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Commissioner Of Income Tax, Bombay v. M/S Godavari Corpn. Ltd. .
Factual and Procedural Background
The Revenue Department sought special leave to appeal against a High Court order that had refused its application under Section 256(2) of the Income-tax Act, 1961. The Department had asked the High Court to direct the Income-tax Appellate Tribunal (ITAT) to state a case and refer two questions of law concerning the applicability of Section 52(2) of the Act. The ITAT had earlier rejected the Department’s request under Section 256(1), holding that its decision rested on findings of fact—namely, that the assessee had not understated the consideration received on transfer of shares. The High Court agreed, and the Department brought the present appeal before the Supreme Court.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the ITAT was correct in holding that the Income-tax Officer was not justified in invoking Section 52(2) of the Income-tax Act, 1961.
- Whether the ITAT was right in overturning the disallowance of the assessee’s claimed loss of ₹50,724 and the addition of ₹1,21,276 as short-term capital gain based on the break-up value of the shares.
- In substance, whether Section 52(2) could at all be applied given the Tribunal’s factual finding that the sale consideration was not understated.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| K.P. Varghese v. ITO, (1981) 4 SCC 173; (1981) 131 ITR 597 | Section 52(2) is attracted only when the consideration for transfer of a capital asset is understated; burden of proving understatement lies on the Revenue. The provision does not apply to bona fide transactions where the declared consideration is accurate. | The Court relied on this precedent to hold that, because the ITAT found no understatement of consideration, Section 52(2) could not be invoked, eliminating any substantial question of law. |
Court's Reasoning and Analysis
The Supreme Court observed that the ITAT’s decision was founded on a factual finding: the assessee had not understated the consideration received from the share transfer. It reiterated the principle laid down in K.P. Varghese v. ITO that Section 52(2) can only be triggered if the Revenue establishes such understatement, and that the burden of proof rests on the Revenue. Because the Tribunal’s factual finding negated any understatement, no legal question arose for reference under Section 256. Consequently, the High Court correctly refused to direct the ITAT to state a case, and the Department’s appeal lacked merit.
Holding and Implications
APPEAL DISMISSED.
The High Court’s refusal to require a reference under Section 256(2) stands affirmed. The immediate consequence is that the ITAT’s order in favour of the assessee remains undisturbed. The decision turns entirely on an existing precedent and the Tribunal’s factual findings; it does not create new legal principles but reinforces the established interpretation of Section 52(2) regarding the Revenue’s burden of proof.
Order
1. This appeal by special leave by the Department is against the High Court's order rejecting an application made under Section 256(2) of the Income Tax Act, 1961, declining to direct the Income Tax Appellate Tribunal to state the case and refer to it for decision the questions of law said to arise out of the Tribunal's order, which are the following, namely:
“(1) Whether on the facts and in the circumstances of the case, the Tribunal, was right in holding that the Income Tax Officer was not justified in invoking the provisions of Section 52(2) of the I.T Act, 1961?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income Tax Officer was not justified in disallowing the loss of Rs 50,724 claimed by the assessee and in making an addition of Rs 1,21,276 as short term capital gain on the basis of break up value of the shares on the date of transfer as the market value of shares?”
2. In substance, the question of law is only one relating to the applicability of Section 52(2) of the Income Tax Act, 1961 on the facts and in the circumstances of the case.
3. The Tribunal while rejecting the Department's application under Section 256(1) stated as under:
“The Tribunal also relied on the fact that a dividend of Rs 70 per share was declared by M/s Birla Brothers for this year and merely because dividend of Rs 200 per share was declared on those shares during the next year i.e for the year ending after the date the shares were sold to M/s Maharashtra Commodities Trading Co. P. Ltd., it cannot be said that this fact was sufficient in itself to invoke the provisions of Section 52(2) of the Act without giving a finding that the assessee has understated the consideration and that the assessee has actually received more than what is stated in the document. So we find that the decision of the Tribunal is purely a finding of fact and mere reference to certain decisions in support of the conclusion would not make it a question of law.”
4. The matter is now concluded by this Court's decision in K.P Varghese v. ITO (1981) 4 SCC 173, (1981) 131 ITR 597 wherein it was held that Section 52(2) of the Income Tax Act, 1961 can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee or in other words the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee and the burden of proving understatement or concealment is on the Revenue; and the sub-section has no application in the case of bona fide transaction where the consideration received by the assessee has been correctly declared. In view of the finding of fact recorded by the Tribunal, there was no question of invoking Section 52(2) of the Act. The High Court was, therefore, right in refusing to call for the reference from the Tribunal and rejecting the application under Section 256(2) of the Act.
5. Consequently, the appeal is dismissed.
6. No costs.
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