Law:

Section:

Section 48 of the Income-tax Act, 1961 (corresponding to section 12B of the Indian Income-tax Act, 1922) - Capital gains - Computation of - Assessment year 1960-61 - Whether incidence of charge being on capital gains actually received by assessee, in order that transfer was one with object of avoiding or reducing liability of assessee under section 12B it must be a case where consideration mentioned in deed has been understated and actually transferor has received more than what was stated in document - Held, yes - Whether, where, assessee transferred shares in a company to a person connected with him, for much less than fair market value of shares, first proviso to section 12B(2) was not applicable - Held, yes FACTS During the accounting period relevant to the assessment year 1960-61, each of the three assessees sold certain shares in a company to persons directly or indirectly connected with either of them at the uniform price of Rs. 125 per share while the face value of each share was Rs. 100. The ITO took the view that the provisions of the first proviso to section 12B were attracted. he, accordingly, computed the value of the shares at Rs. 375 on the basis of the balance sheet of the company as on 31-10-1959. While arriving at the above value, the ITO rejected the deductions claimed by the assessees on account of provision for taxation and the proposed dividend. On appeal, the AAC took the view that the balance sheet as on 30-10-1958 which had been published prior to the date of sales alone could be taken into consideration and not the balance sheet as on 31-10-1959. He further held that the provision for taxation as claimed by the assessee, had to be deducted in computing the net wealth of the company, while the proposed divident could not be deducted. he accordingly, computed the fair market value of the shares at Rs. 171.50 each. On second appeal, the Tribunal confirmed the ITO's view regarding the fair market value of shares to be computed as per the balance sheet as on 31-10-1959 which was nearer to the dates of sales in question. However, the question of deductions, Tribunal upheld the AAC's order. In this view of the matter, the Tribunal directed…

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