Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the assessment of capital gains tax under s. 52(2) of the IT Act, 1961, for the asst. yrs. 1965-66 and 1966-67 was ab initio void for the reason that the previous approval of the IAC was not obtained before treating the full value of the consideration for the concerned capital asset as the fair market value as on the date of the transfer under the above provision and, therefore, the AAC has no jurisdiction to direct the ITO to rectify the defect ?

Counsel Appeared

Ch. Sreerama Rao, for the Assessee : M.S.N. Murthy, for the Revenue

Y. V. ANJANEYULU, J.:

This is a reference made under s. 256(1) of the IT Act, 1961, by (” the Act ” for short) the Tribunal for the income-tax asst. yrs. 1965-66 and 1966-67 at the instance of the assessee. The question referred is: ” Whether, on the facts and in the circumstances of the case, the assessment of capital gains tax under s. 52(2) of the IT Act, 1961, for the asst. yrs. 1965-66 and 1966-67 was ab initio void for the reason that the previous approval of the IAC was not obtained before treating the full value of the consideration for the concerned capital asset as the fair market value as on the date of the transfer under the above provision and, therefore, the AAC has no jurisdiction to direct the ITO to rectify the defect ?”

2. Having regard to the settled law concerning the interpretation of s. 52(2), we consider it unnecessary to answer the question in the form in which it is referred by the Tribunal. As we shall presently indicate, we will reframe the question and answer it.

3. The facts are: In the previous year relevant for the income- tax asst. yr. 1965-66, the assessee effected sales of immovable properties. The first item of property was sold under a registered sale deed for Rs. 25,000 on March 16, 1965, and the second item of property was sold under a registered sale deed for Rs. 17,500. The ITO was of the opinion that the sale consideration shown in the instruments of transfer was low and did not represent the fair market value. Consequently, the ITO estimated the fair market value of the first mentioned property at Rs. 39,925 and the second mentioned property at Rs. 20,000. With reference to the fair market value so estimated, the capital gain was computed and included in the assessee’s total income.

In the previous year relevant for the asst. yr. 1966-67, there are two more sales. One item of property was sold under a registered sale deed for Rs. 13,000 and another item of property was sold under a registered sale deed for Rs. 30,000. The ITO was, however, of the view that the fair market value of the first mentioned property should be Rs. 26,000 and the second mentioned property should be Rs. 54,350. Based on the estimates of the fair market value of the two items of properties, the ITO determined the capital gain for the asst. yr. 1966-67.

4. The assessee appealed against the two assessments to the AAC who set aside both the assessments on the short ground that the ITO did not obtain the prior approval of the IAC for estimating the fair market value pursuant to the provisions contained in s. 52(2) of the Act. As the prior approval of the IAC is a condition precedent for estimating the fair market value, the AAC set aside both the assessments with a direction to the ITO to redo the assessments according to law.

5. Against the order of the AAC, the assessee filed appeals before the Tribunal. The contest was that, in the facts and circumstances, the AAC should have annulled the assessments and not merely set them aside with a direction to redo the assessments as the condition precedent for estimating the fair market value under s. 52(2) of the Act was not satisfied. According to the assessee, the failure to obtain prior approval of the IAC rendered the assessments invalid and consequently the AAC should have annulled the assessments. It was urged that the setting aside of the assessments of the AAC and the direction given to the ITO to redo the assessments, according to law, are not tenable. The Tribunal rejected the assessee’s contention and upheld the order of the AAC.

6. We would have thought it necessary to go into the question referred and answered the same had it not been for the fact that the decision of the Supreme Court in K. P. Varghese vs. ITO (1981) 24 CTR (SC) 358: (1981)131 ITR 597 (SC), settles the matter under consideration in this case. From the orders of, the ITO, it was clear that there is no allegation that the assessee had received more consideration than what was specified in the instruments of transfer. The ITO was only of the view that the fair market value of the properties sold should be higher and thought it fit to make an estimate of the fair market value of the properties. It is not the case of the Revenue that there was understatement of sale consideration in the sale deeds.

7. The question whether the Revenue is entitled to apply the provisions of s. 52(2) in a case where there is no allegation of understatement of sale price had engaged the attention of several High Courts including this Court in CIT vs. Ankinidu Prasad (sic). This Court had held that in a case where there is no specific allegation that the sale price is actually understated, it is not open to the Revenue to apply the provisions of s. 52(2) of the Act and estimate the fair market value for determining the capital gain. The matter has eventually come up for consideration before the Supreme Court in K. P. Varghese vs. ITO (supra) , referred to above and the Supreme Court had upheld the aforementioned view taken by the various High Courts. In the circumstances, the question of applying s. 52(2) of the Act does not arise in this case unless it can be said, in the facts and circumstances, that the property was sold for a consideration higher than what was specified in the sale deeds and the assessee had understated the sale price. If s. 52(2) has no application, the question of obtaining the prior approval of the IAC does not arise.

8. Having regard to the facts and circumstances obtaining in the present case, we are of the opinion that the provisions of s. 52(2) have no application as there is no allegation that the assessee received more sale consideration than what was specified in the sale deeds. The question of obtaining the prior approval of the IAC did not, therefore, arise.

9. In the circumstances, we reframe the question to bring out the real controversy as under : ” Whether, on the facts and circumstances, the provisions of s. 52(2) of the IT Act are applicable ? “

10. The question as reframed above is answered in the negative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.

[Citation : 169 ITR 521]