| Case ID |
385c7063-79ba-44bb-a5cd-df8b7c87d503 |
| Body |
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| Case Number |
CIVIL APPEAL No. 412(NT) OF 1973 |
| Decision Date |
Sep 04, 1981 |
| Hearing Date |
|
| Decision |
The Supreme Court held that the understatement of consideration in a property transfer is a necessary condition for invoking the provisions of Section 52(2) of the Income-tax Act, 1961. The Court determined that merely showing a fair market value exceeding the declared consideration by at least 15% is insufficient to apply Section 52(2) without evidence of an actual understatement. It was emphasized that the revenue bears the burden of proving both conditions—namely, that the fair market value exceeds the declared consideration by the required percentage and that the consideration was indeed understated. The Court reversed the decision of the Kerala High Court, reinstating the Income Tax Officer's authority to assess capital gains based on the fair market value only if the conditions of understatement are satisfied. |
| Summary |
In the landmark case of K.P. Varghese v. Income Tax Officer, the Supreme Court of India addressed the critical interpretation of Section 52(2) of the Income-tax Act, 1961, concerning capital gains and property transfer. The case arose when the assessee sold a house for the same price he purchased it, leading to a reassessment by the Income Tax Officer, who argued that the fair market value exceeded the declared consideration. The Supreme Court clarified that an essential condition for invoking Section 52(2) is the actual understatement of consideration. This ruling is significant for tax law practitioners, as it underscores the necessity for the revenue to establish both the fair market value exceeding the declared amount and the existence of an understatement. This decision emphasizes the importance of fair and reasonable construction of tax laws to prevent unjust taxation based on mere valuations. The ruling is vital for understanding capital gains taxation in India, particularly in cases involving family transactions and property sales. Keywords: Income-tax Act, capital gains, understatement, fair market value, Supreme Court of India. |
| Court |
Supreme Court of India
|
| Entities Involved |
Not available
|
| Judges |
P.N. Bhagwati,
E.S. Venkataramiah
|
| Lawyers |
M.M. Abdul Kadher,
S.K. Mehta,
E.M.S. Anam,
P.N. Puri,
N.K. Dua,
S.T. Desai,
A. Subhashini
|
| Petitioners |
K.P. Varghese
|
| Respondents |
Income Tax Officer
|
| Citations |
1981 SLD 1860 = (1981) 131 ITR 597
|
| Other Citations |
Navnit Lal C. Javeri v. K.K. Sen, AAC[1965] 56 ITR 198 (SC),
Ellerman Lines Ltd. v. CIT[1971] 82 ITR 913 (SC),
Luke v. IRC [1963] AC 557,
Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446 (SC),
Deshbandhu Gupta & Co. v. Delhi Stock Exchange Association Ltd.[1979] 4 SCC 565
|
| Laws Involved |
Income-tax Act, 1961
|
| Sections |
52(2)
|