Section 52(2) Applies Only Where Sale Price Is Understated, Burden on Revenue: Supreme Court

The assessee bought a house in Ernakulam in 1958 for Rs. 16,500 and sold it on 25 December 1965, for the same price, to his daughter-in-law and five of his children (para 2). The Income-tax Officer reopened the assessment under Section 148, valued the house at Rs. 65,000 and taxed Rs. 48,500 as capital gains under Section 52(2), holding that understatement of consideration was not required (para 2). A single Judge of the Kerala High Court quashed the reassessment, but a Full Bench, by majority, upheld it (para 3). The assessee appealed on a certificate (para 3).

"The task of interpretation of a statutory enactment is not a mechanical task" (para 5). Read literally, Section 52(2) would tax an honest seller who completes an old agreement after prices rise; where the literal reading produces a manifestly absurd and unjust result, the court may read in an implied condition (para 6). The Finance Minister's speech moving the amendment shows it was aimed at understated sale deeds, not bona fide transactions; the mover's speech may be used to find the mischief (paras 7, 8). The marginal note, the provision's place within Section 52 and the word 'declared' point the same way (paras 9, 10). CBDT circulars of 1964 and 1974 are contemporanea expositio and bind the Revenue even if they deviate from the Act (paras 11, 12). "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" (para 13); the 15% margin only protects marginal valuation cases (para 14). The literal construction would also clash with the Gift Tax Act and constitutional limits (paras 16, 17).