SURENDRANATH N Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE petitioner and his brother, N. Muraleedharan, a non-resident Indian, purchased properties having an extent of 8.5 cents each in Survey No. 2583 of Chengazhacherry Village, Trivandrum Taluk, by two separate documents dated May 19, 1978. THE petitioner happened to be the power of attorney of his brother. THE purchase was for a consideration of Rs. 77,500 each. THEse properties were sold in December, 1980, by two separate sale deeds for a consideration of Rs. 1,27,500 each. THE petitioner filed a consolidated return for the purpose of the assessment under the Income-tax Act, 1961, for the year 1981-82 for himself and on behalf of his brother, Muraleedharan. THE Income-tax Officer treated the sale as a consolidated single one and assessed the entire capital gains arising out of the total sale proceeds of Rs. 2,55,000 on the petitioner. THE order of assessment is exhibit P-l. This was subsequently rectified by exhibit P-2 disallowing the excess amount wrongly allowed under Section 80T. THE petitioner challenged both these orders in revision under Section 264 of the Act before the Commissioner of Income-tax, the plea raised being that the properties belonged separately to the two brothers and, therefore, the capital gains arising out of the sale transactions should be assessed separately in their hands. THE Commissioner did not find his way to accepting this contention on the ground that the entire purchase price was paid by the petitioner's brother, Muraleedharan, and, therefore, it has to be presumed that the properties were owned by him. According to the Commissioner, there was no evidence forthcoming to show that the consideration for the petitioner's purchase proceeded from him and not from Muraleedharan. He, therefore, declined to entertain the revision petition and rejected it by his proceedings, exhibit P-4. In the meanwhile, another assessment had been completed on Muraleedharan treating the amount advanced by him to the petitioner for the purchase effected by him as an assessable gift under the Gift-tax Act and levying gift-tax on him. This order, exhibit P-5, was challenged by Muraleedharan in appeal before the Deputy Commissioner of Income-tax (Appeals), which was disposed of by the order, exhibit P-6. THE Deputy Commissioner held that Muraleedharan had not made any gift of the amount to the petitioner, but had actually advanced a loan to enable the petitioner to purchase his share of the property. He noted that there was no material on record to prove that the sum of Rs. 85,000 advanced was not a loan, but a gift given by Muraleedharan to the petitioner. THE appeal was, therefore, allowed holding that there was no reason to treat 50 per cent. of the purchase consideration as gift. It is agreed on both sides and it is not in dispute that the Department has not challenged this order, exhibit P-6, in further proceedings by way of appeal and that this order has become final.

(2.) THE consequence of exhibit P-6 is that the amount advanced for the purchase of the petitioner's property is an amount belonging to him, having been lent to him by his brother. If so, the purchases on May 19, 1978, have to be treated as separate with the two brothers owning the two bits of properties transferred to them. THEre is no joint or co-owernship of the properties, nor does the title to the entire property vest in Muraleedharan as assumed by the Commissioner. THE two properties belonged separately to the petitioner and Muraleedharan for consideration advanced by them separately, which is the natural inference to be drawn from exhibit P-6. THE capital gains arising out of the sale transactions in the year 1980 have therefore, to be assessed separately in the hands of the petitioner and Muraleedharan. THEy could not have been clubbed together in one assessment and the entire consideration treated as having been received by one of the two brothers only. Exhibit P-1 is, therefore, contrary to the facts of the case as now held in exhibit P-6. Consequently, exhibit P-2 is also unsustainable. THE Department cannot, for the purpose of assessment to gift-tax, treat the amount as having been gifted to the petitioner, and at the same time treat the entire amount as belonging to Muraleedharan or the petitioner when it came to the question of assessing the capital gains. Exhibits P-1 and P-4 are unsustainable in the light of the subsequent proceedings, exhibit P-6, which has been accepted by the Department and which has become final. Exhibit P-1, the rectification (exhibit P-2) and the revisional order (exhibit P-4) are liable to be quashed with a further direction to assess the capital gains separately in the hands of the petitioner and his brother, Muraleedharan.