Commissioner Of Income Tax vs Mr. I.P. Chaudhari
2010 Latest Caselaw 3822 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

                                 ITR 4 OF 1992

%                                         Date of Decision: August 16,2010


COMMISSIONER OF INCOME TAX                                 ..... Appellant

                           Through      Mr. Sanjeev Sabharwal, Advocate

                     Versus

MR. I.P. CHAUDHARI                                        ..... Respondent

                           Through      Mr. Prakash Kumar, Advocate
                                              .

CORAM :-

HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MS. JUSTICE REVA KHETRAPAL

1. Whether Reporters of Local newspapers may be allowed to see the Judgment?

2. To be referred to the Reporter or not?

3. Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J (Oral)

1. Following two questions are referred by the Tribunal in compliance of

the directions of this Court contained in orders dated 8th July, 1991 under

Section 256 (2) of the Act:-

"1. Whether, the Hon'ble ITAT was right in law in deleting the addition of Rs. 4,20,000 made by the A.O. on account of capital gains on transfer of 3500 equity shares of M/s. Rentiers & Financiers Co. P. Ltd. to his close relatives by invoking the provisions of Sec. 52 (1) of the Income-tax Act?

2. Whether the Hon'ble ITAT was right in law in deleting the salary income of Rs. 36,000/- of assessee's wife clubbed with the income of the essessee under the provisions of Sec. 64 (1) (ii) of the I.T. Act, when the assessee's wife had received this salary for not her technical or professional qualification but because of her husband being a Director of the company?"

ITR 4 OF 1992 Page 1 of 4

2. In so far as the second question is concerned, because of

insubstantial tax effect, it is not necessary for us to answer the same.

3. Coming to the first question, it has arisen out of the following facts.

4. The assessee sold 3500 equity shares of M/s. Rentiers And

Financiers (P) Ltd. of the face value of Rs. 800 each to his family members

at Rs. 110 per share through entries effected in their respective accounts

with Ms/ Riviera Apartments Pvt. Ltd. The Income-Tax Officer estimated the

sale consideration of these shares at Rs. 230 per share. By applying the

provisions of section 52 of the Income Tax Act, the Assessing Officer

computed the capital gain at Rs. 4,20,000 as against Rs. 35,000 declared

by the assessee.

5. The assessee appealed to the Commissioner of Income -Tax

(Appeals) who was of the opinion that the provisions of Section 52 were not

attracted in this case in view of the decision of the Supreme Court in the

case of K.P. Varghese Vs. ITO, 131 ITR, 597. In his opinion, if the

Revenue seeks to bring a case within the provisions of Sec. 52 (2), it must

show that not only the fair market value of the capital asset exceeded the

full value of consideration, but also that the consideration had been

understated and that the assessee had actually received more than what

had been declared by him. The Commissioner of Income-tax (Appeals) also

referring to the decision of the Delhi High Court in the case of Addl. CIT Vs.

Avtar Mohan Singh, 136 ITR 645, held that there was no scope either in

law or on facts to compute the capital gain at Rs. 4,20,000 on the transfer of

capital shares instead of Rs. 35,000 shown by the assessee.

ITR 4 OF 1992 Page 2 of 4

6. We have perused the judgment of the Supreme Court in K.P.

Varghese (supra). That was also a case involving interpretation of Section

52 of the Act. The Supreme court has categorically held that the difference

between the market value and the consideration declared was not sufficient,

and it was also necessary to show that the assessee had received more

than what is declared or disclosed by him as consideration for sale of

shares. Even the burden to show this lies on the department, as per the

said judgment. When we apply the ratio of this judgment to the facts of this

case, we do not find any infirmity in the order of CIT (Appeal) or that of the

ITAT. In the first instance, the method adopted by the Assessing Officer for

valuation of the shares itself was not correct. As pointed out by the CIT (A),

the AO relied upon the formula contained in the form 1D of the Wealth Tax

Rules, which could not be the basis of valuing the share of an ongoing

concern.

7. As per the judgment of the Supreme Court in the Commissioner of

Wealth Tax, Assam Vs. Mahadeo Jalan & Ors. 86 ITR 62, it has come on

record that no dividend was declared in respect of those shares in the

earlier years. If one were to adopt the yield method or the dividend method,

the valuation of the shares would have been much less than the figure

arrived at by the Assessing Officer. May be Rule 1D is mandatory for the

purpose of valuation under the Wealth Tax Act. However, when the

situation like the present is considered where the shares were sold by the

assessee to some other persons and the question was as to whether there

was any capital gain under Section 52 or not, yield or dividend method

would have been more appropriate for valuing the shares of a running

concern. That apart, as already pointed out above, the Assessing Officer ITR 4 OF 1992 Page 3 of 4 did not record any finding that consideration had been understated and the

assessee had actually received more than what had been declared by him

in the Income Tax Return.

8. In view of this fact alone, as per K.P. Varghese (supra), no addition

could have been made under Section 52 of the Act.

9. We thus answer the reference in favour of the assessee and against

the revenue.

(A.K. SIKRI) JUDGE

(REVA KHETRAPAL) JUDGE AUGUST 16, 2010 skb

ITR 4 OF 1992 Page 4 of 4