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PETITIONER: K.P. VARGHESE

       Vs.

RESPONDENT: THE INCOME TAX OFFICER,ERNAKULAM, AND ANOTHER

DATE OF JUDGMENT04/09/1981

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. VENKATARAMIAH, E.S. (J)

CITATION:  1981 AIR 1922            1982 SCR  (1) 629  1981 SCC  (4) 173        1981 SCALE  (3)1315  CITATOR INFO :  R          1984 SC 420  (38)  MV         1985 SC 150  (31)  D          1985 SC1211  (18)  R          1985 SC1698  (45)  RF         1986 SC1499  (16)  R          1986 SC1691  (14,16,18,19)  R          1986 SC1973  (17)  R          1987 SC 558  (15)  RF         1988 SC 191  (45)  RF         1988 SC 603  (24)  F          1988 SC 625  (5)  RF         1988 SC 782  (41)  RF         1989 SC 644  (16)  E&F        1989 SC1167  (8)  D          1991 SC 772  (18)  R          1991 SC1028  (15)  RF         1992 SC 847  (37)  RF         1992 SC1360  (9)

ACT:      Capital gains-Whether  understatement of  consideration in a  transfer of  property is  a  necessary  condition  for attracting the  applicability of  sub-section (2) of section 52 of  the Income  Tax Act  1961-Burden  of  proof  of  such understatement is  on the Revenue-Interpretation of statutes explained

HEADNOTE:      The appellant  assessee sold  his house in Ernakulam on 25th of  December, 1965  to his  daughter-in-law and five of his children  for the  same price  of Rs. 16,500 at which he purchased in  the year  1958. The assessment of the assessee for the  assessment year  1966-67  for  which  the  relevant accounting year  was the  calendar year  1965 was thereafter completed in  the normal  course and  in this assessment, no amount was  included by  way of  capital gains in respect of the transfer  of the  house, since the house was sold by the assessee at  the same price at which it was purchased and no capital gains  accrued or  arose to  him as  a result of the transfer. On 4th April 1968, however, the Income Tax officer issued a  notice under  section 148  of the  Act seeking  to reopen the  assessment of  the assessee  for the  assessment

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year 1966-67  and requiring  the assessee to submit a return of income  within thirty  days of the service of the notice, without stating  what was the income alleged to have escaped assessment. However,  by his  subsequent  letter  dated  4th March, 1969,  the Income Tax officer stated that he proposed to fix  the fair  market value  of the  house  sold  by  the assessee at  Rs, 65,000  as against the consideration of Rs. 16,500  for   which  the  house  was  sold  and  assess  the difference of  Rs. 48,500  as capital  gains in the hands of the assessee.  The objections  raised by  the assessee  were overruled and  an order  of reassessment  was passed  by the Income Tax  officer including  the  sum  of  Rs.  48,500  as capital gains  and bringing  it to tax under sub-section (2) of section 52, taking the view that this sub-section did not require as  a condition precedent that there should be under statement of consideration in respect of the transfer and it was enough  to attract  the applicability of the sub-section if the  fair market  value of the property as on the date of the transfer  exceeded the  full value  of the consideration declared by  the assessee  by an amount of not less than 15% of the  value so  declared. The  assessee thereupon  filed a writ petition  in Kerala High Court challenging the validity of the order of re assessment insofar as it brought a sum of Rs. 48,500  to tax  relying on sub-section (2) of section 52 of the  the Income  Tax Act,  1961. The  writ  petition  was allowed, but in appeal the Full Bench by a majority judgment agreed  with  the  views  of  the  Income  Tax  officer  and dismissed the  writ petition. Hence the assessee’s appeal by certificate. 630      Allowing the appeal, the Court ^      HELD: 1: 1. Sub-section (2) of section 52 of the Income Tax Act,  1961 can  be invoked  only where the consideration for the  transfer has been understated by the assessee or in other words,  the consideration  actually  received  by  the assessee is  more than what is declared or disclosed by him. Sub-section (2)  has no application in case of an honest and bonafide transaction where the consideration received by the assessee has been correctly declared or disclosed by him and there is no concealment or suppression of the consideration. [657 B, C-D]      1: 2.  The  burden  of  proving  an  understatement  or concealment is on the Revenue, which may be discharged by it by  establishing   facts  and  circumstances  from  which  a reasonable inference  can be drawn that the assessee has not correctly declared  or disclosed  the consideration received by him  and there  is understatement  or concealment  of the consideration in respect of the transfer.[657 B-C]      1: 3.  Sub-section (4),  in the  instant case,  had  no application and  the Income Tax officer could have no reason to believe  that any  part of the income of the assessee had escaped assessment  so as  to justify  the issue of a notice under section  148. It  was  a  common  ground  between  the parties and  that was  a finding  of  fact  reached  by  the Revenue Authorities that the transfer of the property by the assessee was  a perfectly  honest and  bonafide  transaction where the  full value  of the  consideration received by the assessee was  correctly  disclosed  at  the  figure  of  Rs. 16,500. The  order of  re-assessment made  by the Income Tax officer pursuant  to the notice issued under section 148 was accordingly without jurisdiction. [657 D-G]      2: 1.  The task  of  interpretation  of  the  statutory enactment is  not a  mechanical task.  It is  more than mere reading of  mathematical formula  because few  words possess

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the precision  of mathematical  symbols. It is an attempt to discover the  intent of  the legislature  from the  language used by it and it must always be remembered that language is at best  an imperfect instrument for the expression of human thoughts and  it would  be idle  to expect  every  statutory provision to  be "drafted with divine prescience and perfect clarity". Courts,  therefore, must eschew literalness in the interpretation of  a statutory  provision and  construe  the language having  regard to  the object and purpose which the legislature had  in view  in enacting  that provision and in the context  and the  setting in  which it occurs. [640 C-D, F.G, 642 B-C]      2: 2.  Where the  plain  literal  interpretation  of  a statutory provision  produces a manifestly absurd and unjust result  which   could  never   have  been  intended  by  the legislature, the  Court may  modify the language used by the legislature or  even "do  some violence"  to  it  so  as  to achieve the obvious intention of the legislature and produce a rational  construction. The  Court may also in such a case read into  the statutory provision a condition which, though not  expressed,   is  implicit  as  constituting  the  basic assumption underlying  the statutory  provision. It  is true that the  consequences of  a suggested  construction  cannot alter the  meaning of  a statutory  provision but  they  can certainly help to fix its meaning. 631      Luke v. Revenue Commissioner, [1963] A.C. 557; Headan’s case [1584]  3 Co.  Rep.  7(a);  In  re  May  Fair  Property Company, LR  [1898] 2  Ch. Dn; Eastman Photographic Material Company v. Comptroller-General of Patents, Designs and Trade Marks, L.R. [1898] A.C. 571, quoted with approval,      2:3.  The   speeches  made   by  the   Members  of  the Legislature on  the floor  of the  House  when  a  Bill  for enacting  a   statutory  provision   is  being  debated  are inadmissible for  the purpose  of interpreting the statutory provision but  the speech  made by  the Mover  of  the  Bill explaining the  reason for  the introduction of the Bill can certainly be referred to for The purpose of ascertaining the mischief sought  to be  remedied by  the legislation and the object and  purpose for  which the  legislation is  enacted. [654 E-G]      Lok Shikshana  Trust v. Commissioner af Income-Tax, 101 I.T.R. 234;  Indian Chamber  of Commerce  v. Commissioner of Income-tax,  101  I.T.R.  796;  Additional  Commissioner  of Income-tax   v.   Surat   Art   Silk   Cloth   Manufacturers Association, 121 I.T.R. 1, referred to.      2:4. Again  it is  undoubtedly true  that the  marginal note to  a section  cannot be referred to for the purpose of construing the  section but  it can certainly be relied upon as indicating  the drift  of the section or to show what the section dealing  with. It  cannot control the interpretation of the  words of a section particularly when the language of the section  is clear and unambiguous but, being part of the statute, it  prima facie  furnishes  some  clue  as  to  the meaning and purpose of the section. [647 A-B]      Bushel  v.  Hammond,  [1904]  2  KB  563,  quoted  with approval.      Bengal Immunity  Company Limited  v.  State  of  Bihar, [1955] 2 SCR 603, referred to.      2:5.  The   rule  of   construction  by   reference  to contemporanea expositio  is  a  well  established  rule  for interpreting a statute by reference to the exposition it has received from  contemporary authority,  though it  must give way  where   the  language  of  the  statute  is  plain  and unambiguous. [650 B-C]

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    Baleshwar  Bagarti   v.  Bhagirathi   Dass,  I.L.R.  35 Calcutta 701, approved.      Deshbandhu  Gupta  and  Co.  v.  Delhi  Stock  Exchange Association Ltd,. [1979] 4 S.C.C. 565, referred to.      2:6. Having  regard to  the  well  recognised  rule  of interpretation,  a   fair  and  reasonable  construction  of section 52  sub-section (2)  would be  to  read  into  it  a condition that  it would  apply only where the consideration for the  transfer is  understated or  in  other  words,  the assessee has  actually received  a larger  consideration for the transfer  than what  is declared  in the  instrument  of transfer and  it would  have no  application in  case  of  a bonafide  transaction   where  the   full   value   of   the consideration for  the transfer is correctly declared by the assessee. [642 E-F]      3. Several considerations which lead to this conclusion are: 632      (a) The  first consideration  is the object and purpose of the  enactment of  section 52(2).  The speech made by the Finance Minister while moving the amendment introducing sub- section (2)  clearly states  what were  the circumstances in which such  sub-section (2)  came to be passed, what was the mischief for  which section  52 as  it stood  then  did  not provide and which was sought to be remedied by the enactment of sub section (2) and why the enactment of that sub section was found  necessary. The  object and purpose of sub-section (2), as  explicated from the speech of the Finance Minister, was not  to strike at honest and bonafide transactions where the consideration  for the  transfer was correctly disclosed by the  assessee but  to bring  within the  net of  taxation those transactions where the consideration in respect of the transfer was  shown at  a lesser  figure than  that actually received by  the assessee,  so that  they do  not escape The chargeable tax  on capital  gain by  understatement  of  the consideration. This  was real  object  and  purpose  of  the enactment of  sub section (2) and the interpretation of this sub-section must  fall in  line with the advancement of that object and purpose.[642 F, 646 B. F]      (b) Further  the marginal  note to section 52 as it now stands, was  originally a  marginal note  only  to  what  is presently sub-section  (1) and  significantly  enough,  this marginal note remained unchanged even after the introduction of sub-section  (2) suggesting  clearly that it was meant by Parliament to  apply to  both sub-sections of section 52 and it must  therefore be  taken as  indicating That,  like sub- section(l), sub-section  (2) is  also intended  to deal with cases where there is under-statement of The consideration in respect of the transfer. [647 C-D]      (c) The placement of sub-section (2) in section 52 does indicate in some small measure that Parliament intended that sub-section to  apply only  to cases where the consideration in respect  of the transfer is under stated by the assessee. If Parliament  intended sub-section  (2) to  cover all cases where  the   condition  of   15%  difference  is  satisfied, irrespective  of   whether  there   is  under-statement   of consideration or  not,  it  is  reasonable  to  assume  that Parliament would  have enacted  that provision as a separate section and rot pitch-forked it into section 52 with a total stranger under  an inappropriate  marginal note.  - Moreover there is inherent evidence in sub-section (2) which suggests that the  thrust of  that sub  section is  directed  against cases of  under-statement of  consideration. The crucial and important words  in sub-section  (2) are: "the full value of the  consideration  declared  by  the  assessee".  The  word

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’declared’  is  very  eloquent  and  revealing.  It  clearly indicates that  the focus  of  sub-section  (2)  is  on  the consideration declared  or  disclosed  by  the  assessee  as distinguished from  the consideration  actually received  by him and  it contemplates  a  case  where  the  consideration received by  the assessee  in respect of the transfer is not truly declared  or disclosed  by  him  but  is  shown  at  a different figure. [647 D-G, 648 A-B]      (d) The  two circulars  issued by  the Central Board of Direct Taxes dated 7th July, 1964 and 14th January, 1974 are not only  binding on  the Tax Department in administering or executing the  provision enacted in sub-section (2), but are in nature  of contemporenea expositio, furnishing legitimate aid in the construction of sub-section (2). It is clear from these two  circulars that the Central Board of Direct Taxes, which is  the highest authority entrusted with the execution of the  provisions of  the Act understood sub-section (2) as limited to 633 cases where  the consideration  for the  transfer  has  been under-stated  by  the  assessee.  These  two  circulars  are legally binding  on the  Revenue and  this  legally  binding character attaches  to the  two circulars  even if  they  be found not  in accordance  with the correct interpretation of sub-section  (2)  and  they  depart  or  deviate  from  such construction. [650 A, F-G]      Navnitlal C.  Jhaveri v.  KK, Sen,  56 I.T.R.  SC  198: Ellerman Lines  Ltd. v.  Commissioner  of  Income-tax,  West Bengal, 82 I.T.R. 913 (SC), followed. 1      4: 1, It is a well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always  on the  Revenue. To  throw the  burden of showing that there is no understatement of the consideration, on the assessee would  be to  cast an almost impossible burden upon him to  establish the  negative,  namely  that  he  did  not receive any  consideration beyond that declared by him. [653 F-H, 654 A]      4: 2.  If the Revenue seeks to bring a case within sub- section (2),  it must  show not  only that  the fair  market value of  the capital  asset as  on the date of the transfer exceeds the  full value of the consideration declared by the assessee by  not less than 15% of the value so declared, but also that  the consideration  has been  under-stated and the assessee has actually received more than what is declared by him. There  are two  distinct conditions  which have  to  be satisfied before  sub- section  (2) can  be invoked  by  the Revenue and  the burden of showing that these two conditions are satisfied rests on the Revenue. It is for the Revenue to show that  each of these two conditions is satisfied and the Revenue cannot  claim to  have discharged  this burden which lies upon  it, by  merely establishing  that the fair market value of  the capital  asset as  on the date of the transfer exceeds by  15% or  more the full value of the consideration declared in  respect of the transfer and the first condition is therefore  satisfied. The  Revenue must  go  further  and prove that the second condition is also satisfied. Merely by showing that  the first  condition is satisfied, the Revenue cannot ask  the Court  to presume  that the second condition too is  fulfilled, because  even in  case  where  the  first condition of  15% difference  is satisfied,  the transaction may be a perfectly honest and bonafide transaction and there may  be   no  understatement   of  the   consideration.  The fulfillment of  the second  condition has  therefore  to  be established independently  of the first condition and merely because the  first condition  is satisfied, no inference can

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necessarily  follow   that  the  second  condition  is  also fulfilled.  Each   condition  has   got  to  be  viewed  and established  independently  before  subsection  (2)  can  be invoked and  the burden  of  doing  so  is  clearly  on  the Revenue. [653 B-F]      4:3. The object of imposing the condition of difference of 15%  or more between the fair market value of the capital asset and  the consideration  declared  in  respect  of  the transfer clearly  is to save the assessee from the rigour of subsection  (2)   in  marginal  cases  where  difference  in subjective valuation  by different individuals may result in an apparent  disparity between the fair market value and the declared  consideration.  This  condition  of  15%  or  more difference is  merely intended  to be  a  safeguard  against undue hardship  which would be occasioned to the assessee if the inflexible  rule of the thumb enacted in sub-section (2) were applied  in marginal case and it has nothing to do with the  question   of  burden  of  proof,  for  the  burden  of establishing that there is understatement of the concide- 534 ration in  respect of  The  transfer  always  rests  on  the Revenue. The  postulate underlying  sub-section (2)  is that the difference  between one honest valuation and another may range upto  15% and  that constitutes  the class of marginal cases which  are taken out of the purview of sub-section (2) in order to avoid hardship to the assessee. [654 B-C, F-H]      4: 4.  Once it  is established  by the Revenue that the consideration for  the transfer  has been under-stated, sub- section (2)  is immediately  attracted, subject of course to the fulfillment  of the condition of 15% or more difference, and the  Revenue is  then not  required to  show what is the precise extent of the understatement or in other words, what is the consideration actually received by the asseesee. That would in most cases be difficult, if not impossible, to show and hence sub-section (2) relieves the Revenue of all burden of  proof   regarding  the   extent  of  under-statement  or concealment  and   provides  a   statutory  measure  of  the consideration received  in respect  of the transfer. It does not create  any fictional  receipt.  It  does  not  deem  as receipt something  which is  not in fact received. It merely provides  a   statutory  best  judgment  assessment  of  the consideration actually  received by  the assessee and brings to tax  capital gains  OD the  footing that  the fair market value  of   the  capital   asset   represents   the   actual consideration  received  by  the  assessee  as  against  the consideration untruly  declared or  disclosed by  him.  This approach in  construction of  sub-section (2)  falls in line with the scheme of the provisions relating to tax on capital gains. [665A-E]      4: 5.  Section 52  is not  a charging  section but is a computation section.  It has to be read alongwith section 48 which provides  the mode  of computation and under which the starting point  of computation  is "the  full value  of  the consideration received  or accruing  . What  in  fact  never accrued or  was never received cannot be computed as capital gains under  section 41. Therefore sub-section (2) cannot be construed as  bringing within  the  computation  of  capital gains an  amount which, by no stretch of imagination, can be said to  have accrued  to the  assessee or  been received by him. [655 E-F]      4: 6. This construction of sub-section (2) also marches in step  with the  Gift Tax Act, 1958. If a capital asset is transferred for  a consideration below its market value, the difference between  the market  value and  the full value of the P  consideration received  in respect  of  the  transfer

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would amount to a gift liable to tax under the Gift Tax Act, 1958. Since  the Income  Tax Act, 1961 and the Gift Tax Act, 1958 are  parts of an integrated scheme of taxation the same amount which  is chargeable as gift could not be intended to be charged also as capital gains. [656 A-C]      4: 7.  Besides, under Entry 82 in List I of the Seventh Schedule to  the Constitution  which deals  with  "Taxes  on income" and  under which  the Income  Tax Act, 1961 has been enacted, Parliament  cannot "choose to tax as income an item which in  no rational  sense can  be regarded as a citizen’s income or even receipt. Sub-section (2) would, therefore, on the construction  of the Revenue, go outside the legislative power of Parliament, and it would Dot be possible to justify it even  as  an  incidental  or  ancillary  provision  or  a provision intended to prevent evasion of tax. [656 E-F] 635      4: 8.  Sub-section (2)  would also  be violative of the fundamental right  of the  assessee under  Article 9(1) (f)- which fundamental  right was  in existence  at the time when sub-section (2) came to be enacted-since on the construction canvassed on  behalf of  the Revenue,  the  effect  of  sub- section  (2)   would  be   to  penalize   the  assessee  for transferring his capital asset for a consideration lesser by 15% or  more than  the fair  market  value  and  that  would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital asset at the price of  his   choice.  The   Court  must   obviously  prefer   a construction   which   renders   the   statutory   provision constitutionally valid rather than that which makes it void. [656 F-H, 657 A]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 412(NT) of 1973      From the judgment and order dated the 5th July, 1972 of the Kerala High Court at Ernakulam in Writ Appeal No. 127 of 1970.      M. M.  Abdul Khadher, S.K. Mehta, E.M.S. Anam, P.N.Puri and M.K Dua for the appellant.      S.T. Desai and Miss A. Subhashini for the respondent      Anil B.  Diwan,  Dinesh  Vyas,  P.H.  Parekh  and  R.N. Karanjawala for the intervener.      S. Swaminathan, N. Srinivasan and Gopal Subramaniam for the intervener.      Debi  Pal,  Praveen  Kumar  and  A.R.  Sharma  for  the intervener.      K.R. Kazi and S.C. Patel for the intervener.      N.A. Palkhiwala, P.H. Parekh, J.B. Dadachanji, H. Salve and Ravinder Narain for interveners.      S.C. Patel for the intervener.      J.B. Dadachanji for the intervener.      B.K Mohanty and C.S. Rao for the intervener.      P.A. Francis and M.N. Shroff for the intervener.      The Judgment of the Court was delivered by      BHAGWATI, J.  The principal  question that  arises  for deter- 636 mination  in   this  appeal   by  certificate   is   whether understatement of consideration in a transfer of property is a necessary  condition for  attracting the  applicability of section 52  sub-section (2)  of  the  Income  Tax  Act  1961 (hereinafter referred  as the  Act) or  it is enough for the Revenue to  show that  the fair market value of the property

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as on the date of the transfer exceeds the full value of the consideration declared  by the  assessee in  respect of  the transfer by  an amount  of not less than 15% of the value so declared. The  facts giving  rise to the appeal are not very material but  since they from the backdrop against which the question arises  for consideration,  we  may  briefly  state them.      The assessee  was the  owner of  a  house  situated  in Ernakulam, which  he had  purchased in 1958 for the price of Rs. 16,500.  On 25th  December 1965  the assessee  sold  the house for  the same  price of Rs. 16,500 to his daughter-in- law and five of his children. The assessment of the assessee for the  assessment year  1966-67  for  which  the  relevant accounting year  was the  calendar year  1965 was thereafter completed m  the normal  course and  in this  assessment, no amount was  included by  way of  capital gains in respect of the transfer  of the  house since  the house was sold by the assessee at  the same price at which it was purchased and no capital gains  accrued or  arose to  him as  a result of the transfer. On  4th April  1968 however the Income tax officer issued a  notice under  section 148  of the  Act seeking  to reopen the  assessment of  the assessee  for the  assessment year 1966-67  and requiring  the assessee to submit a return of income  within thirty  days of the service of the notice. The notice did not state what was the income alleged to have escaped assessment  but by  his subsequent  letter dated 4th March 1969  the Income-tax officer intimated to the assessee that he  proposed to  fix the fair market value of the house sold by  the assessee on 25th December 1965 at Rs. 65,000 as against the  consideration of Rs. 16,500 for which the house was sold  and assess the difference of Rs. 48,500 as capital gains in  the hands  of the  assessee. The  assessee  raised objections against  the reassessment  proposed to be made by the Income-tax  officer but  the objections  were over-ruled and an  order of  reassessment was  passed by the Income-tax officer including the sum of Rs. 48,500 as capital gains and bringing it  to tax.  Though the  sale of  the house  by the assessee was  in favour  of his  daughter-in-law and five of his children  who were  persons directly connected with him, the Income-tax  officer could  not invoke the aid of section 52 sub-section (1) for bringing the sum of 637 Rs. 48,500  to tax,  because there  was admittedly no under- statement A  of consideration  in respect of the transfer of the house  and it  was not possible to say that the transfer was effected by the assessee with the object of avoidance or reduction of  his liability under section 45. The Income-tax officer therefore  rested his  decision to assess the sum of Rs. 48,500  to tax  on sub-section  (2) of  section  52  and taking the  view that  this sub-section did not require as a condition precedent  that there should be under-statement of consideration in  respect of  the transfer and it was enough to attract  the applicability of the sub-section if the fair market value  of the property as on the date of the transfer exceeded the full value of the consideration declared by the assessee by  an amount  of not less than 15% of the value so declared, which was indisputably the position in the present case, the  Income-tax officer assessed the sum of Rs. 48,500 to tax  as capital gains. The assessee thereupon preferred a writ petition  in Kerala High Court challenging the validity of the order of reassessment in so far as it brought the sum of Rs.  48,500 to  tax relying on section 52 sub-section (2) of the Act. D      The writ  petition came up for hearing before Isaacs J. sitting as  a single  Judge of  the  High  Court  and  after

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hearing  both   parties,  the  learned  Judge  came  to  the conclusion that  under-statement of consideration in respect of the transfer was a necessary condition for attracting the applicability of section 52 sub-section (2) and since in the present case  there was  admittedly  no  under-statement  of consideration and  it was  a perfectly bonafide transaction, section 52 sub-section (2) had no application and the sum of Rs. 48,500  could not  be brought  to tax  as capital  gains under that  provision. The  Revenue  appealed  against  this decision to  a Division  Bench of  the High Court and having regard to  the importance  and complexity  of  the  question involved, the  Division Bench  referred the appeal to a Full Bench of  three Judges.  The Full Bench heard the appeal but there was  a division of opinion, two Judges taking one view and the  third Judge  taking  another.  While  Raghvan  C.J. agreed substantially  with the  view  taken  by  Isaacs  J., Gopalan Nambiar  J. and  Vishwanath Iyer J. took a different view and  held that  in order to bring a case within section 52 sub-section  (2), it  is not  at all necessary that there should be under-statement of consideration in respect of the transfer and  once it is found that the fair market value of the property as on the date of the transfer exceeds the full value of  the consideration  declared  by  the  assessee  in respect of the transfer by 638 an amount  of not  less than  15% of  the value so declared, section 52 sub-section (2) is straightaway attracted and the fair market  value of  the property  as on  the date  of the transfer is  liable to  be taken  as the  full value  of the consideration  for  the  transfer.  The  writ  petition  was accordingly  dismissed   and  the   order  of  re-assessment sustained by  the majority  decision  reached  by  the  Full Bench.  Hence  the  present  appeal  by  the  assessee  with certificate obtained from the High Court.      It will  be noticed  from the  above statement of facts that the  principal question  arising for  determination  in this appeal  turns on  the true interpretation of section 52 sub-section (2).  But in  order  to  arrive  at  its  proper interpretation, it  is necessary  to  refer  to  some  other provisions of the Act as well. Section 2 clause (24) defines the word  ’income’. The  definition is  inclusive and covers ’capital gains’  chargeable under  section 45.  Section 4 is the charging  section and  it provides that income tax shall be charged  in respect  of the  total income of the previous year of  every person. Section 5 defines the scope of ’total income’ by  providing that  the total income of the previous year of  a person  who is  resident shall include all income from whatever  source derived which is received or is deemed to be received in India in such year by him or on his behalf or accrues  or arises or is deemed to accrue or arise to him in India  during such  year or  accrues  or  arises  to  him outside India  during such  year. Section  14 enumerates the heads of  income under  which income shall, for the purposes of charge  of income tax and computation of total income, be classified and  they includes  capital  gains".  Section  45 provides that any profits or gains arising from the transfer of a  capital asset  effected in  the previous year shall be chargeable to  income tax under the head "capital gains" and shall be  deemed to  be the  income of  the previous year in which the  transfer took  place. The  mode of computation of capital gains is laid down in section 48 which provides that the income  chargeable under  the head "capital gains" shall be  computed  by  deducting  from  the  full  value  of  the consideration received  or accruing  as a  result of  the  & transfer of  the capital  asset, two  amounts,  namely,  (i)

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expenditure incurred  wholly and  exclusively in  connection with such  transfer and  (ii) the cost of acquisition of the capital asset  and the cost of any improvement thereto. Then follows section  52 which  is the material section requiring to be construed in the present appeal. That section consists of two sub-sections and runs as follows: 639      (1)  Where the person who acquires a capital asset from           an assessee  is directly  or indirectly  connected           with the  assessee and  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, the           full value  of the  consideration for the transfer           shall,  with   the  previous   approval   of   the           Inspecting Assistant  Commissioner, be taken to be           the fair  market value of the capital asset on the           date of the transfer.      (2)  Without prejudice to the provisions of sub-section           (1), if  in the  opinion of the Income-tax officer           the  fair   market  value   of  a   capital  asset           transferred by  an assessee  as on the date of the           transfer   exceeds   the   full   value   of   the           consideration declared  by the assessee in respect           of the  transfer of  such  capital  assets  by  an           amount of  not less  than fifteen  per cent of the           value   declared,    the   full   value   of   the           consideration for  such capital  asset shall, with           the previous  approval of the Inspecting Assistant           Commissioner, be taken to be its fair market value           on the date of its transfer. There  is  a  marginal  note  to  section  52  which  reads: Consideration for  transfer in cases of under-statement". It may be  pointed out  that originally when the Act came to be enacted, section 52 consisted of only one provision which is now numbered  as sub-section (I) and it was by section 13 of the Finance  Act 1964 that sub-section (2) was added in that section with effect from 1st April 1964.      Now on these provisions the question arises what is the true interpretation  of section  52,  sub-section  (2).  The argument of  the Revenue  was and this argument found favour with the  majority Judges  of the Full Bench that on a plain natural construction  of the  language of  section 52,  sub- section  (2),   the  only   condition  for   attracting  the applicability of  that provision  is that  the  fair  market value of the capital asset transferred by the assessee as on the date  of the  transfer exceeds  the full  value  of  the consideration declared  by the  assessee in  respect of  the transfer by  an amount  of not less than 15% of the value so declared. Once the Income-tax officer is satisfied that this condition exists, he can proceed to 640 invoke the  provision in section 52 sub-section (2) and take the fair  market value  of the  capital asset transferred by the assessee  as on the date of the transfer as representing the full  value of the consideration for the transfer of the capital asset  and compute  the capital gains on that basis. No more is necessary to be proved, contended the Revenue. To introduce any  further condition  such as  understatement of consideration in  respect of  the transfer  would be to read into the  statutory provision  something which is not there: indeed it  would  amount  to  rewriting  the  section.  This argument was  based on a strictly literal reading of section 52 sub-section  (2 but  we do  not think such a construction can be  accepted. It  ignores several  vital  considerations

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which must  always be borne in mind when we are interpreting a statutory  provision. The  task  of  interpretation  of  a statutory enactment  is not  a mechanical  task. It  is more than a  mere reading  of mathematical  formulae because  few words possess  the precision  of mathematical symbols. It is an attempt  to discover  the intent  of the legislature from the language  used by  it and  it must  always be remembered that language  is at  best an  imperfect instrument  for the expression of  human thought  and as  pointed  out  by  Lord Denning,  it   would  be  idle  to  expect  every  statutory provision to  be "drafted with divine prescience and perfect clarity." We  can do  no better than repeat the famous words of Judge  Learned Hand  when he  said: " it is true that the words used, even in their literal sense, are the primary and ordinarily the  most reliable,  source of  interpreting  the meaning of  any writing:  be it  a statute,  a  contract  or anything else.  But it  is one  of the  surest indexes  of a mature and  developed jurisprudence  not to  make a fortress out of  the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative  discovery is  the  surest  guide  to  their meaning."   We   must   not   adopt   a   strictly   literal interpretation of  section 52  sub-section (2)  but we  must construe its  language  having  regard  to  the  object  and purpose which  the legislature  had in view in enacting that provision and  in the  context of  the setting  in which  it occurs. We  cannot ignore the context and the collocation of the provisions  in which section 52 sub-section (2) appears, because, as  pointed out  by Judge  Learned Hand  in most  I felicitous language  the meaning  of a  sentence may be more than that of the separate words as a melody is more than the notes, and  no degree  of  particularity  can  ever  obviate recourse to  the setting  in which all appear, and which all collectively create".  Keeping these observations in mind we may now  approach the construction of section 52 sub-section (2). 641      The primary  objection against the literal constriction of section 52 sub-section (2) is that it leads to manifestly unreasonable and  absurd consequences.  It is  true that the consequences of  a suggested  construction cannot  alter the meaning of a statutory provision but they can certainly help to fix  its  meaning.  It  is  a  well  recognised  rule  of construction  that   a  statutory   provision  must   be  so construed, if  possible that  absurdity and  mischief may be avoided. There  are many  situations where  the construction suggested on  behalf of  the Revenue  would lead to a wholly unreasonable result  which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to for a certain price and before the sale is completed pursuant to the agreement and it is quite well- known that  sometimes the  competition of  the sale may take place  even  a  couple  of  years  after  the  date  of  the agreement-the market  price shoots  up with  the result that the market  price prevailing on the date of the sale exceeds the agreed  price at which the property is sold by more than 15% of  such agreed  price. This  is not  at all an uncommon case in  an economy  of rising  prices and  in fact we would find in  a large  number  1  of  cases  where  the  sale  is completed more  than a  year or  two after  the date  of the agreement that  the market  price prevailing  on the date of the sale  is very  much more  than the  price at  which  the property is  sold under  the agreement.  Can it be contended with any  degree of fairness and justice that in such cases, where there  is clearly  no under-statement of consideration

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in respect  of the transfer and the transaction is perfectly honest and  bonafide  and,  in  fact,  in  fulfilment  of  a contractual  obligation,  the  assessee  who  has  sold  the property should  be liable to pay tax on capital gains which have not  accrued or  arisen to him. It would indeed be most harsh and  inequitable to  tax the  assessee on income which has neither  arisen to  him nor  is received  by him, merely because he has carried out the contractual obligation under- taken by  him. It  is difficult  to conceive of any rational reason why  the legislature  should have  thought it  fit to impose liability  to tax  on an assessee who is bound by law to carry out his contractual obligation to sell the property at  the   agreed  price   and  honestly   carries  out  such contractual  obligation.  It  would  indeed  be  strange  if obedience to  the law  should attract  the levy  of  tax  on income which has neither arisen to the assessee nor has been received by him. If we may take another illustration, let us consider a  case where  A  sells  his  property  to  with  a stipulation that  after some-time  which may  be a couple of years or  more, he  shall resell  the property  to A for the same price. 642 could it be contended in such a case that when transfers the property to  A for  the same  price at  which he  originally purchased it, he should be liable to pay tax on the basis as if he  has received  the market  value of the property as on the date  of resale,  if, in the meanwhile, the market price has shot  up and  exceeds the  agreed price by more than 15% Many other  similar situations  can be contemplated where it would be  absurd and  unreasonable to  apply section 52 sub- section (2) according to its strict literal construction. We must therefore  eschew literalness  in the interpretation of section  52   sub-section  (2)  and  try  to  arrive  at  an interpretation which  avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands  are tied  and we  cannot find any escape from the tyranny of  the literal  interpretation. It  is now  a  well settled rule  of construction  that where  the plain literal interpretation  of   a  statutory   provision   produces   a manifestly absurd  and unjust  result which could never have been intended  by the  legislature, the court may modify the language used  by the legislature or even ’do some violence’ to it,  so as  to  achieve  the  obvious  intention  of  the legislature and  produce a rational construction, Vide: Luke Inland Revenue  Commissioner(1) The Court may also in such a case read  into the  statutory provision  a condition which, though not  expressed, is implicit as constituting the basic assumption underlying  the  statutory  provision.  We  think that,  having   regard  to  this  well  recognised  rule  of interpretation,  a   fair  and  reasonable  construction  of section 52  sub-section (2)  would be  to  read  into  it  a condition that  it would  apply only where the consideration for the  transfer is  under-stated or  in other  words,  the assessee has  actually received  a larger  consideration for the transfer  than what  is declared  in the  instrument  of transfer and  it would  have no  application in  case  of  a bonafinde  transaction   where  the   full  value   of   the consideration for  the transfer is correctly declared by the assessee. There  are several  important considerations which incline us  to accept  this construction  of section 52 sub- section (2).      The first  consideration to  which we must refer is the object and  purpose of  the enactment  of  section  52  sub- section (2).  Prior to  the introduction of sub-section (2), section 52  consisted only  of what  is now sub-section (1).

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This sub-section provides that where an assessee transfers a capital asset  and in respect of the transfer two conditions are satisfied’  namely,  (1)  the  transferee  is  a  person directly or  indirectly connected with the assessee and (ii) the 643 Income-tax officer  has reason  to believe that the transfer was effected  A with the object of avoidance or reduction of the liability  of the  assessee to tax on capital gains, the fair market  value of  the capital  asset on the date of the transfer  shall   be  taken   to  be   the  full   value  of consideration for  the transfer  and the  assessee shall  be taxed on  capital gains  on that basis. The second condition obviously involves  under-statement of  the consideration in respect of  the transfer  because it  is only by showing the consideration for  the transfer at a lesser figure than that actually received  that the  assessee can achieve the object of avoiding  or reducing  his liability  to tax  on  capital gains. And  that is  why the  marginal note  to  section  52 reads: "Consideration  for the  transfer in  cases of under- statement’’. But, it must be noticed that for the purpose of bringing a  case within  sub-section (1),  it is  not enough merely to  show understatement  of consideration but it must be further  shown that the object of the under-statement was to avoid  or reduce  the liability of the assessee to tax on capital gains. Now it is necessary to bear in mind that when capital gains are computed by invoking sub-section (I) it is not any  fictional accrual  or receipt  of income  which  is brought to  tax. Sub-section  (I) does  not deem  income  to accrue or  to be received which in fact never accrued or was never received. It seeks to bring within the net of taxation only that  income which  has accrued  or is  received by the assessee as  a result  of the  capital asset.  But since the actual  consideration   received  by  the  assessee  is  not declared or  disclosed and in most of the cases, if not all, it would  not be  possible for  the  Income-tax  officer  to determine precisely what is actual consideration received by the assessee  or in other words how much m ore consideration is received  by the assessee than that declared by him, sub- section (1)  provides that  the fair  market  value  of  the property as on the date of the transfer shall be taken to be the full  value of  the consideration for the transfer which has accrued  to or  is received  by the assessee. Once it is found that  the consideration  in respect of the transfer is understated and  the conditions specified in sub-section (1) are fulfilled,  the Income-tax  Officer will  not be  called upon to prove the precise extent of the undervaluation or in other words,  the actual  extent of  the concealment and the full value  of the  consideration received  for the transfer shall be  computed in the manner provided in subsection (1). The net  effect of  this provision is as if a statutory best judgment assessment  of the actual consideration received by the assessee is made, in the absence of reliable materials. 644      But the  scope of  sub-section (1)  of  section  52  is extremely restricted  because  it  applies  only  where  the transferee is a person directly or indirectly connected with the assessee  and the  object of  the under-statement  is to avoid or  reduce the income-tax liability of the assessee to tax  on   capital  gains.  There  may  be  cases  where  the consideration for  the transfer  is shown at a lesser figure than  that   actually  received  by  the  assessee  but  the transferee is  not a person directly or indirectly connected with the  assessee or  the object  of under-statement of the consideration is unconnected with tax on capital gains. Such

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cases would  not be  within the reach of sub section (1) and the assessee,  though dishonest,  would escape the rigour of the  provision   enacted  in  that  sub-section.  Parliament therefore enacted  sub-section (2)  with a view to extending the coverage  of the  provision in  sub-section (I) to other cases of  under statement  of  consideration.  This  becomes clear if  we have  regard to  the object  and purpose of the introduction of  sub-section (2)  as appearing  from travaux preparatoire relating to the enactment of that provision. It is  a  sound  rule  of  construction  of  a  statute  firmly established in  England as  far back  as 1584  when Heydon’s case(1)    was  decided  that"...  for  the  sure  and  true interpretation of all statutes in general-four things are to be discerned  and considered:  (1) What  was the  common law before the  making of the Act, (2) What was the mischief and defect for  which the  common law  did not provide, (3) What remedy the  Parliament hath  resolved and  appointed to cure the disease  of the Commonwealth, and (4) The true reason of the remedy,  and then the office of all the Judges is always to make  such construction  as shall  suppress the mischief, and  advance   the  remedy".   In  in  re  Mayfair  Property Company(2)  Lindley.   M.R.  in  1898  found  the  rule  "as necessary now  as it  was when  Lord Coke  reported Heydon’s case". The  rule was  reaffirmed  by  Earl  of  Halsbury  in Eastman Photographic Material Company v. Comptroller General of Patents,  Designs and  Trade Marks(3)  in  the  following words.           "My Lords,  it appears  to me that to construe the      Statute in  question, it  is not  only  legitimate  but      highly convenient  to refer  both to the former Act and      to the  ascertained evils  to which  the former Act had      given rise, and to 645      the later  Act which  provided the  remedy. These three      being A compared I cannot doubt the conclusion." This Rule  being a  Rule of construction has been repeatedly applied in  India in  interpreting statutory  provisions. It would therefore  be legitimate  in interpreting  sub-section (2) to  consider that  was the mischief and defect for which section 52  as it  then stood  did not provide and which was sought to be remedied by the enactment of sub-section (2) or in other  words, what was the object and purpose of enacting that sub-section.  Now in this connection the speech made by the Finance  Minister while moving the amendment introducing sub-section  (2)   is  extremely   relevant,  as  it  throws considerable  light   on  the  object  and  purpose  of  the enactment or sub-section (2). The Finance Minister explained the reason  for introducing sub-section (2) in the following words:           "Today, particularly every transaction of the sale      of property  is for  a much  lower figure  than what is      actually received.  The deed of registration mentions a      particular amount;  the actual  money  that  passes  is      considerably more.  It is to deal with these classes of      sales that  this amendment has been drafted-It does not      aim  at   perfectly  bona   fide   transactions..   but      essentially relates  to the day-to-day occurrences that      are happening before our eyes in regard to the transfer      of property.  I think,  this is one of the key sections      that  should  help  us  to  defeat  the  free  play  of      unaccounted money and cheating of the Government." Now it  is true that the speeches made by the Members of the Legislature on  the floor  of the  House  when  a  Bill  for enacting  a   statutory  provision   is  being  debated  are inadmissible for  the purpose  of interpreting the statutory

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provision but  the speech  made by  the Mover  of  the  Bill explaining the  reason for  the introduction of the Bill can certainly   be referred  t o for the purpose of ascertaining the mischief  sought to  be remedied  by the legislation and the object and purpose for which the legislation is enacted. This is  in accord with the recent trend in juristic thought not only  in  Western  countries  but  also  in  India  that interpretation  of  a  statute  being  an  exercise  in  the ascertainment of  meaning,  everything  which  is  logically relevant should be admissible. In fact there are at least 646 three decisions  of this  Court, one in Loka Shikshana Trust v. Commissioner of Income-Tax(1) the other in Indian Chamber of Commerce  v. Commissioner  of Income-tax(2) and the third in Additional  Commissioner of  Income-tax v. Surat Art Silk Cloth Manufacturers  Association(3) where the speech made by the Finance  Minister  while  introducing  the  exclusionary clause in  section 2  clause (15) of the Act was relied upon by the  Court for  the purpose  of ascertaining what was the reason for  introducing that  clause. The speech made by the Finance Minister while moving the amendment introducing sub- section (2)  clearly states  what were  the circumstances in which sub-section  (2) came  to  be  passed,  what  was  the mischief for  which section  52 as  it then  stood  did  not provide and which was sought to be remedied by the enactment of sub-section  (2) and why the enactment of sub-section (2) was found  necessary. It  is apparent from the speech of the Finance Minister  that sub-section(2)  was enacted  for  the purpose of  reaching those  cases  where  there  was  under- statement of  consideration in respect of the transfer or to put it  differently, the  actual consideration  received for the transfer  was ’considerably  more’ than that declared or shown by  the assessee,  but which  were not covered by sub- section (1)  because the  transferee  was  not  directly  or indirectly connected  with  the  assessee.  The  object  and purpose of sub-section (2), as explicated from the speech of the Finance  Minister, was  not  to  strike  at  honest  and bonafide  transactions   where  the  consideration  for  the transfer was  correctly 13: disclosed by the assessee but to bring within  the net  of taxation  those transactions where the consideration  in respect of the transfer was shown at a lesser figure  than that  actually received by the assessee, so that  they do  not escape  the charge  of tax  on capital gains by under-statement of the consideration. This was real object and  purpose of  the enactment of sub-section (2) and the interpretation  of this  sub-section must  fall in  line with the  advancement of  that object  and purpose.  We must therefore accept as the underlying assumption of sub-section (2)  that  there  is  under-statement  of  consideration  in respect of  the transfer  and sub-section  (2) applies  only where the  actual consideration  received by the assessee is not disclosed  and the  consideration declared in respect of the transfer  is shown at a lesser figure than that actually received. 647      This  interpretation  of  sub-section  (2)  i  strongly supported by  A the  marginal note to section 52 which reads ’Consideration for transfer in cases of under-statement’. It is undoubtedly  true that  the marginal  note to  a  section cannot be  referred to  for the  purpose of  construing  the section but  it can  certainly be  relied upon as indicating the drift  of the section or, to use the words of Collins MR in Bushel  v. Hammond(l) to show what the section is dealing with. It cannot control the interpretation of the words of a section particularly  when the  language of  the section  is

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clear and  unambiguous but,  being part  of the  statute, it prima facie  furnishes some  clue  as  to  the  meaning  and purpose of  the section. Vide Bengal Immunty Company Limited v. State  of Bihar(2) The marginal note to section 52. as it now stands,  was originally  a marginal note only to what is presently sub-section  (I) and  significantly  enough,  this marginal note remained unchanged even after the introduction of sub-section  (2) suggesting  clearly that it was meant by Parliament to  apply to  both sub-sections of section 52 and it must  therefore be  taken as  indicating that,  like sub- section (1),  sub-section (2)  is also intended to deal with cases where there is under-statement of the consideration in respect of the transfer.      But apart  from these  considerations, the placement of subsection (2)  in section  52 does  indicate in  some small measure that  Parliament intended  that sub-section to apply only to  cases where  the consideration  in respect  of  the transfer  is   under-stated  by  the  assessee.  It  is  not altogether without  significance that  the provision in sub- section (2)  was enacted  by Parliament  not as  a  separate section, but  as part  of section 52 which, as it originally stood,  dealt   only  with   cases  of   under-statement  of consideration. If  Parliament intended  sub-section  (2)  to cover all  cases where  the condition  of 15%  difference is satisfied, irrespective  of whether  there is understatement of consideration  or not,  it is  reasonable to  assume that Parliament would  have enacted  that provision as a separate section and not pitch-forked it into section 52 with a total stranger under  an  inappropriate  marginal  note.  Moreover there  is   inherent  evidence  in  sub-section  (2),  which suggests that  the thrust  of that  sub-section is  directed against  cases  of  under-statement  of  consideration.  The crucial and  important words  in sub-section  (2) are:  "the full value  of the  consideration declared by the assessee", The word ’declared’ 648 is very  eloquent and  revealing. It  clearly indicates that the  focus  of  sub-section  (2)  is  on  the  consideration declared or  disclosed by the assessee as distinguished from the  consideration   actually  received   by  him   and   it contemplates a  case where the consideration received by the assessee in respect of the transfer is not truly declared or disclosed by him but is shown at a different figure. This or course is  a very  small factor  and  by  itself  of  little consequence but  alongwith the  other factors  which we have discussed above,  it assumes  same significance  as throwing light on the true intent of sub-section (2).      There is  also one  other circumstance  which  strongly reinforces  the   view  we  are  taking  in  regard  to  the construction of sub-section (2). Soon after the introduction of sub-section  (2), the  Central Board  of Direct Taxes, in exercise of  the power  conferred under  section 119  of the Act, issued  a circular  dated 7th July, 1964 explaining the scope and object of sub-section (2) in the following words:           "Section 13  of the  Finance Act  has introduced a      new sub-section (2) in section 52 of the Income-tax Act      with a  view to  countering evasion  of tax  on capital      gains through  the device  of an under-statement of the      full value  of the consideration received or receivable      on the transfer of a capital asset.           The  provision  existing  in  section  52  of  the      Income-tax Act before the amendment (which has now been      remembered as  sub-section (2)  enables the computation      of capital gains arising on transfer of a capital asset      with .  reference to  its fair  market value  as on the

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    date of  its :  transfer, ignoring  the amount  of  the      consideration shown   by  the  assessee,  only  if  the      following two conditions are satisfied:           (a)  the transferee  is a  person who is directly.                or indirectly connected with assessee, and           (b)  the Income-tax  officer has reason to believe                that the transfer was effected with object of                avoidance or  reduction of  the liability  of                assessee to tax of capital gains.           In view  of these conditions, this provision has a      limited operation  and does  not apply  to other  cases      where the 649           tax liability on capital gains arising on transfer           of capital  A assets between parties not connected           with each  other,  is  sought  to  be  avoided  or           reduced by an under-statement of the consideration           paid for the transfer of the asset " The  circular   also  drew   the  attention   of  Income-tax Authorities to  the assurance  given by the Finance Minister in his  speech that  sub- B  section (2)  was not  aimed  at perfectly  honest   and  bonafide   transactions  where  the consideration in  respect  of  the  transfer  was  correctly disclosed or  declared by  the assessee, but was intended to deal  only  with  cases  where  the  consideration  for  the transfer was under-stated by the assessee and was shown at a lesser figure than that actually received by him. It appears that despite  this circular,  the Income-tax  Authorities in several cases  levied tax  by invoking the provision in sub- section  (2)   even  in  cases  where  the  transaction  was perfectly, honest  and bonafide  and  there  was  no  under- statement of  the consideration.  This was quite contrary to the instructions issued in the circular which was binding on the Tax  Department and  the Central  Board of  Direct Taxes was, therefore,  constrained to  issue another  circular  on 14th  January,   194  whereby   the  Central   Board,  after reiterating the  assurance given  by the Finance Minister in the course of his speech pointed out:           "It has  come to  the notice  of the Board that in      some cases  the Income-tax  officers have  invoked  the      provisions of  section 52(2) even when the transactions      were bonafide.  In this context reference is invited to      the decision  of the  Supreme  Court  in  Navnitlal  C.      Jhaveri v.  R K  Sen(1)  and  Ellerman  Lines  Ltd.  v.      Commissioner of  Income-tax, West  Bengal(2) wherein it      was held that the circular issued by the Board would be      binding on  all officers  and persons  employed in  the      execution of  the Income-tax  Act. Thus, the Income-tax      officers are bound to follow the instructions issued by      the Board." and  instructed   the  Income-tax   officers   that   "while completing the  assessments they  should keep  in  mind  the assurance  given   by  the   Minister  of  Finance  and  the provisions of section 52(2) of the Income-tax Act may not be invoked in cases of bonafide trans- 650 actions". These two circulars of the Central Board of Direct Taxes are,  as we  shall presently point out, binding on the Tax Department  in administering  or executing the provision enacted in  sub-section (2),  but  quite  apart  from  their binding  character,  they  are  clearly  in  the  nature  of contemporanea expositio  furnishing legitimate  aid  in  the construction of sub-section (2). The rule of construction by reference to  contemporanea expositio  is a well established rule  for   interpreting  a  statute  by  reference  to  the

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exposition it  has  received  from  contemporary  authority, though it must give way where the language of the statute is plain and  unambiguous. This  rule has  been succinctly  and felicitously expressed in Crawford on Statutory Construction (1940  ed)   where  it  is  stated  in  paragraph  219  that "administrative   construction    (i.   e.   contemporaneous construction placed  by administrative or executive officers charged  with  executing  a  statute)  generally  should  be clearly wrong  before it is overturned; such a construction, commonly referred  to as  practical  construction,  although non-controlling, is  nevertheless entitled  to  considerable weight; it  is highly persuasive." The validity of this rule was also  recognised  in  Baleshwar  Bagarti  v.  Bhagirathi Dass(1) where Mookerjee, J. stated the rule in these terms:           "It is  a well-settled principle of interpretation      that courts  in construing  a statute  will  give  much      weight to  the interpretation  put upon it, at the time      of its  enactment and since, by those whose duty it has      been to construe, execute and apply it." and this  statement of  the rule was quoted with approval by this Court in Deshbandhu Guptu & Co. v. Delhi Stock Exchange Association Ltd.(2)  It is  clear from  these two  circulars that the Central Board of Direct Taxes, which is the highest authority entrusted  with the execution of the provisions of the Act,  understood sub  section (2)  as limited  to  cases where the  consideration for  the transfer  has been  under- stated by the assessee and this must be regarded as a strong circumstance  supporting   the  construction  which  we  are placing on that sub-section.       But  the construction which is commending itself to us does not  rest merely  on  the  principle  of  contemporanea expositio. The 651 two circulars  of the Central Board of Direct Taxes to which we have just referred are legally binding on the Revenue and this binding character attaches to the two circulars even if they  be   found  not   in  accordance   with  the   correct interpretation of  subsection (2) and they depart or deviate from such  construction. It  is now well-settled as a result of two  decisions of this Court, one in Navnitlal C. Jhaveri v. RR.  Sen(1) and  the other  in  Ellerman  Lines  Ltd.  v. Commissioner of  Income-tax, West  Bengal(2) that  circulars issued by  the Central  Board of  Direct Taxes under section 119 of  the Act  are binding  ( n  all officers  and persons employed in  the execution  of the  Act even if they deviate from the  provisions of the Act. The question which arose in Navnitlal C.  Jhaveri’s case  (supra) was  in regard  to the constitutional validity  of sections  2(6A) (e)  and  12(1B) which were  introduced in  the Indian Income Tax Act 1922 by the Finance Act 1955 with effect from 1st April, 1955. These two sections  provided that  any payment  made by  a closely held company  to its shareholder by a way of advance or loan to the  extent to  which the  company possesses  accumulated profits shall  be treated  as dividend taxable under the Act and this  would include  any loan  or advance  made  in  any previous year  relevant to  any assessment year prior to the assessment year  1955-56, if  such loan  or advance remained outstanding on  the first  day of the previous year relevant to the  assessment year 1955-56. The constitutional validity of these  two sections  was assailed on the ground that they imposed unreasonable  restrictions on  the fundamental right of the  assessee under  Article 19(1)  (f) and  (g)  of  the Constitution by taxing outstanding loans or advances of past years as  dividend. The Revenue however relied on a circular issued by the Central Board of Revenue under section 5(8) of

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the Indian lncome-tax Act 1922 which corresponded to section 119 of  the Present  Act and  this circular provided that if any such  outstanding loans  or advances  of past years were repaid on  or before 30th June 1922, they would not be taken into  account  in  determining  the  tax  liability  of  the shareholders to whom such loans or advances were given. This circular was  clearly contrary  to  the  plain  language  of section 2(6A)(e)  and section 121(B), but even so this Court held that  it was  binding on  the Revenue  and since  "past transactions  which   would  normally   have  attracted  the stringent provisions  of section 12(1B) as it was introduced in 1955, were substantially granted exemption from the 652 operation of  the said  provisions by making it clear to all the companies  and their shareholders that if the past loans were genuinely  refunded to  the companies they would not be taken into  account under section 12(1B)" sections 2(6A) (e) and   12(1B)    did   not    suffer   from   the   vice   of unconstitutionality. This  decision was followed in Ellerman Lines case  (supra)  where  referring  to  another  circular issued by the Central Board of Revenue under section 5(8) of the Indian  Income Tax Act 1922 on which reliance was placed on behalf of the assessee, this Court observed:           "Now, coming  to the  question as to the effect of      instructions issued under section 5(8) of the Act, this      J Court observed in Navnit Lal C. Jhaveri v. R. K. Shah      Appellate Assistant Commissioner, Bombay.           "It is clear that a circular of the kind which was      issued by  the Board  would be  binding on all officers      and persons  employed in the execution of the Act under      section 5(8)  of the  Act. This circular pointed out to      all the  officers that  it was  likely that some of the      companies  might   have   advanced   loans   to   their      shareholders as  a result  of genuine  trans actions of      loans, and the idea was not to affect such transactions      and not  to bring  them within  the mischief of the new      provision.           The directions  given  in  that  circular  clearly      deviated from the provisions of the Act, yet this Court      held  that  circular  was  binding  on  the  Income-tax      officers." The two  circulars of  the Central  Board  of  Direct  Taxes referred to  above must  therefore be  held to be binding on the Revenue  in the administration or implementation of sub- section (2)  and this sub section must be read as applicable only  to   cases  where  there  is  under-statement  of  the consideration in respect of the transfer.       Thus  it is not enough to attract the applicability of sub-section (2)  that the  fair market  value of the capital asset transferred  by the  assessee as  on the  date of  the transfer  exceeds   the  full  value  of  the  consideration declared in  respect of the transfer by not less than 15% of the value  so declared, but it is furthermore necessary that the full  value of  the  consideration  in  respect  of  the transfer is  under-stated or  in other  words,  shown  at  a lesser figure  than that  actually received by the assessee. Sub-section (2) has no application 653 in case  of an  honest and  bonafide transaction  where  the consideration in  respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15%  difference between  the fair  market  value  of  the capital asset  as on  the date  of the transfer and the full value of  the consideration  declared  by  the  assessee  is satisfied. If  therefore the  Revenue seeks  to bring a case

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within sub-section  (2), it must show not only that the fair market value  of the  capital asset  as on  the date  of the transfer  exceeds   the  full  value  of  the  consideration declared by  the assessee  by not less than 15% of the value so declared, but also that the consideration has been under- stated and the assessee has actually received more than what is declared  by him. There are two distinct conditions which have to  be satisfied  before sub-section (2) can be invoked by the  Revenue and  the burden  of showing  that these  two conditions are satisfied rests on the Revenue. It is for the Revenue to  show  that  each  of  these  two  conditions  is satisfied and  the Revenue  cannot claim  to have discharged this burden  which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer  exceeds by  15% or  more the full value of the consideration declared  in respect  of the  transfer and the first condition  is therefore satisfied. The Revenue must go further  and   prove  that  the  second  condition  is  also satisfied. Merely  by showing  that the  first condition  is satisfied, the  Revenue cannot ask the Court to presume that the second  condition too  is fulfilled,  because even  in a case  where   the  first  condition  of  15%  difference  is satisfied, the  transaction may  be a  perfectly honest  and bonafide transaction  and there may be no under-statement of the consideration.  The fulfilment  of the  second condition has therefore  to be  established independently of the first condition  and   merely  because   the  first  condition  is satisfied, no  inference can  necessarily  follow  that  the second condition  is also  fulfilled. Each condition has got to be  viewed  and  established  independently  before  sub- section ()  can be  invoked and  the burden  of doing  so is clearly on  the Revenue.  It is  a well  settled rule of law that  the  onus  of  establishing  that  the  conditions  of taxability are  fulfilled is  always on  the Revenue and the second condition  being as much a condition of taxability as the first, the burden lies on the Revenue to show that there is  understatement  of  the  consideration  and  the  second condition is  fulfilled. Moreover,  to throw  the burden  of showing   that   there   is   no   understatement   of   the consideration, on  the assessee  would be  to cast an almost impossible burden upon him to establish the negative, 654 namely, that  he did  not receive  any consideration  beyond that declared by him.      But  the   question  then  arises  why  has  Parliament introduced the  first condition  as a  pre-requisite for the applicability  of   subsection  (2)  ?  Why  has  Parliament provided that  in order to attract the applicability of sub- section (2) the fair market value of the capital asset as on the date  of the  transfer should  exceed by 15% or more the full value of the consideration for the transfer declared by the assessee ? The answer is obvious. The object of imposing the condition  of difference  of 15%  or  more  between  the market value  of the  capital asset  and  the  consideration declared in  respect of  the transfer clearly is to save the assessee from  the rigour  of sub-section  (2)  in  marginal cases where  difference in subjective valuation by different individuals may  result in an apparent disparity between the fair market  value and  the declared  consideration. It is a well known  fact borne  out by practical experience that the determination of  fair market  value of  a capital  asset is generally a matter of estimate based to some extent on guess work and  despite the  utmost bonafides, the estimate of the fair market  value is  bound  to  vary  from  individual  to individual. It  is obvious that if the restrictive condition

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of difference  of 15%  or more between the fair market value of the  capital asset as on the date of the transfer and the consideration declared  in respect  of the transfer were not provided in  sub-section (2),  many  marginal  cases  would, having regard to the possibility of difference of opinion in subjective assessment  of the fair market value, fall within the mischief  of that  sub-section and the statutory measure enacted   in    that   sub-section   for   determining   the consideration actually  received by  the assessee  would  be applicable in  all its  rigour in such cases. This condition of 15%  or more  difference  is  merely  intended  to  be  a safeguard against  under hardship  which would be occasioned to the  assessee if the inflexible rule of the thumb enacted in sub section (2) were applied in marginal cases and it has nothing to  do with the question of burden of proof, for the burden of  establishing that there is under-statement of the consideration in respect of the transfer always rests on the Revenue. The  postulate underlying  sub-section (2)  is that the difference  between one honest valuation and another may range upto  15% and  that constitutes  the class of marginal cases which  are taken out of the purview of sub-section (2) in order to avoid hardship to the assessee. 655      It is  therefore clear  that sub-section  (2) cannot be invoked by  A the Revenue unless there is under-statement of the consideration  in respect of the transfer and the burden of showing  that there  is such  under-statement is  on  the Revenue. Once  it is  established by  the Revenue  that  the consideration for  the transfer  has been understated or, to put it  differently, the  consideration actually received by the assessee  is more  than what is declared or disclosed by him, sub-  section (2)  is immediately attracted. subject of course to  the fulfilment  of the  condition of  15% or more difference, and  the Revenue  is then  not required  to show what is the precise extent of the understatement or in other words, what  is the  consideration actually  received by the assessee. That  would in  most cases be difficult.....if not impossible, to  show and  hence sub-section (2) relieves the Revenue of  all burden  of proof  regarding  the  extent  of understatement  or  concealment  and  provides  a  statutory measure of  the consideration  received in  respect  of  the transfer. It  does not create any fictional receipt. It does not deem as receipt something which is not in fact received. It merely  provides a  statutory best judgment assessment of the consideration  actually received  by  the  assessee  and brings to  tax capital  gains on  the footing  that the fair market value  of the  capital asset  represents  the  actual consideration  received  by  the  assessee  as  against  the consideration untruly  declared or  disclosed by  him.  This approach in  construction of  sub-section (2)  falls in line with the scheme of the provisions relating to tax on capital gains. It  may be  noted that  section 52  is not a charging section but  is a  computation section.  It has  to be  read alongwith section  48 which provides the mode of computation and under  which the  starting point  of computation is "the full value  of the consideration received or accruing". What in fact  never accrued  or  was  never  received  cannot  be computed as  capital gains  under section 48. Therefore sub- section (2)  cannot be  construed  as  bringing  within  the computation of  capital gains an amount which, by no stretch of imagination,  can be said to have accrued to the assessee or been  received by  him and  it must  be confined to cases where the  actual consideration received for the transfer is under-stated and  since in  such cases it is very difficult, if not  impossible, to determine and prove the exact quantum

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of the  suppressed consideration,  sub-section (2)  provides the statutory  measure  for  determining  the  consideration actually received by the assessee and permits the Revenue to take the  fair market value of the capital asset as the full value of  the  consideration  received  in  respect  of  the transfer. 656       This  construction which we are placing on sub-section (2) also  marches in  step with the Gift Tax Act, 1958. If a capital asset  is transferred  for a consideration below its market value,  the difference  between the  market value and the full  value of  the consideration received in respect of the transfer  would amount to a gift liable to tax under the Gift Tax  Act, 1958,  but if the construction of sub-section (2) contended  for on  behalf of  the Revenue were accepted, such difference  would also be liable to be added as part of capital gains taxable under the provisions of the Income Tax Act, 1961.  This would  be an  anomalous result  which could never have  been contemplated  by the legislature, since the Income Tax Act, 1961 and the Gift Tax Act, 1958 are parts of an integrated  scheme of  taxation and the same amount which is chargeable  as gift  could not  be intended to be charged also as capital gains.      Moreover, if  sub-section (2) is literally construed as applying  even   to  cases  where  the  full  value  of  the consideration  in  respect  of  the  transfer  is  correctly declared or  disclosed by  the  assessee  and  there  is  no understatement of  the consideration,  it would result in an amount being taxed which has neither accrued to the assessee nor been received by him and which from no view point can be rationally considered  as capital gains or any other type of income. It is a well settled rule of interpretation that the Court should  as for  as possible  avoid  that  construction which attributes  irrationality to the legislature. Besides, under Entry  82 in  List I  of the  Seventh Schedule  to the Constitution which  deals with  "Taxes on  income" and under which the  Income Tax Act, 1961 has been enacted, Parliament cannot "choose to tax as income as item which in no rational sense can  be regarded as a citizens income or even receipt. Sub-section (2) would, therefore, on the construction of the Revenue, go outside the legislative power of Parliament, and it would not be possible to justify it even as an incidental or ancillary  provision or  a provision  intended to prevent evasion of  tax. Sub-section  (2) would also be violative of the fundamental  right of  the assessee under Article 19 (1) (f)-which fundamental  right was  in existence  at the  time when  sub-section  (2)  came  to  be  enacted-since  on  the construction canvassed  on behalf of the Revenue, the effect of sub  section (2)  would be  to penalise  the assessee for transferring his capital asset for a consideration lesser by 15% or  more than  the fair  market  value  and  that  would constitute unreasonable restriction on the fundamental right of the assessee to dispose of his capital 657 asset at  the price  of his choice. The Court must obviously prefer  a   A  construction   which  renders  the  statutory provision constitutionally  valid  rather  than  that  which makes it void.      We must  therefore hold that sub-section (2) of sec. 52 can be invoked only where the consideration for the transfer has been  understated by the assessee or in other words, the consideration actually received by the assessee is more than what is  declared or  disclosed by  him and  the  burden  of proving  such  under-statement  or  concealment  is  on  the Revenue. This  burden may  be discharged  by the  Revenue by

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establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not a correctly declared or  disclosed the consideration received by him and there is  understatement of concealment of the consideration in  respect   of  the   transfer.  Sub-section  (2)  has  no application in  case of  an honest  and bonafide transaction where the  consideration received  by the  assessee has been correctly declared  or disclosed  by him,  and there  is  no concealment or  suppression of  the consideration.  We  find that in  the present  case, it was not the contention of the Revenue that  the property  was sold by the assesssee to his daughter-in-law and five of his children for a consideration which was  more than  the sum  of Rs. 16,500 shown to be the consideration for the property in the Instrument of Transfer and  there   was  understatement   or  concealment   of  the consideration in  respect of  the transfer.  It  was  common ground between  the parties  and that  was a finding of fact reached by  the Income-tax Authorities, that the transfer of the property  by the  assessee was  a perfectly,  honest and bonafide  transaction   where  the   full   value   of   the consideration  received   by  the   assessee  was  correctly disclosed at  the figure  of Rs.  16,500. Therefore,  on the construction placed by us, subsection (2) had no application to the present case and the Income-tax officer could have no reason to  believe that  any  part  of  the  income  of  the assessee had  escaped assessment  so as to justify the issue of a  notice under  section 148.  The order of re-assessment made by the Income-tax officer pursuant to the notice issued under section  148 was  accordingly without jurisdiction and the majority  judges of  the Full  Bench were  in  error  in refusing to quash it.      We accordingly  allow the  appeal, set  aside the order passed by  the Full Bench and restore the order of Issac, J. allowing the writ 658 petition and quashing the order of re-assessment made by the Income-tax officer.  The Revenue  will pay  the costs of the assessee throughout. S.R.                                   Appeal allowed. 659