(a) Income-tax-

----Capital gains---Understatement of consideration---Condition precedent for application of S.52, Indian Income Tax Act, 1961---Actual understatement of consideration---Indian Income Tax Act, 1961, S. 52.

Subsection (2) of section 52 of the Indian Income Tax Act, 1961, can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee. Section 52(1) does not deem income to accrue or to be received which in fact never accrued or was never received. The onus in establishing that the conditions of taxability are fulfilled is always on the Revenue.

(b) Income-tax---

----Capital gains---Understatement of consideration---Scope of S. 52-- Section 52 does not deem income -to accrue or be received---Short-term capital loss could not be disallowed under S. 52---Indian Income Tax Act, 1961, S.52.

Held, accordingly that (i) the provisions of section 52(1) or S.52(2) had not been validly invoked by the Income-tax Officer in the present case;

(ii) that the short-term capital loss claimed by the assessee could not be disallowed.

Varghese (K.P.) v. I.T.O. (1981)131 ITR 597 (SC) fol.

M.J. Thakore instructed by M.R. Bhatt of R.P. Bhatt & Co. for the Commissioner.

DA. Mehta for K.C. Patel for the Assessee.

JUDGMENT

G.T. NANAVATI, J: --The Income-tax Appellate Tribunal has referred the following questions to this Court under section 256(1) of the Income Tax Act, 1961:

"(1) Whether, on the facts and in the circumstances of the case, the provisions of section 52(1) or 52(2) have been validly invoked by the Income-tax Officer in the present case?

(2) Whether, on the facts and in the circumstances of the case, short-term capital loss claimed by the assessee could not be disallowed?"

Both the questions have been referred at the instance of the Revenue as the Tribunal held that the Income-tax officer was not justified in invoking section 52(1) of the income-tax Act in view of the facts and circumstances of the case. The question arose out of the claim made by the assessee in respect of the short-term capital loss claimed by the assessee as allowable deduction. The Supreme Court in K.P. Varghese v. I.T.O. (1981) 131 ITR 597, has held that subsection (2) of section 52 of the Income Tax Act, 1961, can be invoked only where the consideration for the transfer of a capital asset has been under stated by the assessee. It has also been held that section 52(1) does not deem income to accrue or to be received which in fact never accrued or was never received. It is also held that the onus in establishing that the conditions of taxability are fulfilled is always on the Revenue. In view of this judgment of the Supreme Court, question No. 1 will have to be answered in the negative, that is, against the Revenue and in favour of the assessee. Question No. 2 will have to be answered in the affirmative, that is, against the Revenue and in favour of the assessee. The reference is disposed of accordingly with no order as to costs.

M.BA./164/T.F

Order accordingly,