Law:

Section:

Section 52 of the Income-tax Act, 1961 - Capital Gains - Under-statement of consideration for transfer - Assessment year 1964-65 - Whether mere fact that fair market value exceeded full value of consideration received will not justify application of section 52(1) - Held, yes - Whether section 52 (2) has no application in case of honest and bona fide transaction where consideration received by assessee has been correctly declared or disclosed by him unless it is established that consideration actually received by assessee is more than what is declared or disclosed by him - Whether section 52(2) does not create any fictional receipt - Held, yes FACTS While completing the assessment the ITO held that transfer of assets made to a near relative by the assessee was with the avoidance of liability under section 45. On appeal, the AAC held that the ITO had brought on record no material to substantiate that the transaction was effected with the object of avoidance or reduction of liability under section 45. He, therefore, cancelled the ITO's order in respect of capital gains. On further appeal, the revenue contended that section 52(2) applied to the case and on that basis the order of the ITO should have been sustained. The Tribunal held that the order of the AAC was one under section 52(1) and not under section 52(2), and therefore, the entire argument of the revenue in regard to section 52(2) was without any foundation in fact. On reference: HELD The necessary ingredients of the section 52(1) are firstly, that there should be a direct or indirect connection between the person who acquires the capital asset and the assessee. Secondly, the ITO should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains and thirdly, if the first two conditions are satisfied, then the full value of the consideration for the transfer can be taken to be the fair market value of the capital asset on the date of the transfer. Second requirement of section 52(1) can be satisfied only if there is cogent material on which the ITO would have reason to believe that the transfer was effected with the object…

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