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TMI Blog1992 (2) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... s right in confirming the assessment, especially in view of the fact that the Income-tax Officer had only invoked section 52(1) of the Act, without recording any finding that the transfer was made with a view to avoid or reduce the capital gains tax ? " The respondent herein is the Revenue. The original assessee died, pending the reference. His legal heirs have been impleaded as applicants Nos. 1 and 2 as per orders passed by this court in C. M. P. No. 4095 of 1991. The assessee was the director of a private limited company. He owned a house at Kollam. Its extent was 37 cents. 17 cents were purchased in 1950 at the rate of Rs. 300 per cent. The remaining portion was gifted to the assessee by his father. A house was constructed on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the Tribunal, would be Rs. 22,200. The Appellate Tribunal held that section 52(1) of the Act is inapplicable. In its opinion, section 52(2) of the Act is applicable and, in the light of the decision of the Kerala High Court in CIT v. N. S. and North Malabar Public Conveyance (P.) Ltd. [1976] 102 ITR 36, the assessment made was valid. The Tribunal found that the plea of the assessee that since the Income-tax Officer invoked section 52(1) and had not recorded the finding that the transfer had been made with a view to avoiding or reducing the tax liability under section 45, the computation of capital gains was not properly done, cannot be accepted. It is thereafter at the instance of the assessee that the Income-tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y section 52(1). The Tribunal further held that since it had not been established that the assessee had received something more than the consideration stated in the sale deed, the provisions of that section would not apply following the decision of the single judge of the Kerala High Court in K. P. Varghese v. ITO [1970] 77 ITR 719. On a reference, the High Court held that, on facts, the case fell under section 52(2) and hence the Income-tax Officer was justified in computing the capital gains by taking the fair market value as the full consideration received for the sale. It must be noticed that, in that case, there was no finding by the Income-tax Officer that the sale in question had been made with a view to avoid or reduce the liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous in law. In K. P. Varghese v. ITO [1981] 131 ITR 597, at page 614, the Supreme Court, adverting to section 52(2), stated the law thus : " It is not enough to attract the applicability of sub-section (2), that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15 per cent. of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is understated or, in other words, shown at a lesser figure than that actually received by the assessee. Sub-section (2) has no application in the case of an honest and bona fide transaction where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot ask the court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15 per cent. difference is satisfied, the transaction may be a perfectly honest and bona fide transaction and there may be no understatement of the consideration. The fulfilment of the second condition has, therefore, to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before sub-section (2) can be invoked and the burden of doing so is clearly on the Revenue. . . ." It will be evident from the above decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abar Public Conveyance (P.) Ltd. [1976] 102 ITR 36 (Ker), does not lay down the correct proposition of law on the point. We concur with the said observation. In the light of the above, the order of the Appellate Tribunal confirming the assessment under section 52(2) of the Act is plainly erroneous in law. In our view, question No. 1 does not arise on the facts of this case. Question No. 2, referred to this court, should be answered in the negative and against the Revenue and in favour of the assessee. The Appellate Tribunal was in error in confirming the assessment. Section 52(2) of the Act was wrongly invoked. The finding that the transfer was made with a view to avoid or reduce the capital gains tax is a necessary prerequisite. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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