VARGHESE K P Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE question arising for decision in this case is whether Section 52 of the Income-tax Act, 1961, has any application in computing capital gains arising from the transfer of a capital asset for a consideration lesser than its fair market value; in other words, whether the capital gains is to be computed on the basis of the actual consideration arising to the assessee or on the basis of the fair market value of the asset transferred. THE facts, in so far as they are necessary for the decision of the above question, are not in dispute. THE petitioner is an assessee to income-tax. For the year 1966-67, his total income during the year ending on 31st December, 1965, was fixed at Rs. 97,890, and he was assessed accordingly. He had purchased an item of house property situate within the municipal town of Ernakulam in 1958, for a consideration of Rs. 16,500. On 25th December, 1965, he sold it for the same consideration in favour of a 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-l 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 petitioner submitted his objections, exhibit P-4, on the same day. By his order, exhibit P-5, dated 31st March, 1969, the Income-tax Officer overruled all the objections raised by the petitioner, and reassessed him by including the said sum of Rs. 48,500 as part of his total income for the year 1966-67. This writ petition has been filed to quash exhibit P-5.

(2.) THE main objection raised by the petitioner before the Income-tax Officer was that there was no question of any capital gains, when a capital asset is transferred for the same consideration as for which it was originally acquired. THEre is no dispute that the petitioner actually received only Rs. 16,500 by the sale of the property. THE difference between the fair market value and the actual consideration received by the petitioner was treated as gift under Section 4 of the Gift-tax Act, 1958, and assessed under that Act. THE Income-tax Officer, however, held that Section 52 of the Act applied to the case, and that capital gains had accordingly to be computed on the basis of the fair market value of the asset. THE only question pressed before me by the learned counsel for the petitioner is whether Section 52 has any application to the case. THE point does not appear to be covered by any judicial pronouncements. THE learned counsel for the petitioner and for the department have argued the case with ability and thoroughness.

(3.) 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.