SABYASACHI MUKHARJI, J.

( 1 ) IN this reference, we are concerned with the assessment year 1962-63 relevant to the financial year 1961-62. The assessee is an individual. During the relevant year, he sold 1,150 shares of Bharat Woollen Mills Ltd. to his brother, Sri P. N. Mehrotra, at the rate of Rs. 10 per share, for a sum of Rs. 11,500. The break-up value of those shares, on the basis of the balance-sheet, would have been Rs. 50,209 on the date of the transfer. The ITO was, therefore, of the opinion that the provisions of Section 52 (1) of the I. T. Act, 1961, were applicable. It was contended on behalf of the assessee that under Section 47 (iii) of the Act, a gift was not regarded as transfer of a capital asset and was not assessable to capital gains and the transaction was a deemed gift within the meaning of the definition of the G. T. Act, 1958, The ITO did not accept this contention. He, therefore, treated the difference of a sum of Rs. 46,126 in the value of those shares on the basis of the balance-sheet of the company and the price charged as capital gains, which amounted to Rs. 7,417 already declared by the assessee and included the remaining amount of Rs. 38,709 in the assessment. The assessee preferred an appeal to the AAC. The AAC agreed with the ITO and upheld the addition. The assessee, thereafter, preferred a second appeal before the Tribunal. The Tribunal did not go into the question as to whether Section 47 (iii) of the I. T. Act, 1961, contemplated a gift as defined in the Transfer of Property Act or a deemed gift as provided in the G. T. Act, because in its opinion, the assessee was entitled to the relief on the ground that he had been taxed on this very amount in the proceedings under the G. T. Act for that year. In the opinion of the Tribunal, the department in respect of that transaction had treated it as a deemed gift. The assessee had paid the amount of gift-tax so determined. In the opinion of the Tribunal, therefore, it would not be proper, in the interest of justice, to allow the revenue to impose any capital gains tax on that transaction and, in that view of the matter, the Tribunal allowed the assessee's appeal.

( 2 ) IN the premises, under Section 256 (1) of the I. T. Act, 1961, the Tribunal has referred the following question to this court:"whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 38,709 was not liable to tax as capital gains ?"

( 3 ) IN order to consider this question, it would be proper to refer to the relevant sections. Section 2 (47) of the I. T. Act, 1961, defines "transfer" for the purpose of the I. T. Act as follows:"2. (47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. "

( 4 ) SECTION 45 of the I. T. Act, 1961, provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54b and 54d, be chargeable to income-tax under the head "capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. Under sub-cl. (iii) of Section 47 nothing contained in Section 45 shall apply to "any transfer of a capital asset under a gift or will or an irrevocable trust". Section 52, so far as material for our purpose, provides as follows :"52. Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer. "

(

Click Here to Read the rest of this document