COMMISSIONER OF INCOME TAX Vs. T NARAYANA PAI

JUDGEMENT

(1.) This reference under S.256(1) of the Income Tax Act, 1961, hereinafter called the Act, made at the instance of the Commr.LT., Mysore, relates to the assessment year 1965-66. The question of law referred by the Income Tax Appellate Tribunal, Bangalore Bench, is :

(2.) For the assessment year 1965-66, an assessment order was made by the ITO on 8-6-1966, on a total income of Rs.29,062 which included share of promts from various firms and also dividends and interest on securities. On 27-3-1965, in the year of account relevant TO the assessment year 1965- 66, the a,ssessee, had sold 4,735 partly paid 'B' class ordinary shares of Rs,10 each (Rs.7-50 paid) of the Syndicate Bank Ltd., Manipal, to Dr.T.M.A. Pai Benevolent Fund Trust at the cost price. The Commr. of IT issued under S.263 of the Act 3 notice dt. 19-4-1968 requiring the assessee to show cause as to why the assessment order dt.8-6-1966 should not be revised and the ITO asked to re-do the assessment by Assessing capital gains arising out of the sale of the shades by applying the provisions of S.52 of the Act The assessee, through his authorised representative, filed objections to the proposed revision. It was contended in the said objections that the provisions of sub-section (1) of Section 52 of the Act are not applicable to the instant case arid that the provisions of sub-sec. (2) of the said section are also not applicable in view of the fact that partly paid up shares of the Syndicate Bank, are not quoted in the market and they also do not find ready buyers and therefore there is no basis to hold that their fair market value on the date of transfer was Rs.16.90 per share as stated in the notice of the Commr, The objections raised were rejected by the Commr., and by order dt.4-5-1968, he set aside the assessment order of the ITO and directed him to re-do the assessment in accordance with law. The assessee appealed to the ITAT, Bangalqre Bench. The Tribunal, after hearing the parties, set aside the order of the Commissioner on the ground that there was no definite material for the Commissioner on which he could have come to the conclusion that the order parsed by the ITO was erroneous in so far as it is prejudicial to the interests of the revenue. The department, being aggrieved by the order of the Tribunal, sought a reference to this Court.

(3.) S.263 of the Act confers on the Commissioner the power of revision; he is empowered to call for the record of any proceeding under the Act, and if he considers that anv order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the revenue, he may, a,ter giving the assessee an opportunity of being heald and after making qr causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The section requires that two conditions should be satisfied in order to entitle the Commissioner to set aside an order passed by the ITO. The said conditions are: (1) that the order proposed to be revised is erroneous; and (2) that such order has resulted in prejudice to the interests of the revenue The satisfaction of these two conditions is essential for setting aside the order proposed to be revised. The question now is whether the Tribunal was right in the view it has taken that there was no material for the Commr. of I.T. to come to the conclusion that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the revenue.