1972 (7) TMI 15 - HC - Income Tax

The difference between the fair market value and the actual consideration can be treated as capital gains despite the fact that it has been assessed to gift-tax - Besides, the scheme of taxation to income-tax is different from that under the Gift-tax Act. It is the income that accrues or arises or is deemed to accrue or arise as a result of the transfer that is subject to assessment under the Income-tax Act. It is the transaction of the gift itself, i.e., the transaction used for transmission of title that is assessed under the Gift-tax Act. So understood, there is no question of double taxation

Issues Involved:
1. Interpretation of "income" and "capital gains" under the Income-tax Act.
2. Applicability and interpretation of Sections 45, 48, and 52 of the Income-tax Act.
3. Relationship between the Income-tax Act and the Gift-tax Act.
4. Validity of the assessment order (exhibit P-5).

Issue-wise Detailed Analysis:

1. Interpretation of "income" and "capital gains" under the Income-tax Act:
The judgment delves into the inclusive definition of "income" under Section 2(24) of the Income-tax Act, 1961, which includes "capital gains" chargeable under Section 45. Section 5 outlines the scope of "total income," which includes all income received or accrued, or deemed to be received or accrued. The court emphasized that the deeming provision relates to the place and not to the conversion of non-income into income. The Supreme Court's observations in Commissioner of Income-tax v. Shoorji Vallabhdas and Co. and other cases were cited to underline that income must be real and not hypothetical.

2. Applicability and interpretation of Sections 45, 48, and 52 of the Income-tax Act:
Section 45 states that profits or gains from the transfer of a capital asset are chargeable to income-tax under the head "capital gains." Section 48 provides the mode of computation by deducting from the full value of the consideration received or accruing as a result of the transfer. Section 52 addresses cases of under-statement of consideration, allowing the Income-tax Officer to take the fair market value as the full value of the consideration for the transfer. The court noted the difference in language between Sections 48 and 52 and emphasized that the full value of the consideration in Section 52 should not be deemed as the full value of the consideration received or accruing under Section 48. The court held that the amount of Rs. 48,500 is not "income" of the respondent.

3. Relationship between the Income-tax Act and the Gift-tax Act:
Section 47(iii) of the Income-tax Act exempts transfers of capital assets under a gift from the applicability of Section 45. The court preferred the definition of "gift" under the Gift-tax Act, which considers the amount by which the market value exceeds the consideration as a gift. The court opined that if an amount has been taxed under the Gift-tax Act, it should not be taxed again under the Income-tax Act unless explicitly stated. The court highlighted the interconnectedness of various taxing statutes and concluded that the amount of Rs. 48,500, already taxed under the Gift-tax Act, should not be taxed again under the Income-tax Act.

4. Validity of the assessment order (exhibit P-5):
The court found that the single judge was not justified in quashing exhibit P-5 in its entirety, as it comprised other heads in respect of which there was no objection. The court allowed the appeal in part, setting aside the quashing of exhibit P-5 regarding other amounts, but confirming the decision regarding the amount of Rs. 48,500. The court also noted that the learned judge was correct in his interpretation that the impugned action was taken under Section 52(2) and not under Section 52(1).

Conclusion:
The appeal was allowed in part, and the order quashing exhibit P-5 was set aside concerning other amounts. The decision regarding the amount of Rs. 48,500 was confirmed, and the parties were directed to bear their respective costs. The judgment underscores the importance of precise statutory interpretation and the interconnectedness of various taxing statutes.

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