COMMISSIONER OF INCOME TAX vs. SHIVAKAMI CO. PVT. LTD.

CIVIL APPEAL No. 1532/1974Supreme Court[1986] 1 S.C.R. 88118 March 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI10 pages
AI SummaryDismissed

What were the facts?

The assessee, Shivakami Co. Pvt. Ltd. (and other related companies in connected appeals), sold shares in two private companies during the relevant period, claiming a loss. The Income-tax Officer (ITO) determined capital gains under the first proviso to section 12B(2) of the Indian Income-tax Act, 1922, by using the break-up value of the shares (Rs. 1,72,800 and Rs. 1,54,000) instead of the sale consideration, after deducting the cost price (Rs. 81,201 and Rs. 1,00,000). The Appellate Assistant Commissioner and the Tribunal upheld the ITO's order. The assessee appealed to the High Court, which allowed the reference, holding the proviso inapplicable because the sale was true, consideration was not understated, and the assessee's explanation was not acceptable. The Revenue appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, holding that the first proviso to section 12B(2) of the Indian Income-tax Act, 1922 (and by extension, section 52 of the 1961 Act) can only be invoked when the consideration for the transfer of a capital asset has been understated by the assessee. The Court emphasized that the onus is on the Revenue to prove that more than what was stated was received, and such a conclusion must be based on material from which an irresistible conclusion follows. The Court distinguished between selling at an undervalue to defeat the Revenue and understating the value in the document of sale. In this case, there was no evidence, direct or inferential, that the full consideration received by the assessee was more than what was disclosed. Therefore, the proviso could not be invoked. The Court noted that capital gains tax is on gains actually made, not what might have been gained. The appeals were dismissed, though on different grounds than those taken by the High Court.

What were the issues?

1. Whether the first proviso to section 12B(2) of the Indian Income-tax Act, 1922, was applicable for the computation of capital gain on the sale of shares, where the Revenue alleged an understatement of consideration. Assessee's Contention: The assessee argued, and the High Court held, that the proviso was not applicable because the sale was genuine, the consideration was not understated in the sale document, and the assessee's explanation for the sale, though not acceptable, did not prove understatement. Revenue's Contention: The Revenue contended that the Tribunal and High Court accepted that the transactions were done to defeat the revenue, and an inference of understatement could be drawn from the facts, even if the consideration was not explicitly understated in the document. They argued that the assessee's explanation was not acceptable, and the evil design of the assessee was clear, allowing for an inference of understatement.

Which sections of the Income-tax Act were involved?

Section 12B(2),Section 52

AI-generated summary — verify with the full judgment below

881 cat!ISSIONER OF INCOIE TAX v. SHIVAKAMI CO. PVT. LTD. MARCH 18, 1986 [R. S, PA~ AND SABYASACHI MUKHARJI, JJ. ] Indian Income Tax Act 1922/ Income Tax Act 1961, s.12 B(2) first proviso/ s.52 - Capital asset - Acquisition of - Understatement of consideration in transfer of property - Understatement of value, a mis-statement of value - selling at under value to defeat revenue different from understating value in a document of sale.

The respondent, a private COllpany under the Companies Act, 1956 in C.A. 1533 of 1974, had shares in two private companies. During the relevant period, it sold those shares -f and according to the respondent-assessee, the sales resulted in a loss. The shares were not quoted in stock market.

However, the Income-tax Officer held that the break-up value on the date of sale of the shares in the two companies was Rs.1,72,800 and Rs.1,54,000 and after deducting the cost price of the aforesaid shares of Rs.81,201 and Rs.1,00,000 respectively from the above said break-up value, he determined the capital gain at Rs.91,599 and Rs.54,000 respectively under the first proviso to section 12-8(2) of the 1922 Act. The Appellate Assistant C

The order continues below.

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