Kuppuswami, J. -
(1.) THE petitioner and his sons constituted a Hindu undivided family. THEre was a partition between the members of the family on April 19, 1952. In that partition, a site measuring about 2,000 square yards together with sheds thereon fell to the share of the petitioner. Subsequently, he constructed certain godowns and shops during the years 1961 to 1963. THE total cost of the site together with structures and buildings came to Rs. 64,042; for the construction of the building the petitioner borrowed Rs. 50,502.49 from his divided sons and other amounts from others. For the discharge of the debts due to the sons, the petitioner sold the site and structures for a total consideration of Rs. 80,000 in favour of his sons under a sale deed dated April 15, 1963. For the assessment year 1964-65, the petitioner filed a revised return of income on February 10, 1967, including therein the amount of Rs. 10,958 as capital gains in respect of this transaction. This amount was arrived at by deducting the cost of the capital asset, namely, Rs. 64,042 from the sale consideration of Rs. 80,000 and making other permissible deductions. THE Income-tax Officer, B-Ward, Tenali, issued a pre-assessment notice dated June 24, 1968, estimating the value of the building and site sold at Rs. 1,30,586, and called upon the petitioner to file his objections, if any, against the proposed valuation. THE petitioner submitted that the value of the building and the site would come to Rs. 86,380 and as he had sold it for a lump sum of Rs. 80,000 the variation is very small and as he was disposing of the property as a whole, the value for which the property was sold was reasonable and fair priced. He stated that the proposed estimate of the building at Rs. 1,30,586 was uncalled for and unwarranted. THE Income-tax Officer finalised the assessment of the petitioner for the year 1964-65 on the 28th September, 1968. While making the assessment he estimated the fair market value of the properties at Rs. 1,14,000 and fixed the capital gains at Rs. 44,960 after allowing initial exemption of Rs. 5,000 and levied a tax of Rs. 6,905 and super-tax on capital gains; In the assessment order he observed that as the purchasers are the assessee's sons he had reason to believe that the transfer of the property was effected with the object of avoidance of tax liability and, therefore, under Section 45 read with Section 52 of the Income-tax Act, the capital gains was fixed as the difference between Rs. 1,14,000 which was the fair market value and Rs. 64,042 which is the cost of the asset.
(2.) SUBSEQUENTLY, as there was mistake in the method of computation of other income, the Income-tax Officer by his order dated January 31, 1969, rectified the mistake and the tax on capital gains was fixed at Rs. 5,244.
The Income-tax Officer also levied a gift-tax of Rs. 2,750 on the difference between the fair market value and the sale proceeds, i.e., Rs. 1,14,000 minus Rs. 80,000 by his order dated January 16, 1969. The sum of Rs. 2,750, being the gift-tax, was paid by the petitioner.
In February, 1970, the Income-tax Officer initiated proceedings under Section 155 of the Income-tax Act, and made a revised assessment by bringing to tax the petitioner's share income from another firm. In this order, the tax on capital gains was retained at Rs. 5,244.
(3.) THE petitioner has filed this writ petition for the issue of a writ of certiorari quashing the order of assessment dated September 28, 1968, as amended on February 24, 1970, and for a direction to refund the amount of the capital gains tax collected from the petitioner for the assessment year 1964-65.
Sri Venkatarama Reddi, learned counsel for the petitioner, contended, firstly, that the petitioner did not derive any capital gain from the transaction in question and hence no tax under the head " capital gains " is leviable. Secondly, he contended that Section 52(1) of the Act under which the Income-tax Officer purported to act has no application to the facts of the case. Thirdly, he argued that even assuming that Section 52(1) of the Act was applicable it could be invoked only when the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45. In this case the Income-tax Officer did not state in his show-cause notice that he has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee and that in the order the finding to the above effect was not based upon any evidence, but on the mere ipse dixit of the officer and hence the proceedings under Section 52(1) were illegal and without jurisdiction. He also contended that the said proceedings were contrary to the principles of natural justice, as the petitioner was denied the opportunity to satisfy the authorities that the requirements of Section 52(1) were not fulfilled. He made a further submission which was not raised in that form in the affidavit in support of the writ petition. He submitted that the petitioner was assessed to gift-tax in respect of the transaction on the footing that the property was not transferred for adequate consideration and hence the amount by which the market value of the property exceeded the vaule of the consideration, namely, Rs. 1,14,000 minus Rs. 80,000 = Rs. 34,000, was deemed to be a gift. Hence it was not permissible to levy tax on capital gains on the same transaction. At any rate the capital gain will have to be confined only to the extent to which the transaction was not treated as a gift under the Gift-tax Act.;