TMI Blog1968 (12) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that the Tribunal was right in holding that the proviso has no application. The assessee is a private limited company with its head office at Pudukottai and a branch at Madras. The reference is concerned with the assessment year 1959-60. Out of a total 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 share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the directors of the assessee and were thus directly connected to them by the relationship. That is one of the requisites for the application of the proviso to section 12B(2) and that is therefore satisfied. The revenue at all stages declined to accept the assessee'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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, relinquishment or transfer, is a person with whom the assessee is directly or indirectly connected, and the Income-tax Officer has reason to believe that the sale, exchange, relinquishment or transfer was effected with the object of avoidance or reduction of the liability 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a difference between the consideration for the transaction and the fair market value, the consideration for the transaction shall be taken to be the fair market value. When can this assumption be made ? It is obvious that the transaction should be a real one and has been 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as we read the proviso, is not its purpose. It does not treat what is not an actual capital gain as a deemed capital gain. In fact, occurring as it does as the first proviso to sub-section (2) dealing with the procedural aspect of computation, it should, we think, be 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 suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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