Bombay High Court
Commissioner Of Income-Tax vs Amarchand B. Doshi on 12 April, 1991
Equivalent citations: [1992]194ITR56(BOM)
JUDGMENT T.D. Sugla, J.
1. In these two departmental references relating to the assessee's assessment years 1971-72 and 1972-73 and 1968-69 to 1970-71, respectively, the Income-tax Appellate Tribunal has referred to this court the following question of law for opinion under section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that having applied the provisions of section 52(2) of the Income-tax Act, 1961, to the conveyance of property executed by the assessee to his wife and brought to tax capital gains on the basis of the fair market value of such property as on the date of the conveyance and not on the basis of the actual consideration received by the assessee from his wife, it will not be open to the Department to invoke the provisions of section 64(1)(iii) of the Act to include in the total income of the assessee after such conveyance two-thirds of the income from such property ?"
2. Some time during the accounting period relevant to the assessment year 1968-69, to be precise on February 24, 1966, the assessee sold an item of property to his wife for a consideration of Rs. 48,000. It is common ground that the fair market value of the property as on the date it was transferred was Rs. 1,49,873 and that its cost price to the assessee was Rs. 17,100. Applying the provisions of section 52(2) of the Income-tax Act 1961, the Income-tax Officer worked out the long term capital gains taxable in the assessee's hands on account of the aforesaid transactions, as the fair market value on the date of its transfer for the purpose of levy of tax on capital gains. The applicability of the provisions of section 52(2) of the Act was challenged by the assessee before the Appellate Assistant Commissioner and the Tribunal. It appears that the dispute was taken to this court at the instance of the assessee. However, counsel for the assessee, though served, was not present and Mr. Jetley, learned counsel for the Revenue was not able to inform the court as to what happened in that matter.
3. Even after applying the provisions of section 52(2) of the Act, the Income-tax Officer held that the provisions of section 64(iii) were attracted inasmuch as the property was, admittedly transferred by the assessee to his wife without adequate consideration. Accordingly, he held that two thirds of the income from that property were includible in the total income of the assessee under section 64(iii). The Appellate Assistant Commissioner accepted the assessee's submission that having taken recourse to the provisions of section 52(2), the logical conclusion was that the assessee was deemed to have received fair market value of the property as consideration, so that the assessee's case would not fall within the mischief of section 64(iii). Accordingly, he directed the Income-tax Officer to exclude from the assessee's total income, the income from the property transferred by the assessee to his wife. The Tribunal dismissed the departmental appeals more or less for the reasons given by the Appellate Assistant Commissioner. In particular, the Tribunal observed that section 52(2) created a legal fiction as to the fair market value of the property transferred. The effect of the legal fiction was, as had been considered by the Supreme Court in State of Bombay v. Pandurang Vinayak [1953] SCR 773, 778, that the assessee had received adequate consideration for the transfer of the said property.
4. As stated earlier, none appeared on behalf of the assessee, though served. Mr. Jetley, learned counsel for the Department, took us through the provisions of sections 45, 48, 52 and 64 (as they stood at the material time) to show that section 52(2) did not create any legal fiction as imagined by the Appellate Assistant Commissioner or the Tribunal. According to him the purport and scope of section 52(2) was that, where a property was transferred for less than 15 per cent, of the market value, the fair market value of the property as on the date of the transfer could be taken for that purpose as the full value of the consideration for such capital assets. It certainly did not mean that the provisions created a fiction that the assessee had received the full value of that consideration. Unless there was a fiction of that kind, Mr. Jetley stated that it would have to be held for the purpose of section 64(iii) that the property herein was transferred otherwise than for adequate consideration.
5. In our opinion, the submission made on behalf of the Department by Mr. Jetley is well-founded. We are in agreement with him that section 52(2) does not create any such fiction as visualized by the Appellate Assistant Commissioner and the Tribunal. It merely lays that down that if, in the opinion of the Income-tax Officer, the fair market value of the capital assets on the date of transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer by not less than 15 per cent. of the value so declared, the full value of the consideration shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value on the date of the transfer. In any event, it has been laid down by the Supreme Court in the case of CIT v. Vadilal Lallubhai , that legal fictions are only for a definite purpose. They are limited to the purpose for which they are created and should not be extended beyond their legitimate field. In the circumstances, even if it is assumed for the sake of argument that section 52(2) created some legal fiction, we hold that the fiction is limited to the purport and scope of section 52(2) and will not extend to section 64.
6. Section 64(iii) evidently provides that :
"In computing the total income of any individual, there shall be included all such income as arises.... (iii) to the spouse of such individual from assets transferred... otherwise than for adequate consideration..."
7. Our court had already held in the case of H. N. Patwardhan v. CIT [1970] 76 ITR 279, that in the case of a property transferred to the wife or minor children without adequate consideration, the income from these assets is to be included only to the extent that the consideration is found inadequate.
8. Having regard to the above discussion, we are of the view that the Appellate Assistant Commissioner was not correct in directing the exclusion of 2/3rds of the income from the property transferred herein from the total income of the assessee. Accordingly, we answer the question in the negative and in favour of the Revenue.
9. No order as to costs.