K.P. VARGHESE versus THE INCOME-TAX OFFICER, ERNAKULAM, AND ANOTHER

Citation: [1982] 1 S.C.R. 629 · Decided: 04-09-1981 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Cited by 34 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

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629 
A 
K.P. VARGHESE 
v. 
THE INCOME-TAX OFFICER, 
ERNAKULAM, AND ANOTHER 
September 4, 1981 
[P.N. BHAGWATI AND E.S. VENKATARAMIAH, JJ.] 
Capital gains-Whether understatement of consideration in a transfer of pro· 
perty Is a necessary condition for attracting the applicability of sub-.section (2) of 
section 52 of the Income Tax Act, 1961-Burden of proof of such understatement 
is on the Revenue-Interpretation of statutes, explained, 
The appellant assessee sold his house in Ernakularn on 25th of December, 
1965 to his daughter-in-law and five of his children for the same price of 
Rs. 16,500 at which he purchased in the year 
1958. The assessment of the 
assessee for the assessment year 1966-67 for which the relevant accounting year 
was the calendar year 1965 was thereafter completed in the normal course and in 
this assessment, oo amount was included by way of capital gains in respect of the 
transfer of the house, since the house was sold by the assessee at the same price 
at which it was purchased and no capital gains accrued or arose to him as a 
result of the transfer. On 4th April 1968, however, the Income Tax Officer issued 
a notice under. section 148 of the Act seeking to reopen the assessment of the 
assessee for the assessment year 1966-67 and requiring the assessee to submit a 
return of income within thirty days of the service of the notice, without stating 
what was the income alleged to have escaped assessment. However, by his 
subsequent Jetter dated 4th March, 1969, the Income Tax Officer stated that he 
proposed to fix the fair market value of the house sold by the assessee at 
Rs, 65,000 as against the consideration of Rs. 16,500 for which the house was 
sold and assess the difference of Rs. 48,500 as capital gains in the hands of 
the assessee. The objections raised by the assessee were overruled and an order 
of re-assessment was passed by the Income Tax Officer including the sum of 
Rs. 4&,500 as capital gains and bringing it to tax under sub-section (2) of section 
52, taking the view that this sub-section did not require as a condition precedent 
that there should be under statement of consideration in respect of the transfer 
and it was enough to attract the applicability of the sub-section if the fair market 
value of the property as on the date of the transfer exceeded the full value of 
the consideration declared by the assessee by an amount of not less than 15% of 
the value so declared. The assessee thereupon filed a writ petition in Kerala 
High Court challenging the validity of the order of re· assessment insofar as it 
brought a sum of Rs. 48,500 to tax relying on sub-section (2) of section 52 of tho 
th~ Income Tax Act, 1961. The writ petition was allowed, but in appeal the 
Full Bench by a majority judgment agreed with the views of the Income Tax 
Officer and dismissed the writ petition. Hence the assessee's appeal by certifi .. 
cate. 
B 
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A 
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630 
SUPREME COURT REPORTS 
(1982] I s.c.a. 
Allowing the appeal, the Court 
HELD : l : l. Sub-section (2) of section 52 of the Income Tax Act, 1961 
can be invoked only where the consideration for the transfer has been under· 
stated by the assessee or in other words, the consideration actually received by 
the assessee is more than what is declared or disclosed by him. Sub-section (2) 
has no application in case of an honest and bonafide transaction where the consi-
deration received by the assessee has been correctly dec1ared or disclosed by him 
and there is no concealment or suppression of the consideration. [657 B, C-D] 
1 : 2. 
The burden of proving an understatement or concealment is on the 
Revenue, which may be discharged by it .by establishing facts and circumstances 
from which a reasonable inference can be drawn that the assessee has not 
correctly declared or disclosed the consideration received by him and there is 
understatement or concealment of the consideration in respect of the transfer. 
[657 B-C] 
1 : 3. Sub-section (~), in the instant case, had no application and the 
Income Tax Officer could have no reason to believe that any part of the incom.e 
of the assessee had escaped assessment so as to justify the issue of a notice under 
section 148. It was a common ground between 
the parties and that was a 
finding of fact reached by the Revenue Authorities that the transfer of the pro-
perty by the assessee was a perfectly honest and bona:ide transaction where the 
full valu

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