Income Tax Act, 1961.
6. Correctness of dividend income assessment.

Detailed Analysis:

1. Taxability of Capital Gains on the Sale of Shares:
The primary issue was whether the sum of Rs. 30,198 arising from the sale of shares should be taxed as capital gains. The assessee sold 2,000 equity shares of M/s. D.L.F. United Private Limited to M/s. DLF Investment Pvt. Ltd. for Rs. 46,000, while the cost of acquisition was Rs. 12,604, resulting in declared capital gains of Rs. 33,396. The Income Tax Officer (ITO) applied section 52(2) of the Income Tax Act, 1961, arguing that the fair market value of the shares was Rs. 78,000, thereby determining taxable capital gains at Rs. 30,198 after deductions.

2. Applicability of Section 52(2) of the Income Tax Act, 1961:
The assessee contended that the transaction should be considered a gift under section 4 of the Gift-tax Act, 1958, and thus excluded from capital gains tax under section 47(iii) of the Income Tax Act. The ITO and Appellate Assistant Commissioner (AAC) rejected this argument, applying section 52(2) instead of section 52(1). The tribunal concluded that section 52(2) could not apply to bona fide transactions where the declared consideration was the actual amount received. They emphasized that section 52(2) should only apply in cases of under-statement of consideration, aligning with the Karnataka High Court's view.

3. Valuation Method for Shares:
The ITO used the break-up method to value the shares at Rs. 39 each, while the assessee argued for the yield method as per the Supreme Court's decision in CWT vs. Mahadeo Jalan. The tribunal found that the fair market value should be determined based on actual sale proceeds of Rs. 46,000, making the valuation method argument redundant.

4. Treatment of Land Transactions as Business Income:
The ITO treated the profit of Rs. 1,37,445 from the sale of land as business income, arguing that the assessee was dealing in land. The assessee contended that she was an investor in agricultural land, compelled to sell due to impending land ceiling legislation. The tribunal agreed with the assessee, noting the long-term holding, agricultural use, and lack of frequent transactions, concluding that the assessee was an investor, not a dealer.

5. Deduction under Sections 80-L and 80-O of the Income Tax Act, 1961:
The ITO denied deductions under sections 80-L and 80-O, arguing that the net dividend income after interest adjustment was nil. The tribunal directed the ITO to allow the deduction on the gross dividend amount, following a previous tribunal decision in a related case.

6. Correctness of Dividend Income Assessment:
The assessee claimed that the dividend income was Rs. 13,495, not Rs. 13,945 as assessed by the ITO. The tribunal directed the ITO to verify and correct the dividend income amount.

Conclusion:
The tribunal partly allowed the assessee's appeal, holding that the provisions of section 52(2) could not be applied to bona fide transactions and that the assessee was an investor in land, not a dealer. The Department's appeal was dismissed. The tribunal directed the ITO to reassess the capital gains based on actual sale proceeds and allow the claimed deductions.

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