Law:

Section:

Section 48 of the Income-tax Act, 1961 [Corresponding to section 12B(2) of the Indian Income-tax Act, 1922] – Capital gains – Computation of – Assessment year 1960-61 – Whether for purpose of taking fair market value, to be value on basis of which capital gains are to be computed, two conditions as required by first proviso to section 12B(2) of 1922 Act should be fulfilled and these conditions are cumulative – Held, yes – Whether if on computation made these is capital loss then there cannot be any liability for capital gains under section 12B of 1922 Act – Held yes FACTS During the accounting year relevant to the assessment year 1960-61, the assessee sold certain shares and shown profit. When the ITO went into the question of levying capital gains on those transactions, the assessee requested substitution of the fair market value of the shares as on 1-1-1954, under the second proviso to sub-section (2) of section 12B of 1922 Act in place of cost price. The ITO worked out the fair market value of the shares on the basis of the break-up value as on the 1-1-1954, at Rs. 14.62 per share. With regard to the sale price the ITO found that the sales were effected by the assessee at Rs. 2.25 per share. On the facts of the case, the ITO held that the sales were to persons with whom the assessee was directly or indirectly connected as the assessee was a Birla group of concerns and the sales were to the members of the Birla family. In those circumstances, the ITO came to the conclusion that, even though the shares were of very high value, the sales were effected with the object of reducing the assessee's liability under section 12B of 1922 Act and determined the fair market value of the shares on the break-up method at Rs. 14.45 per share. On second appeal, it was contended before the Tribunal that the first proviso to section 12B(2) of 1922 Act had no application and, alternatively, in arriving at the sale price, deduction should be given for the brokerage on the sale of the shares. The Tribunal held that proviso to section 12B(2) of the 1922 Act was applicable only if: (i) the person acquiring the share, that is, the purchaser, is one with whom the assessee is directly…

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