TMI Blog1999 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... an the market value, the full value of consideration was taken at the market value of Rs. 52,550 and the long-term capital gains was assessed to tax accordingly. It may be mentioned that in respect of the difference between the market price and declared sale value, the assessee had paid the gift-tax. The CIT(A) accepted the assessee's contention in the following manner : "As seen from the gift-tax assessment order issued under section 15(3) dt. 28-12-89 it is seen that the difference between the market rate and the amount for which the diamond was transferred i.e. Rs. 27,250 was offered as a deemed gift for the assessment year 1985-86 by the assessee in the return of gift filed on 1-12-1987. The gift-tax assessment was completed thereafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Varghese v. ITO [1981] 131 ITR 5 97 is clearly out of the context. 3. The learned counsel for the assessee, on the other hand, vehemently supported the order of the CIT(Appeals) in the light of the principle laid down by the Supreme Court in the case of K.P. Varghese . According to him, there is no finding by the department that the substituted consideration or the market price was actually received by the assessee in the absence of which the provisions of section 52(2) are not applicable. He tried to distinguish the decision of the Madras High Court relied upon by the departmental representative by pleading that the decision in the case of Tibruz Mustafa Bilgen in fact supports the order of the CIT(Appeals). 4. I have carefully conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the difference between the market value and the sale price of a property sold by the assessee which was assessed as gift under the Gift-tax Act is exempt under section 47(iii) from capital gains tax. However, in the facts before me it is not the case of the assessee that since the gift is assessed such transaction should not be treated as capital gains by virtue of section 47(iii). But it is something different. The Assessing Officer in his order nowhere deals with the provisions of section 47(iii). He only proceeds to invoke the provisions of section 52(1) on the reasoning that the sale of diamond was to a close relative for less than the market price and was only made to reduce the wealth-tax liability of the assessee. The Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understatement of the consideration had been established. The Tribunal also held that in view of the gift-tax assessment on the difference between the fair market value of the property an d the declared value treating it as a gift, section 47(iii) of the Income-tax Act stood attracted and hence sections 45 and 52 could not be invoked. On a reference, the Hon'ble Madras High Court held that the Tribunal was not correct in holding that section 47(iii) of the Income-tax Act stood attracted and hence sections 45 and 52 could not be invoked inasmuch as the said section 47(iii) dealt only with actual gift and not with deemed gift. Further, the High Court held that in view of the specific finding of the Tribunal that no extra consideration other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction of the liability of the assessee in respect of capital gains arising from the transfer. If and where these two initial conditions are fulfilled, section 52(1) empowered the I.T.O. to reject the figure of the consideration as purported to have been agreed by and between the parties, and to take it at a figure which is the fair market value of the asset on the date of the transfer. The condition (ii) abovestated obviously involved an understatement of the consideration in respect of the transfer because it is only by showing the consideration for the transfer at a lesser figure than that actually received that the assessee can achieve the object of avoiding or reducing his liability to tax on capital gains. And that is why the marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12B [new section 52(1)], it must be a case where the consideration mentioned in the deed has been understated and actually the assessee has received more than what is stated in the document. The following observations of the Supreme Court in the case of CIT v. Shivakami Co. (P.) Ltd [1986] 159 ITR 71/25 Taxman 80K are relevant and in fact they have dealt with the decision of the Madras High Court in Sivakami Co. (P.) Ltd v. CIT [1973 ] 88 ITR 311 :--- "Capital gains tax was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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