Case Law Details
K.P. Varghese Vs ITO (Supreme Court of India)
Supreme Court held 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 so as to achieve the obvious intention of the Legislature.
Facts- 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 AY 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 u/s. 148 of the Act seeking to reopen the assessment of the assessee for the AY 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.
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