Law:

Section:

First proviso to section 136(2) of the Indian Income-tax Act, 1922 [corresponding section 52 of the Income-tax Act, 1961] - Capital gains - Transfer in case of understatement of consideration - With a view to sequestering the shares held by assesses in a company from clutches of Government, it sold them at a price much lower than their market value and in fact incurred a loss - Revenue could not prove that consideration was understated - Whether first proviso to section 12B(2) was applicable to assessee's case - Held, no Facts The assessee-company was holding certain shares in a company. With a motive of sequestering the said shares from being taken over by the revenue department in settlement of tax dues, it sold said shares at a value much lower than its market value. In fact, the said sale transaction resulted in a loss to the assessee. Applying first proviso to section 12B(2), the ITO computed capital gains on the sale of shares and taxed the same. The Tribunal upheld the ITO's order. The High Court quashed the Tribunal's order observing, inter alia, that though it had been found in this case that the sale was true, the consideration was not understated, and the explanation given by the assessee for effecting the sale was not acceptable ; but it could not be said from the said facts that the sales were effected with the object of avoidance or reduction of liability of the assessee for capital gains. On appeal: Held The first proviso to section 12B(2 ) provides 'full value of the consideration for which the sale, exchange, relinquishment or transfer is made' to be taken as the basis for the computation of the capital gains. Therefore, unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. The onus is on the revenue-the inference might be drawn in certain cases but to come to a conclusion that a particular higher amount was in fact received must be based on such material from which such an irresistible conclusion follows. The proviso helps or enables the department by providing a way to determine the market value. But the proviso is applicable only where the full…

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