TMI Blog1984 (12) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... olders of the assessee company. The assessee company sold 1,500 equity shares of Eastern India Cotton Manufacturing Company (P.) Limited to three persons who are the close relatives of the directors and the shareholders of the assessee company. The said shares were sold during the previous year relevant to the assessment year 1970-71 at Rs. 120 per share. The Income-tax Officer was of the view that the fair market value of the said shares was Rs. 167 per share and because the assessee had sold the said shares at a rate much lower than the fair market value, the provisions of section 52(2) of the Income-tax Act, 1961, were applicable. The Income-tax Officer accordingly determined the fair market value at Rs. 167 per share and thus computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was no finding given by the Revenue authorities that there was understatement of consideration in the sale of 1,500 shares of East India Cotton Mfg. Co. Private Ltd. and, therefore, the Income-tax Officer was not justified in substituting the fair market value. In the opinion of the Tribunal, the transaction of sale was bona fide and the full value of consideration received by the assessee had been correctly declared. The Tribunal accordingly directed the Income-tax Officer to accept the sale consideration received and shown by the assessee for the sale of the said shares and to compute the capital gains accordingly. Thus, the Departmental appeal was dismissed by the Tribunal, whereas the assessee's appeal was allowed. At the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an understatement in the consideration for the sale declared by the assessee and the Income-tax Officer had to discharge the same burden for the purpose of applying the provisions of the said section? It has been contended by Mr. H.M. Dhar, the learned counsel on behalf of the Revenue, that the fair market value was determined by the Income-tax Officer at Rs. 167 per share on the basis of the break-up value whereas the valuation report dated March 4, 1974, filed after the completion of assessment by the assessee shows that the break-up value of the share was computed by the valuer at Rs. 179.82. The assessee sold the shares at Rs. 120 per share. Thus, on the assessee's own showing, there is substantial difference between the fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer. " The Minister of Finance made the following observation in respect of the provisions of section 52(2) of the Act during his reply to the debate in the Lok Sabha at the time of clause by clause consideration of the Finance Bill, 1964: " Today, practically every transaction of the sale of property is for much lower figure than what is actually received. The deed of registration mentions a particular amount, the actual money that passes is considerably more. It is to deal with these classes of sales that this amendment has been drafted ...... It does not aim at perfectly bona fide transaction... but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t condition is that the Revenue must show that the fair market value of the asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15% of the value so declared. The second condition is that the consideration has been understated and the assessee has actually received more than what is declared by him. The burden of showing that these two conditions are satisfied rests on the Revenue. The burden is not discharged by merely establishing that the first condition of 15% difference is satisfied. The second condition has to be established independently of the first condition. Even if the condition of 15% difference between the fair market value of a capital asset as on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The difference in the fair market value and the price received by the assessee cannot by itself be a ground for invoking the provisions of section 52(2) unless it can be shown by the Revenue that there are circumstances from which a reasonable inference can be drawn that the assessee had not correctly declared or disclosed the consideration received by him and there is understatement or concealment of the consideration in respect of the transfer. Sub-section (2) of section 52 has no application in the case of an honest and bona fide transaction. The transaction would be honest and bona fide where the consideration received by the assessee has been correctly declared or disclosed by him and there is no concealment or suppression of the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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