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TMI Blog1970 (4) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... daughter-in-law and five of his children. On 4th April, 1968, the Income-tax Officer issued a notice, exhibit P-1, to the petitioner under section 148 of the Act, stating that he had reason to believe that the petitioner's income chargeable to tax for the year 1966-67 had escaped assessment, and he proposed to reassess the said income, and requiring the petitioner to submit a return in the prescribed form within 30 days of the service of the notice. Exhibit P-1 did not disclose any particulars of the income alleged to have escaped assessment. The petitioner, however, filed a return. Subsequently, the Income-tax Officer, by his letter, exhibit P-3, dated 4th March, 1969, disclosed to the petitioner what was the escaped income, which he proposed to assess. Exhibit P-3 stated that the Income-tax Officer proposed to fix the fair market value of the property sold by him on 25th December, 1965, at Rs. 65,000 as against the consideration of Rs. 16,500 for which it was transferred, and to assess the difference of Rs. 48,500 as capital gains. The petitioner was also required to file his objections, if any, to the said proposal with necessary evidence on or before 12th March, 1969. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. " Sections 7, 8 and 9 of the Act deal with "deemed incomes " which I may have to consider later. Chapter IV of the Act contains sections 14 to 39, and it deals with computation of total income. Section 14 enumerates the heads of income, and it reads as follows: " 14. Heads of income.--Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :-- A.- Salaries. B.- Interest on securities. C.- Income from house property. D.- Profits and gains of business or profession. E.- Capital gains. F.- Income from other sources. The fifth head is "Capital gains ", and sections 45 and 55 deal with this matter. It is sufficient to read sections 45, 48 and 52. " 45. Capital gains-(1) Any profits or gains arising from the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void. Section 2(xii) of the Gift-tax Act reads : " 'gift' means the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth, and includes the transfer of any property deemed to be a gift under section 4. " Section 4 of the Gift-tax Act reads : " Gift to include certain transfers.--For the purposes of this Act,- (a) where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor ; . . . " (Clauses (b), (c) and (d) are omitted, being unnecessary for the present discussion). To some extent, both the definitions are substantially the same ; but the inclusion in the definition of gift in the Gift-tax Act of the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer in cases of under-statement. Section 48 provides that capital gains shall be computed by deducting from the full value of the consideration " received or accrued " as a result of the transfer of the capital asset, the cost of its acquisition and improvements thereto and the expenditure incurred in connection with the said transfer. Now I come to the controversial section 52, which I have already quoted. According to the learned counsel for the revenue, the case falls under sub-section (1) and, at any rate, it falls under sub-section (2) ; and, in either case, the full value of the transfer shall be taken to be the fair market value of the capital asset on the date of its transfer. The term " fair market value " is defined in section 2(22A) of the Act, and it is as follows : " (22A) 'fair market value', in relation to a capital asset, means- (i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and (ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act. " There is no dispute that the transfer in this case was for a consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case. I am unable to accept this argument. Sub-section (2) is " without prejudice to the provisions of sub-section (1) " ; and the question whether sub-section (2) applies to a case depends on its own provisions. It would obviously apply to a case where the fair market value of the capital asset transferred exceeds " the full value of the consideration declared by the assessee " in respect of the said transfer. The question is whether this is such a case. I again come back to the same question whether income-tax is chargeable on capital gains not only on profits or gains arising under section 45, but also on profits or gains which would be deemed to have arisen under section 52. The learned counsel for the revenue submitted that income-tax is chargeable under the Income-tax Act not only on income received by, or accruing or arising to, a person, but also on income deemed to be received by, or to accrue or arise to, him under the Act. In other words, even if an income does not arise, an amount can be deemed to be income, if the Act so provides, and would be chargeable. In this context he referred me to sections 7, 8, 9 and 64 of the Act, and submitted that section 52 contains a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. So the provisions contained in the above sections do not lend any support to the contention of the learned counsel for the revenue. It is relevant to note in this context that the validity of the corresponding provision in the Indian Income-tax Act, 1922, was sustained by the Supreme Court in Balaji v. Income-tax Officer, on the ground that it was a provision enacted for preventing evasion of tax and was, therefore, within the competence of the Central Legislature. I am, however, concerned only with the provisions in the Income-tax Act, 1961, relating specifically to " capital gains " ; and in my view section 45 is categorical that profits or gains arising from the transfer of a capital assets alone are chargeable to income-tax under the head " Capital gains ". The words " any profits or gains arising from the transfer of a capital asset " used in section 45 can mean only what they plainly state. They cannot mean, as the learned counsel for the revenue contends, not only any such profits or gains, but also any profits or gains deemed to arise from such transfer. If that was ever intended, Parliament could have achieved that object by using the words " any profits or gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, for having attempted to avoid or reduce the tax liability and on that basis made liable to tax on the difference between the consideration for the transaction and the fair market value. That simply as we read the proviso, is not its purpose. It does not treat what is not an actual capital gain as a deemed capital gain. In fact, occurring as it does as the first proviso to sub-section (2) dealing with the procedural aspect of computation, it should, we think, be interpreted as limited to escaped capital gain, which is so in truth and in fact, and not intended to bring about fictional gain on an assumption and charge the same. " The position is the same with regard to section 52(1) of the Income-tax Act, 1961, and the sentence, which I have underlined in the above passage agrees with my view on the question. The following statement appearing in the decision of the Supreme Court in Killick Nixon and Co. v. Commissioner of Income-tax also indicates that section 52(1) has application only to a case of understatement of consideration. In the above decision, dealing with the scope of the first proviso to section 12B(2) of the Indian Income-tax Act, 1922, the court said : " It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sford said, in giving judgment : 'The sections of the Railways Clauses Acts are, as your Lordships know, arranged in order under different heads, which indicate the general object of the provisions immediately following : and these may be usefully referred to, to determine the sense of any doubtful expression in a section ranged under a particular heading. " The following statement appearing in the speech of Lord Dilhorne in Fisher v. Raven would also indicate the extent to which the heading of a section can be put to use in construing that section. The House of Lords was in that case concerned with the construction of section 13 in the Debtors Act, 1869. The learned Lord stated : " It is also to be noted that the Debtors Act, 1869, is entitled 'An Act for the Abolition of Imprisonment for Debt, for the punishment of fraudulent debtors, and for other purposes.' Section 13 of this Act is included in Part II, which is headed 'Punishment of Fraudulent Debtors'. The long title of the Act and the heading of Part II support the view that the Act was only intended to deal with those who owe money, debtors in the ordinary sense of the word, and the view that 'obtained credit' in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbered as sub-section (1)), enables the computation of capital gains arising on transfer of a capital asset with reference to its fair market value as on the date of its transfer ignoring the amount of the consideration shown by the assessee, only if the following two conditions are satisfied : (a) the transferee is a person who is directly or indirectly connected with the assessee ; and (b) 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 to tax on capital gains. In view of these conditions, this provision has a limited operation and does not apply to other cases where the tax liability on capital gains arising on transfer of capital assets between parties not concerned with each other, is sought to be avoided or reduced by an understatement of the consideration paid for the transfer of the asset ". The Board of Revenue has also quoted the observations of the Minister of Finance in regard to the provisions of section 52(2) during his reply to the debate in the Lok Sabha, at the time of the clause by clause consideration of the Finance Bill, 1964. They appear in paragraph 65 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act ; and it is excluded in computing capital gains by virtue of section 47(iii) of the Income-tax Act. In other words, the capital gains has to be computed on the basis of the actual consideration. I find considerable force in this argument. In the first place, if the definition in the Gift-tax Act is adopted, section 52 of the Income-tax Act can never yield to the interpretation which the learned counsel for the revenue seeks to put on it ; and the unreasonable result which arises from such an interpretation of the said section, which I have already indicated, can be avoided. Secondly, the income-tax, the wealth-tax, the gift-tax and the expenditure-tax form different heads of an integrated system of taxation ; and they are all administered by officers of the income-tax department. The imposition of tax under one head must have a relevancy to the liability under the other heads of tax. It is, therefore, reasonable to think, particularly having due regard to the exclusion of gift from the field of capital gains, that the legislature did not intend to charge income-tax on an amount which is liable to gift-tax. This is also a weighty circumstance to adopt for the purposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the court to issue a writ under article 226 ; but it is a material circumstance to be taken into consideration in exercising the discretion in granting the writs. S. R. Das C.J. in State of U. P. v. Mohommad Nooh stated : " It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute, (Halsbury's Laws of England, 3rd edition, volume 11, page 130, and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate to it and ordinarily the superior court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal restrictions or infringes any fundamental rights, or whether the taxing authority has arrogated to himself power which he does not possess, or has committed a serious error of procedure which has affected the validity of his conclusion or even where the taxing authority threatens to recover tax on an interpretation of the statute which is erroneous. The High Court may also in appropriate cases determine the exigibility to tax of transactions the nature of which is admitted, but the High Court normally does not proceed to ascertain the nature of a transaction which is alleged to be taxable. The High Court leaves it to the taxpayer to obtain an adjudication from the taxing authorities in the first instance. " Reference may also be made to another decision of the Supreme Court in Commissioner of Income-tax v. A. Raman & Co. In that case, their Lordships upheld the decision of the High Court quashing the notices issued by the Income-tax Officer under section 147 of the Income-tax Act, 1961, requiring the assessee to show cause why certain assessments made against the assessee should not be reopened, on the ground that, on the materials on record, the Income-tax Officer had no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anded the case back to the Income-tax Officer to save limitation'. It would be noticed that, at its highest, this ground can mean that the result of the remand order was to attempt to save limitation ; it has no relevance on the point sought to be raised by Mr. Pathak that the notice issued against his client initially was barred by time. But, as we have already indicated, a plea of this kind cannot be permitted to be raised in writ proceedings, and so we refused Mr. Pathak permission to develop this point. " The learned counsel submitted that bar of limitation is a matter which affects the jurisdiction of the Income-tax Officer, and that the above decision is an authority for the proposition that even such a matter falls properly for the decision of the Income-tax Officer and the High Court should not interfere with the proceedings of an Income-tax Officer on this ground. The learned counsel for the revenue also relied on a Division Bench decision of this court in Income-tax Officer v. R. M. Subramania Iyer, which reversed my decision in O.P. 805 of 1966. In that case, I quashed a notice issued by the Income-tax Officer under section 147 of the Income-tax Act. 1961, holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer pursuant to the order of remand, requiring the appellant to appear before the Income-tax Officer and give his evidence. The High Court summarily dismissed the petition. Special leave was obtained to appeal from the decision of the High Court on the ground that the statute under which the impugned proceedings had been commenced was invalid ; and the appellant obtained also an order of stay of proceedings from the Supreme Court. This was the only ground of law and jurisdiction taken in the petition for special leave. At the hearing of the appeal, Mr. Pathak, the learned counsel for the appellant, conceded that he was not in a position to justify or substantiate that contention ; and he attempted to raise and argue a new point, namely, the proceedings initiated by the Income-tax Officer were time-barred. The Supreme Court did not permit the learned counsel to develop this point ; and in doing so, it also pointed out that this ground was neither taken in the writ petition nor in the appeal befere the Appellate Assistant Commissioner. The learned counsel for the petitioner may be within his rights to argue that the above decision of the Supreme Court is based on the peculiar fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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