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TMI Blog1968 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... al income of Rs. 8,97,976 returned, Rs. 8,06,916 related to the business income. On August 19, 1954, the assessee had purchased 669 shares of the Southern Roadways Private Limited for a sum of Rs. 93,660. On December 19, 1958, the assessee sold them for a total consideration of Rs. 66,900 to three ladies. On that transaction there was a loss of Rs. 26,760. On November 11, 1959, the directors of the assessee resolved that the difference between the cost and sale prices of the shares might be treated as a gift to the purchasers. What the purpose of this resolution was is not obvious. The market value of the stock as on March 31, 1958, was determined by the Income-tax Officer to be Rs. 1,56,064. He treated the difference between the cost and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's contention that the object of the sale of the shares to the three ladies was to benefit them and it was not made with the object of avoidance or reduction of the assessee's tax liability to capital gains. The Tribunal differing from that view has found as a fact that the sale was a real transaction which was given effect to and acted upon by the parties thereto and that further it was not made with the object of avoidance or reduction of tax liability but made for the purpose of benefiting the ladies. As a matter of fact, even the Appellate Assistant Commissioner mentioned that the motive for the sale might have been the natural love and affection for and desire to provide the ladies. The Tribunal, therefore, held that the second co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of the assessee under this section, the full value of the consideration for which the sale, exchange, relinquishment or transfer is made shall with the prior approval of the Inspecting Assistant Commissioner of Income-tax, be taken to be the fair market value of the capital asset on the date on which the sale, exchange, relinquishment or transfer took place." It is rather curious that this proviso is made part of the procedural part of the section which deals with computation and deductions. The proviso really has the effect of an addition subject to what may follow in this judgment. The main requisites for application of the proviso are: (1) acquisition by a person from the assessee of a capital asset by one of the modes mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n acted upon. But the connection directly or indirectly between the vendor and purchaser may serve as the starting point for a probe as to the motive for the transaction. If in the search for the motive in the light of tangible material the Income-tax Officer is of opinion that the consideration recited for the transaction, which is lower than the fair market value, was a means to avoid or reduce the tax liability, all the requisites required for invoking and applying the proviso would have been satisfied. But where it is found or there is nothing to show that the consideration for the transaction, though lower than the fair market value is not a means or device or a cloak to avoid or reduce the tax liability, the proviso will have no appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreted as limited to escaped capital gain, which is so in truth and in fact, and not intended to bring about fictional gain on an assumption and charge the same. Mr. Balasubrahmanyan strenuously urged before us that even if the consideration for the transaction mentioned is not fraudulent but an honest one representing the truth, if the consideration lower than the fair market value has the effect of avoiding or reducing the tax liability, that in itself would be sufficient for invoking the proviso. On the view of the scope and effect of the proviso we have just now mentioned, we cannot accept this point of view of the revenue. Neither the language of the proviso nor its context nor the structure of section 12B as a whole enables us t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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