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TMI Blog1999 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order issued under section 15(3) dt. 28-12-89 it is seen that the difference between the market rate and the amount for which the diamond was transferred i.e. Rs. 27,250 was offered as a deemed gift for the assessment year 1985-86 by the assessee in the return of gift filed on 1-12-1987. The gift-tax assessment was completed thereafter determining the taxable gift at Rs. 27,250 and gift-tax of Rs. 1,725 demanded thereon. "In view of the fact that the transfer of the capital asset has been held as a gift, the question of levying capital gains on tile transfer, does not arise. The addition made of Rs. 16,275 as capital gains for the assessment year 1985-86 is accordingly deleted." The department is aggrieved. According to the learned departmental representative, the CIT (Appeals) should have justified the assessment made by the Assessing Officer in the light of the decision of the Madras High Court in the case of CIT v. Tibruz Mustafa Bilgen [1986] 157 ITR 723 / 23 Taxman 459. According to him, the only way to get out of the capital gains tax is to take the case of the assessee under the provisions of section 47(iii) of the Income-tax Act. The Madras High Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 313 and the Andhra Pradesh High Court in the case of ITO v. Buragadda Satyanarayana [1977] 106 ITR 333. However, the Delhi High Court in the case of Shiv Shankar Lal v. CIT [1974] 94 ITR 433 and the Karnataka High Court in the case of Sanjiv V. Kudva v. CIT [1981] 127 ITR 354 have taken a contrary view to the effect that the definition of 'gift' in the Gift-tax Act, 1958, rather than that in the Transfer of Property Act is applicable to the term "gift" as used in section 47(iii) and the difference between the market value and the sale price of a property sold by the assessee which was assessed as gift under the Gift-tax Act is exempt under section 47(iii) from capital gains tax. However, in the facts before me it is not the case of the assessee that since the gift is assessed such transaction should not be treated as capital gains by virtue of section 47(iii). But it is something different. The Assessing Officer in his order nowhere deals with the provisions of section 47(iii). He only proceeds to invoke the provisions of section 52(1) on the reasoning that the sale of diamond was to a close relative for less than the market price and was only made to reduce the wealth-tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked and hence the Tribunal was correct in holding that the Income-tax Officer was not justified in invoking the provisions of section 52(2) to arrive at the capital gains. The principle laid down by the Hon'ble Madras High Court in this case will have to be applied with reference to the invocation of section 52(1) of the Income-tax Act by the Assessing Officer. The provisions of section 52(1) read as under :--- "52. Consideration for transfer in cases of understatement. --- (1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer." The provisions of section 52 either (1) or (2) applies only in the case where there is understatement of consideration for transfer. Section 52(1) comes into operation only if and where - (i) the person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition of the proviso to section 12B [new section 52(1)], it must be a case where the consideration mentioned in the deed has been understated and actually the assessee has received more than what is stated in the document. The following observations of the Supreme Court in the case of CIT v. Shivakami Co. (P.) Ltd [1986] 159 ITR 71/25 Taxman 80K are relevant and in fact they have dealt with the decision of the Madras High Court in Sivakami Co. (P.) Ltd v. CIT [1973 ] 88 ITR 311 :--- "Capital gains tax was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or could have been taxed." For attracting section 52(1), understatement was to be proved. Reference may be made to K.P. Varghese 's case ; CIT v. Rikadas Dhuraji [1976] 103 ITR 111 (Mad); Addl. CIT v. P.S. Kuppuswamy [1978] 112 ITR 1012 (Mad.), CIT v. Southern Transports [1981] 128 ITR 576 (Mad.) and CIT v. A. Venkatraman [1982] 137 ITR 846 (Mad.). 6. In such a situation the burden of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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