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TMI Blog1981 (10) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... t March, 1964, the relevant assessment year being 1964-65, she transferred a 6/7 ths share of this property to her three sons for a consideration of Rs. 3,60,000. However, the market value of this property according to her wealth-tax records was rupees five lakhs. The GTO levied a gift-tax on this transaction. The difference between the sale price shown in the deed of 21st September, 1963, and the market value was treated as a gift. The market value of 6/7 ths portion of the bungalow was eventually determined at Rs. 4.28,571 and gift-tax imposed. But the ITO, while completing the I.T. assessment of the assessee, also sought to tax the difference between Rs. 4,28,571 and Rs. 3,60,000 as capital gains. As the difference between the market value and the consideration declared was Rs. 68,571 which exceeded 15 per cent. of the declared consideration, the ITO invoked the provisions of s. 52(2) of the necessary to establish that the transfer had been effected with the object of avoiding liability under s. 45 of the Act. The ITO also added an amount of Rs. 32,143 as the difference in sale price and market valuation as on 1st January, 1954; taking the property appreciation to be more or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or under a scheme of amalgamation; transfer of a capital asset under gift or a will or an irrevocable trust. The Tribunal, therefore, held that since the transaction resulted in a charge of gift-tax it could not also result in a charge of capital gains tax. In this court, Mr. Madan Lokur, learned counsel for the revenue, submitted that the question of bona fides of the transaction was irrelevant for the purposes of s. 52(2) of the Act. Once the ITO was of the opinion that the fair market value of the capital asset on the date of the transfer exceeded the full value of the consideration declared by the assessee in respect of the transfer by more than I 5 per cent. of the value so declared, the full value of the consideration with the previous approval of the IAC must be taken to be the fair market value and assessed to capital gains accordingly. Learned counsel also pointed out that the decision of the Kerala High Court in K. P. Varghese's case [1970] 77 ITR 719, on which the Tribunal had relied, has since been overruled by a Full Bench of that court ([1973] 91 ITR 49). In the alternative, counsel submitted that deemed gift is not includible in the expression " gift " in s. 47(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cases of understatement. " The section reads: " 52. (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. (2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer." Sub-section (2) was inserte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed or declared, i. e., it is understated. As noticed above, this sub-section was introduced in 1964 as a part of the main section dealing with "consideration for transfer in cases of understatement ". This is indicative of the intention of the Legislature. The assurance of the Finance Minister while speaking on cl. 13 of the Finance Bill in the Lok Sabha, that it was not aimed at perfectly bona fide transactions is also of significance. The circular of the Central Board of Direct Taxes issued in exercise of the powers under s. 119 of the Act is also in the same strain. It reads: "Section 13 of the Finance Act, 1964, had introduced a new sub-section (2) in section 52 of the Income-tax Act with a view to countering evasion of tax on capital gains through the device of an understatement of the full value of the consideration received or receivable on the transfer of a capital asset. " Though the circulars of the Central Board are not binding on the court, yet, in general, circulars are binding on the income-tax authorities. Through them, the Board cannot impose a burden on the taxpayer greater than what the statute provides but it can relax the rigour of the law. The Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e term used in s. 47(iii) of the Act; and to the extent the amount of difference between the market value and sale price of property sold by an assessee was treated as a gift and assessed under the G.T. Act, 1958, it was exempt from capital gains tax by virtue of s. 47(iii) of the Act. Ansari J., speaking for the court, after setting out the definition of gift under s. 2(xii) of the G T. Act, as including the transfer of any property deemed to be a gift under section 4, opined (p. 453): " The transaction in question to the extent of the amount which is sought to be assessed under section 45 of the Act has already been treated as a gift and assessed under the Gift-tax Act. The same amount is, therefore, exempt from assessment under section 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 section 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 at all. The same transaction can be taxed under different taxation laws. It can be taxed twice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the definition of " gift " in s. 2(xii) of the G.T. Act was restricted to the purpose of that Act. The first part of the definition approximates to the definition of " gift" in the Transfer of property Act whereas the second part creates a fiction which is made more explicit in s. 4(1) of the G.T. Act. Thus, a transaction which is a simple sale, can for the purposes of gift-tax be deemed to be a gift with regard to the difference in value. The definition in s. 2(xii) or s. 4(1) of the G.T. Act cannot be imported for the purpose of construing " gift " occurring in s. 47(iii) of the I.T. Act as the scope are of the two Acts is different just because the two Acts are part of an integrated system of taxation and are administered by the same officer, the definition in the G.T. Act cannot be taken as the meaning of " gift " in the I.T. Act. Section 52 of the I.T. Act applies necessarily to transfers as envisaged by s. 45 which are not excluded, by s. 47. The word " gift " used in s. 47(iii) of the I.T. Act must refer to a transfer made without consideration and not a deemed gift as per the G.T. Act. A transfer by way of gift and a transfer for consideration with an understatement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be attracted when he takes a single rupee. The language of s. 47(iii) does not compel such a construction and the only meaning of the word "under" in that clause can be " involving " or " by way of " ; to the extent to which there is a shortfall of consideration the transfer can be said to be under" or "by way of" a gift, the word gift being used in its ordinary meaning in common parlance and not in the sense in which it is used in the G.T. Act, or the Transfer of Property Act. The Karnataka High Court in Sanjiv K. Kudva's case [1981] 127 ITR 354 also made this distinction between bona fide and non-bona fide transactions it held that s. 52 of the Act would apply only to cases of understatement. This is because the use of the word " declared " in s. 52(2) establishes that it is only when a vendor has declared a lower consideration in the deed than he has received, that the provisions of the sub-section are attracted. Where the consideration actually received is the same as the consideration actually recorded in the sale deed, it cannot be said to be a case of understatement merely because the fair market value exceeds by 15 per cent. the actual sale consideration as it is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent evidence in sub-section (2) which suggests that the thrust of that subsection is directed against cases of understatement of consideration. The crucial and important words in sub-section (2) are : the full value of the consideration declared by the assessee'. The word 'declared' is very eloquent and revealing. It clearly indicates that the focus of sub-section (2) is on the consideration declared or disclosed by the assessee as distinguished from the consideration actually received by him and it contemplates a case where the consideration received by the assessee in respect of the transfer is not truly declared or disclosed by him but is shown at a different figure. " The learned judge has laid emphasis on the rule in Heydon's case [1584] 3 Co. Rep. 7 a of suppressing the mischief and advancing the remedy. In order to ascertain the intentions of the Legislature the Supreme Court has relied on, inter alia, the Finance Minister's speech which indicated that s. 52(2) was not aimed at perfectly bona fide transactions. It has also relied on the marginal note to appreciate the drift of the provision, as also on the circular of the CBDT dated 7th July, 1964, which was issued soon a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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