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TMI Blog1977 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... as of the opinion that the fair market value of the shares transferred by the assessee as on the date of transfer exceeded the full value of their consideration by an amount of not less than 15 per cent of the value as was declared. Following the break-up method of valuation he determined the value of each share at Rs. 39 and that of 2,000 shares at Rs. 78,000. The assessee raised two objections before the ITO. Her first objection was that the value of the shares could not be determined according to break-up method in view of the principle laid down by the Hon'ble Supreme Court in the case of CWT vs. Mahadeo Jalan (1). Her second objection was that the surplus arising out of the sale of shares could be charged only to Gift-tax under s. 4(1) (a) of the GT Act, 1958 and the same amount could not be charged to capital gains tax also in view of Clause (iii) of s. 47 of the Act. The ITO found that M/s. DLF United Ltd. had received a huge compensation of over Rs. 52 lakhs on acquisition of its lands by way of enhanced compensation through an appeal filed with the District Judge against the order of the Land Acquisition Collector, and which sum had not been credited to its profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the amount of enhanced compensation should be deducted therefrom before its inclusion in the value of the assets owned by the company. On this basis he worked out the market value of each share at Rs. 26,12. He directed the ITO to recompute the amount of capital gains on the above basis. 4. Against the above finding of the AAC the assessee has filed the present appeal. The first and major contention of the learned counsel for the assessee, Shri H.L. Chandha, was that the transaction was outside the scope of s. 45 of the Act by virtue of cl. (iii) of s. 47 and, therefore, no capital gains was chargeable from the assessee. He made elaborate arguments on this issue. Clause (iii) of s. 47 of the Act states that nothing contained in s. 45 shall apply to any transfer of a capital asset under a gift or will or an irrevocable trust. Shri Chadha contended before us that by virtue of the definition given in the GT Act, the transaction of the assessee gave rise to a gift and therefore it was under a gift and was excluded from the application of s. 45 of the Act. To support his submission he referred to the decision of Delhi High Court in the case of Shiv Shankar Lal vs. CIT2. We will d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled by the decision of the Supreme Court in the case of Ballabh Das Mathura Das Lakhani Ors. vs. Municipal Committee(7). The Supreme Court in this case had held that its decision was binding on High Court and it could not be ignored on the ground that relevant provisions was not brought to the notice of the Supreme Court. The same principle applies to the decision of the Delhi High Court in so far as we are concerned. The question however, arises as to whether the principle which has been advocated before us by the learned counsel for the assessee was in fact decided by the Hon'ble High Court in the case of Shiv Shankar Lal (2). In this case the assessee had sold certain land to a company in which he and his family members were shareholders. The assessee claimed the capital loss in this transaction. The ITO did not accept the assessee's claim. He was of the view that the transaction in question came within the scope of s. 52 of the Act. He estimated the market value of the property at a higher rate and actually computed capital gains which he brought to tax. We may state here that the difference between the full market value of the property and the consideration mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a gift under s. 4." The transaction in question to the extent of the amount which is sought to be assessed under s. 45 of the Act has already been treated as a gift and assessed under the GT Act. The same amount is therefore, exempt from assessment under s. 45 of the Act. We should, however, like to make it clear that the ground on which we hold that it is exempt from assessment under s. 45 of the Act is not that it has already been assessed to Gift-tax and this would result in double taxation. We cannot agree with the view of the Tribunal that the taxation laws did not contemplate double taxation all. The same transaction can be taxed under different taxation laws. It can be taxed twice in the hands of the same person under the Act itself. No assessment is bad by reason only of double taxation. It is not necessary for the purpose of this case to elaborate further on this point. It is sufficient for the purpose of this case to hold that the transaction is exempt from assessment under s. 45 of the Act by virtue s. 45 of the Act, by virtue of s. 47(Iii) of the Act." If we read the above observations a little closely, it will appear that the only question for consideration b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the question of its exclusion under s. 47 (iii) from the scope of s. 45 of the Act obviously did not arise. Here because the Court adopted the definition under the GT Act to explain the meaning of the gift under the IT Act cannot detract us to take a different view. Shri Chadha also tried to make much out of the observations of their Lordships "We should however, like to make it clear that the ground on which we hold that it is exempt from assessment under s. 45 of the Act is not that it has already been assessed to gift-tax and this would result in double taxation." His view was that by these observations the Court had made it clear that its decision did not depend upon whether the difference had actually been assessed to gift-tax or not and that in any case it would be exempt from application of s. 45 of the Act. We are unable to subscribe to this view. The above observations were made by the Court only to counter reply the argument that taxing of the same amount to gift-tax and again taxing it under s. 45 of the Act would result in double taxation. The Court made it clear in the next sentence. "We cannot agree with the view of the Tribunal that the taxation laws did not conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the case reported in 91 ITR and 106 ITR 333. 8. The next submission of the learned counsel for the assessee before us was it was s. 52 (1) of the Act which was applicable to the case and not s. 52 (2) of the Act which had actually been applied. Referring to the well known decision of the Supreme Court in the case of CIT vs. Shehzada Nand Sons Ors.(8) he contended that the rule of interpretation was that whenever there was a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative and the general enactment must be taken to affect only the parts of the statute to which it may properly apply. He also submitted that to arrive at the real meaning it was always necessary to get an exact conception of the aim, scope and object of the whole Act as to what was the law before the Act was passed, what was the mischief or defect for which the law had not provided and what remedy Parliament had appointed and finally the reason of the remedy. In the light of these principles he submitted that if he could show that it was s. 52 (1) of the Act which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion on the materials before him that it is a case of under-statement of consideration. Once he comes to that conclusion, then, the case being one of escapement or suppression of capital gains, the difference between the fair market value and the cost of the asset can be treated as capital gains accruing to the assessee. In our judgment, sub-s. (2) of s. 52 does not apply to a bona fide transfer not involving any under-statement of consideration for the transfer." The Court also supported its view by referring to a circular of the Central Board of Direct Taxes which virtually adopts the official notes to which reference has already been made by us above. He also referred to the opinion of Kanga Palkhiwala, in their commentary, Law and Practice of Income-tax appearing at pages 560-561 of the Seventh Edition, Vo1. The learned Authors have observed at page 561 that s. 52 is not the charging Section but is a computation section and that it had to be read alone with s. 48 which provided the mode of computation and under which the starting point of computation was "the full value of the consideration received or accruing". According to the learned Authors what in fact never accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only Rs. 12,604. She had also declared a profit of Rs. 33,396 as capital gains. The ITO then proceeded to find the market value of each share which he determined at Rs. 39. On this basis he determined the taxable capital gains at Rs. 30,198. The ITO at no point of time held that the assessee was in receipt of any amount in excess of Rs. 46,000. The AAC also was of the same view. He of course rejected the assessee's contention that s. 52(2) was not applicable to bona fide transactions on the ground that argument was also advanced before the Kerala High Court in the case of ITO vs. K.P. Verghese (4) and was not accepted in the majority judgment of the full Bench. 11. We will now briefly give our reasons for holding that s. 52(2) cannot be made applicable to bona fide transaction. The back ground of this section has been discussed by the Karnataka High Court in the case fo M. Ranga Pai Ors (9). We have also quoted the relevant observations of the Court and the basis for coming to the above conclusion. It is no doubt correct that some of the decisions relied on by the learned Deplt., Rep. had taken a contrary view. One of them is the majority decision of Kerala High Court (Full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee s case to bring to tax the deemed capital gains or capital gains which in fact or in truth she has not received. We may state that although the Delhi High Court in the case of Shiv Shankar Lal(4) sound some difficulty in following the decision of Madras High Court in Sundaram Industries Pvt. Ltd. vs. CIT 14 taking the above view but they made the following pertinent observations which also support our decisions: "We are in respectful agreement with the view of the Madras High Court that the first proviso to s. 12B (2) which corresponds to s. 52 of the Act does not discourage or avoid honest transactions made out of love and affection or for other conceivable reasons other than the avoidance or reduction of liability to tax on capital gains." That would mean that s. 45 without reference to s. 52(2) will be applicable in her case and the capital gains will be determined with reference to the sale proceeds of Rs. 46,000 only. The ITO is directed to follow these directions. 12A. Before we close with this issue we may briefly touch on a few other arguments which were placed before us. One of the arguments placed before us by the learned counsel for the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere also spent on the purchase of a small area but only the conveyance was executed in this year though the purchase pertained to year 1962-63. In other words there was no effective purchase after the financial year 1964-65 the last of which was on28th July, 1964, Development expenses amounting to Rs. 59.549 were debited to the account in the financial year 1970-71. These expenses related to building, tube well and other constructions peculiarly suited for agricultural operations. Major portion of these expenses was incurred upto31st Dec., 1970. We may also give a brief resume of the sale of the land in this village. The first sale of Rs. 2,379 was in F. y. 64-65 to Shri Kalelkar a family friend of the assessee who was at the relevant time Director-General of Technical Development. The ITO in that year computed Rs. 1,297 as business profit from the sale of agricultural land. The AAC, however, held that it was not a business deal but the sale was made to Dr. Kalelkar to enable him to make adjustment of the boundary of this plot adjoining to that of assessee. The AAC however, held that it was not a business deal but hthe sale was made to Dr. Kalelkar to enable him to make adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company it must be within her knowledge that as a result of the scheme of colonisation of the company, the price of land in the concerned village would go up which proved that her intention behind the purchase of land in that village must have been to make profit by reselling the land after certain interval. In the circumstances he held that the order of the ITO was erroneous in so far as it was prejudicial to the interests of revenue and directed him to delete the capital gains already taxed and instead included in the total income the profit arising on the sale of those lands as its business profit. The assessee appealed against this order to the Tribunal. The latter, however, cancelled it on another ground and did not go into the merits of the case. In the financial year 1971-72 i.e. the year under appeal the assessee made further sales to 5 persons on which she earned a profit of Rs. 1,32,193. The land sold cost to the assessee Rs. 1,29,726. It is this profit of Rs. 1,32,193 which is the subject matter of assessment in this year. 15. We may now deal with the land purchased by the assessee in village Daulatpur Nasirabad. The first purchase in this area was of Rs. 89,656 in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land should also be allowed as admissible expenditure. His order was confirmed by the AAC except that he directed the ITO to allow a part of the interest which according to him was invested in the purchase of the land and confined the disallowance to only that part of the interest which related to the agricultural operations. 17. The assessee is in appeal against the above finding of the AAC. The learned counsel for the assessee made elaborate arguments to demonstrate that the assessee was basically an investor in the land meant for the purpose of agriculture and that she had to sell them only when she was compelled by the circumstances. His first submission was that she was the daughter of Ch. Reghvendra Singh and was married to Maj. Shamsher Singh, an officer in the army, and that both of them belonged to statutory agriculturists of the then State of Punjab. He pointed out that even a company like DLF Pvt. Ltd. was not allowed to buy agricultural land and that the purchases had to be put through Ch. Raghvendra Singh who was its chief administrator because he belonged to the family of statutory agriculturists and could buy agricultural land. He also pointed out that the dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Ch. Raghvendra Singh, father of the assessee, the Tribunal had held in its order dated 17th Feb., 1976 that he was an investor with reference to certain lands and, therefore, it was not correct to hold in the case of the case that she could not be held to be an investor. He also pointed out that Chhattarpur was in the Green belt of greaterDelhiwhere colonisation was not permitted by law and that only certain portion of the farm land could be brought under construction. 18. The learned Deplt., Rep., on the other hand, submitted that the assessee had continuously made heavy purchases of land amounting to Rs. 6,56,583 not only in the above two villages but also in Bangalore, which could not be but for selling them at higher price subsequently and earn profit. He submitted that the purchase of the land and its development were in an organised manner in cooperation with several other persons and the assessee by purchasing plots had converted the land in Stock-in-trade that was further converted into plots for sale. He also submitted that the investment was made out of borrowings which was more in tune with the dealings in land rather than with investment and that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. under appeal. As stated above they were meant only to complete the area and not with a view to enter into any fresh purchases as such. We do not know what happened in the asst. yr. 1974-75 as that factor will not be relevant for deciding the issue in the asst. yr. 1971-72 or 1972-73. The third ground given by the ITO is that the assessee had made fresh purchases of Rs. 38,204 sniff td 54,557 inBangalore. Out of this the assessee had made sales of Rs. 89,097 in the asst. yr. 1973-74 on which she made a profit of Rs. 33,578. The reply of the counsel was that the assessee was keen to hold agricultural land wherever it was available and it was with this purpose that she had gone toBangaloreto make purchases. However, she could not keep her holdings there as a person from outside the State was prohibited from making purchases. The ITO has also mentioned as lost ground that the assessee had made purchases in village Silani in the asst. yr. 1974-75. Here also the reply of the counsel was that this was also with a view to hold as much agricultural land as possible and that the same was still held by the assessee. In our opinion, for the reasons given above, there is hardly any merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in a big agricultural farm. It is also possible that some of the roads might have been constructed with a view to make the land easily saleable. However, the fact by itself cannot turn an investor who decides to realise his value, into a dealer. The earlier history of the assessee to which the learned AAC has and given due importance also supports the case of the assessee. She was held to be an investor by the AAC himself in the asst. yr. 1965-66 and by the ITO in several years when he did not permit the deduction of the interest. 22. We will now deal with certain legal aspects of the question. One of the earliest cases on the point which was brought to our notice is that of Khan chand and Kishan Chand vs. CIT (15). (a judgment of Lahore High Court). It was held in this case that the governing factor was the intention of the assessee at the time of purchase but the subsequent conduct of the assessee had certainly a material bearing on the question of his intention at the time of purchase. From the facts given in the present case we find that the intention of the assessee at the time of the purchase was to hold it for the purpose of agriculture. The Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to hold it at least an adventure in the nature of trade. The Madras High Court in the case of CIT vs. Kasturi Estates Pvt. Ltd. (17) held that the transaction of sale in plots was one which any prudent owner of land would engage in and which was, therefore, no more than realisation of capital investment or conversion of land into money and not a venture in the nature of trade. The Court also observed as under: "If land-owner developed his land, expended money on it, laid roads, converted the land into house sites and with a view to get a better price for the land, eventually sold the plots for a consideration yielding a surplus, it could hardly be said that the transaction is anything more than a realisation of a capital investment or conversion of one form of asset into other." The Bombay High Court in the case of CIT vs. Andandlal Becharlal Co. (18) also held that the resale of the land after a period of over six years after the purchase went to militate against any inference being drawn that the purchase itself had been made with the intention of embarking on a venture in the nature of trade. In the present case also there was long gap between the purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted from the assessment. In the view we have taken it is not necessary for us to deal with the assessee's contention that the deduction allowed by the AAC for interest was not adequate. 23. The next contention related to the amount of dividend income brought to tax in the assessment. The ITO has mentioned it as Rs. 13,945 The contention of the assessee before the AAC was that it was Rs. 13,495. The AAC omitted to deal with it. We direct the ITO to look into the grievance of the assessee and correct the mistake, if any. 24. The last connection in this appeal relates to the assessee's claim for deduction under s. 80-L and 80-O. The ITO inspite of the Tribunal (name of assessee not known in the asst. yr. 1971-72) refused to allow the necessary relief on the ground that the net dividend income after adjustment of interest on borrowings used for investment and shares was nil. The AAC upheld his view following his decision in the case of Maj. Shamsher Singh for the asst. yr. 1972-73. 25. We find that the above issue is covered by the decision of the Tribunal in the case of Maj. Shamsher Singh for the asst. yr. 1971-72 in favour of the assessee (ITA No. 2970/74-75). We direct the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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