TMI Blog1972 (7) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... do not, therefore, recapitulate them. In the inclusive definition of "income" in section 2(24) of the Income-tax Act of 1961, " capital gains" chargeable under section 45 are also included. And under section 5, the scope of "total income" is fixed; and what is provided in sub-section (1) thereof is that the total income of the previous year of a person who is a resident will include all income from whatever source derived, which is received or is deemed to be received in India by him or on his behalf in such year, or accrues or arises or is deemed to accrue or arise to him in India during such year, or accrues or arises to him outside India during such year. The deeming in this provision, obviously, does not have the effect of converting an income not received by him or which does not accrue or arise to him into an income deemed to have been received by him or into one which is deemed to accrue or deemed to arise to him; in other words, the deeming relates to place. It is a well-established principle of income-tax that "income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or assumptions; and that the court must look squarely at the words of the statute and interpret them in the light of what is clearly expressed without implying anything or importing any provision so as to apply any assumed deficiency (vide Commissioner of Sales Tax v. Modi Sugar Mills Ltd.). This decision has further laid down that a legal fiction must be limited to the purpose for which it has been enacted and cannot be extended beyond its legitimate field (vide also Commissioner of Income-tax v. Amarchand N.Shroff). Section 45 provides that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall, . . . .be chargeable to income-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place." Section 48, which provides for the mode of computation of the tax and deductions, lays down that the income chargeable under the head "Capital gains" shall be computed by deducting from "the full value of the consideration received or accruing as a result of the transfer of the capital asset" the following amounts. (Then the amounts to be deducted are mentioned). Section 52 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset in section 52 is the same as "the full value of the consideration received or accruing as a result of the transfer" in section 48(1). On the other hand, counsel for the respondent has contended that the language used in section 48(1) is "the full value of the consideration received or accruing as a result of the transfer of the capital asset" and not the full value of the consideration for the transfer as in sub-section (1) or "the full value of the consideration for such capital asset" as in sub-section (2) of section 52. There is nothing in the language of these two sub-sections to show that the full value of the consideration for the transfer of the capital asset appearing in section 52 should be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. If the legislature wanted to have that effect, it could have easily used the expression "the full value of the consideration received or accruing" in section 52. Since this has not been done, there is no justification for holding that the full value of the consideration, which is deemed to be the fair market value of the capital asset, in section 52 is the full v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such under-statement of consideration where the consideration received is more, and not to cases like the one before us where nothing more is received by the assessee or where nothing more accrues to him : in such cases, no profits or gains arise from the transfer. This appears to be the scheme of these sections. Therefore, I mean, in view of the language of section 52 and in view of its difference from the language of sections 45 and 48, I have no hesitation in holding that what is taxable as capital gains is only the full value of the consideration received or accruing or the profits or gains arising from the transfer. And the marginal note of section 52 is only in consonance with this interpretation. The other interpretation put forward by the appellant is not warranted by the language of section 52, nor by its marginal note. By section 47(iii) it is provided that "nothing contained in section 45 shall apply to any transfer of capital asset under a gift or will or an irrevocable trust". The term "gift" is not defined in the Income-tax Act ; but section 4(a) of the Gift-tax Act provides that "where property is transferred otherwise than for adequate consideration, the amount b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle judge in regard to the amount of Rs. 48,500 about which alone there was controversy. I also pass no orders regarding costs, GOPALAN NAMBIYAR J.--This appeal is against the decision of a learned judge of this court in O.P. No. 3293 of 1969 quashing the assessment order (exhibit P-5) passed against the writ petitioner. The writ petitioner was assessed to income-tax for the assessment year 1966-67. By exhibit P-1 notice issued under section 148 of the Income-tax Act, 1961, he was informed that his income had escaped assessment within the meaning of section 147 of the Act and that a reassessment was proposed. After the petitioner filed objections (exhibit P-2) he was informed by exhibit P-3 that the escaped income proposed to be assessed consisted of the difference between a sum of Rs. 65,000 representing the fair market value of a house property within the municipal limits of Ernakulam which the petitioner had conveyed to his daughter-in-law and to his five children under a sale deed dated December 25, 1965, and Rs. 16,500, the face value of the consideration for the said document. The difference between the two amounts was sought to be treated and assessed as "capital gains". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax v. Bhogilal Laherchand Mahajan J., who spoke for the Supreme Court, referring to the similar provisions in section 4 of the Indian, Income-tax Act, 1922, observed: " The term 'deemed' brings within the net of chargeability income not actually accruing but which is supposed notionally to have accrued. It involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability." Again in Navinchandra Mafatlal's case, the Supreme Court observed: "The truth of the matter is that while income-tax legislation adopts an inclusive definition of the word 'income' the scheme of such legislation is to bring to charge only such income as falls under certain specified heads (e.g., the 5 Schedules of the English Act of 1918 and our section 6 read with the following sections) and as arises or accrues or is received or is deemed to arise or accrue or to be received as mentioned in the statute. The courts have striven to ascertain the meaning of the word 'income' in the context of this scheme." In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer. (2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer." On a conspectus of the above sections, to my mind, what flows is that profits or gains "arising from the transfer of a capital asset" shall be chargeable to tax as capital gains under section 45 ; and the mode of computation provided in section 48 shall be by deducting from "the full value of the consideration received or accruing as a result of the transfer of the capital asset", certain amunts provided by the section. And section 52 enacts that in certain conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfined in its operation to cases of understatement of consideration. Going by the language of the section, I find it impossible to so limit its operation. It authorises and sanctions a hunt for the fair market value and not for the real consideration received, irrespective of whether you can get at the latter or not. The head-note cannot control the language in the body of the section, any more than a marginal note can. The position is well-accepted ; and were authority needed for the position, I need refer only to Emperor v. Sadashiv Narayana Bhalerao. The head-note in its present form was there even prior to the introduction of sub-section (2) of section 52 by the Finance Act of 1964, and remained unaltered after the said amendment. I am also of the view that neither the speech of the Minister at the time of the introduction of the Finance Bill, nor the instructions issued by the Central Board of Revenue after the same was passed into law, showing what the Board understood to be the intendment and the effect of section 52, should be allowed to control the plain words of the section. Counsel for the respondent contended that, if section 52 were to be read along with section 48, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of this Act,-- (a) where property is transferred otherwise, than for adequate consideration the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor; and (b) where property is transferred for a consideration which, having regard to the circumstances of the case, has not passed or is not intended to pass either in full or in part from the transferee, to the transferor, the amount of the consideration which has not passed or is not intended to pass shall be deemed to be a gift made by the transferor." In the light of these provisions it was said that the transaction in question, to the extent of the difference between the fair market value of the property and the consideration received for the transfer was a gift, and, therefore, cannot be treated as a transfer of a capital asset for the purpose of the Income-tax Act. I am unable to agree. The definition section, and section 4 of the Gift-tax Act, both make it clear that they are only for the purpose of that Act, Being so, I find no warrant for reading the special provisions of the Gift-tax Act into the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the notice or the proceedings, and that the satisfaction of the officer can well be made out de hors these. The learned judge also found that the impugned action was in fact taken under sub-section (2) of section 52 and not under sub-section (1). On both these aspects I record my agreement with the learned judge. The provisions of section 52(2) are without prejudice to the provisions of section 52(1) ; and once the conditions stated therein are satisfied as they undoubtedly are, there is no question of looking for the officer's satisfaction or belief that the transfer was made with the object of avoidance or reduction of tax liability as required by section 52(1). It was argued that to permit the assessment to income-tax on the ground of capital gains in respect of the transfer here involved, and, at the same time to assess the difference between the market value and consideration received to gift-tax under the Gift-tax Act, would amount to double taxation. As pointed out in Reid's Trustees v. Commissioners of Inland Revenue, there is nothing inconsistent in principle in making the same sum subject to two different taxes under two different enactments. The statutes therein inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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