PETITIONER: K.P. VARGHESE Vs. RESPONDENT: THE INCOME TAX OFFICER,<NAME>, AND ANOTHER DATE OF JUDGMENT04/09/1981 BENCH: <NAME>, P.N. BENCH: <NAME>, P.N. <NAME>, 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 <ORG> Act 1961-Burden of proof of such understatement is on the <ORG>-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 <ORG> 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, without stating what was the income alleged to have escaped assessment. However, by his subsequent letter dated 4th March, 1969, the <ORG> 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 <ORG> 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 <ORG> 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 <ORG> Act, 1961. The writ petition was allowed, but in appeal <ORG> by a majority judgment agreed with the views of the <ORG> officer and dismissed the writ petition. Hence the assessee's appeal by certificate. 630 Allowing the appeal, the <ORG> ^ HELD: 1: 1. Sub-section (2) of section 52 of the <ORG> 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 <ORG>, 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 <ORG> 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 <ORG> 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 <ORG> 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 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". <ORG>s, 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 <ORG> 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 <ORG> 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 <NAME> v. <ORG> Commissioner,  A.C. 557; <NAME>'s case  3 Co. Rep. 7(a); In re <ORG>, LR  2 Ch. Dn; <ORG> v. Comptroller-General of Patents, Designs and Trade Marks, L.R.  A.C. 571, quoted with approval, 2:3. The speeches made by the Members of the <ORG> on the floor of the <ORG> 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 <CITATION> af Income-Tax, 101 I.T.R. 234; <CITATION> , 101 I.T.R. 796; <CITATION> , 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] <NAME> v. <NAME>,  2 KB 563, quoted with approval. <CITATION> ,  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] <NAME> v. <NAME>, I.L.R. 35 Calcutta 701, approved. <NAME> and Co. v. <ORG>,.  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 <ORG> 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 <ORG> intended that sub-section to apply only to cases where the consideration in respect of the transfer is under stated by the assessee. If <ORG> 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 <ORG> 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 '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 <ORG> dated 7th July, 1964 and 14th January, 1974 are not only binding on <ORG> 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 <ORG>, 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 <ORG> 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 <CITATION> , 56 I.T.R. SC 198: <CITATION> , 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 <ORG>. 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 <ORG> 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 <ORG> and the burden of showing that these two conditions are satisfied rests on the <ORG>. It is for the <ORG> to show that each of these two conditions is satisfied and the <ORG> 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 <ORG> must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the <ORG> cannot ask the <ORG> 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 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 <ORG>. [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 <ORG>. 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 <ORG> 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 <ORG> 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 <ORG> 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 would amount to a gift liable to tax under the Gift Tax Act , 1958. Since the <ORG> 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 <ORG> Act , 1961 has been enacted, <ORG> 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 <ORG>, go outside the legislative power of <ORG>, 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 <ORG>, 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 <ORG> 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 <ORG> at Ernakulam in Writ Appeal No. 127 of 1970.

<NAME>, <NAME>, <NAME>, <NAME> and <NAME> for the appellant.

<NAME> and Miss <NAME> for the respondent <NAME>, <NAME>, <NAME> and <NAME> for the intervener.

<NAME> and <NAME> for the intervener. <NAME>, <NAME>, <NAME>, <NAME> and <NAME> for interveners.

<NAME> for the intervener.

<NAME> for the intervener.

<NAME> and <NAME> for the intervener. <NAME> and <NAME> for the intervener. The Judgment of the Court was delivered by <NAME>, J. The principal question that arises for deter-

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 <ORG> to show 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 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 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 <ORG> 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 <NAME> sitting as a single Judge of <ORG> and after 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 <ORG> appealed against this decision to <ORG> of <ORG> and having regard to the importance and complexity of the question involved, <ORG> referred the appeal to <ORG> of three Judges. <ORG> heard the appeal but there was a division of opinion, two Judges taking one view and the third Judge taking another. While <NAME> agreed substantially with the view taken by <NAME>, <NAME> and <NAME> 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 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 <ORG>.

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) 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:

(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 <ORG> was and this argument found favour with the majority Judges of <ORG> 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 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 <ORG>. 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 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 <NAME>, 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 <NAME> 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 <NAME> 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).

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 <ORG> 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 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.

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, <NAME>: Luke Inland Revenue Commissioner(1) The <ORG> 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). 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 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.

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 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. <ORG> 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 <NAME>'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 <ORG> 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 <ORG>) <ORG> in 1898 found the rule "as necessary now as it was when Lord <NAME> reported <NAME>'s case". The rule was reaffirmed by Earl of Halsbury in <ORG> 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 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 <ORG> on the floor of the <ORG> 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 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 three decisions of this Court, one in <CITATION> (1) the other in <CITATION> (2) and the third in <CITATION> (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.

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 <NAME> MR in <NAME> 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 clear and unambiguous but, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the section. <ORG> 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 <ORG> 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 <ORG> 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 <ORG> 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 <ORG> 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 <ORG> 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' 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), <ORG>, 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 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 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, <ORG> 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 <ORG> and <ORG> was, therefore, constrained to issue another circular on 14th January, 194 whereby <ORG>, 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 <ORG> 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 <ORG> in <CITATION> (1) and <CITATION> (2) wherein it was held that the circular issued by the <ORG> 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 <ORG>."

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-

actions". These two circulars of <ORG> are, as we shall presently point out, binding on <ORG> 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 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 <NAME> v. <NAME>) where <NAME>, 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 <ORG> v. <ORG>) It is clear from these two circulars that <ORG>, 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 two circulars of <ORG> to which we have just referred are legally binding on the <ORG> 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 <CITATION> (1) and the other in <CITATION> (2) that circulars issued by <ORG> 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 <NAME> 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 <ORG> however relied on a circular issued by the Central Board of <ORG> under section 5(8) of 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 <ORG> 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 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 <ORG> case (supra) where referring to another circular issued by the Central Board of <ORG> 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, <ORG> observed in <NAME> v. <NAME> Appellate Assistant Commissioner, Bombay. "It is clear that a circular of the kind which was issued by the <ORG> 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 <ORG> referred to above must therefore be held to be binding on the <ORG> 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 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 <ORG> 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 <ORG> and the burden of showing that these two conditions are satisfied rests on the <ORG>. It is for the <ORG> to show that each of these two conditions is satisfied and the <ORG> 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 <ORG> must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the <ORG> 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 <ORG>. It is a well settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the <ORG> and the second condition being as much a condition of taxability as the first, the burden lies on the <ORG> 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, namely, that he did not receive any consideration beyond that declared by him.

But the question then arises why has <ORG> introduced the first condition as a pre-requisite for the applicability of subsection (2) ? Why has <ORG> 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 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 <ORG>. 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.

It is therefore clear that sub-section (2) cannot be invoked by A the <ORG> 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 <ORG>. Once it is established by the <ORG> 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 <ORG> 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 <ORG> 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 of the suppressed consideration, sub-section (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the <ORG> to take the fair market value of the capital asset as the full value of the consideration received in respect of the transfer.

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 <ORG> 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 <ORG> 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, <ORG> 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 <ORG>, go outside the legislative power of <ORG>, 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 <ORG>, 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 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 <ORG>. This burden may be discharged by the <ORG> by 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 <ORG> 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 <ORG>, 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 <ORG> were in error in refusing to quash it.

We accordingly allow the appeal, set aside the order passed by <ORG> and restore the order of Issac, J. allowing the writ petition and quashing the order of re-assessment made by the Income-tax officer. The <ORG> will pay the costs of the assessee throughout.

S.R. Appeal allowed.


<NAME>, J.

1. The question raised in this Second Appeal is whether the appellant, who was defendant in the suit, was entitled to subrogation in respect of two mortgages discharged by him for the mortgagor.

2. The appellant had been given a usufructuary mortgage of property, which was subject to three prior simple mortgages in consideration of an advance of Rs. 8000 made by him to the mortgagor, the appellant undertaking to pay off these prior mortgages. As a matter of fact he paid off the two first mortgages, but he did not pay off the third mortgage. The third mortgagee brought a suit for sale on the footing of his mortgage, and the appellant set up in this suit a claim to be substituted for the two prior mortgagees whose debt he had discharged. The lower appellate Court rejected this claim, holding that it was not sustainable in the face of Section 92 of the Transfer of Property Act. It should be mentioned that the mortgages in question were antecedent in date to the amendment introduced by Section 92 into the Act.

3. The case has been argued on the assumption that Section 92 , as held by a Full Bench in <CITATION> (1932) I.L.R. 54 All. 897 (F.B.) is retrospective. Assuming that it is, I think that the third paragraph of the Section is fatal to the appellant's claim. This paragraph runs:

A person who has advanced to a mortgagor money with which the mortgage has been redeemed shall be subrogated to the rights of the mortgagee whose mortgage has been redeemed, if the mortgagor has by a registered instrument agreed that such person shall be so subrogated.

4. The appellant has advanced money to the mortgagor with which mortgages have been redeemed. But it was argued that some person other than a mortgagee is intended. But the section does not say so; and there is no apparent reason why a person who has advanced money for the purpose named in the section should not be regarded as within the section simply because the mortgagor has given him a mortgage to secure the advance made. But in such case the right to subrogation is made by the section a matter of express contract between the mortgagor and the person who has advanced him the money. There is no right to subrogation unless the mortgagor has by registered instrument agreed that the person advancing the money shall be subrogated in respect of the mortgage or mortgages discharged. No such agreement is forthcoming in this case.

5. But assuming that Section 92 is not applicable, I think that the appellant's claim must equally fail. I do not propose to analyse the numerous cases which have been cited, because, in my opinion, the correct principle to be gathered from the authorities is stated in <CITATION> (1933) 65 M.L.J. 390 at 399 as follows:

The general principle is that a later purchaser or mortgagee who undertakes to pay two prior encumbrances but pays only one and not the other, cannot resist the claim of the encumbrancer not so paid by setting up the discharge of the other encumbrance as a shield and claiming priority in respect of it

6. No doubt the same two learned Judges in an earlier decision in <CITATION> (1933) 64 M.L.J. 606 appear to have overlooked this principle. But the later statement must be accepted as correct. It will be found to have been expressed in much the same language by <NAME>, J. in <CITATION> (1929) I.L.R. 53 Mad. 188 at 198 : 57 M.L.J. 746

7. The question whether a mortgage paid off is kept alive of extinguished depends upon the intention of the parties, and this intention, in the absence of any declared intention, is to be inferred from the circumstances : Mohesh Lal v. <NAME>. (1883) L.R. 10 I.A 62 : I.L.R. 9 Cal. 961 (P.C.) In that case their Lordships discussed the equity which is to be applied. Quoting an English authority they said:

If there is no reason for keeping it (the incumbrance) alive, then, especially in the Case of an owner in fee, equity will in the absence of any declaration of intention destroy it, but if there be any reason for keeping it alive, such as the existence of another incumbrance, equity will not destroy it

8. In the present case the appellant's undertaking to pay off all the mortgages would, I think, indicate an intention that the whole debt with which the property was encumbered was to be extinguished. That is the proper view of the mortgagor's intention when he made his bargain with the appellant. In the absence of any particular circumstance to the contrary there is no room for inferring that the appellant was intended to be substituted for the three mortgagees whom he had contracted to pay. But in any case no such inference can be drawn in favour of the appellant when in breach of his contract he has paid off only two of the three mortgages which he had undertaken to discharge.

9. For these reasons I hold that the appellant's claim to a right of subrogation fails, and that the Second Appeal should be dismissed with costs.

Varadachariar, J.

10. The only point for decision in this Second Appeal is whether in the circumstances stated in my learned brother's judgment, the appellant who holds the usufructuary mortgage (Ex. 1) dated 7th May, 1927, is entitled to claim priority over the plaintiff's rights under the mortgage deed (Ex. A) dated 3rd March, 1922.

11. <CITATION> (1929) I.L.R. 53 Mad. 188 at 198 : 57 M.L.J. 746 it was observed by Ramesam, J. that:

Where a mortgagor sells his property to a vendee requiring the vendee to pay off two or three prior debts of the mortgagor and if the vendee pays off only one of them, he cannot claim priority in respect of it over the others, though he may claim such priority in respect of some other debts the payment of which by him was not contemplated

12. If this statement of the law is correct and if the principle enunciated with reference to a 'purchase' is also applicabl to a mortgagee who is directed to discharge certain prio Mortgages - this was assumed in <CITATION> (1933) 65 M.L.<NAME> 390 the appellant's claim of priority cannot be sustained. On behalf of the appellant, Mr. <NAME> has contended that the proposition enunciated in <CITATION> (1929) I.L.R. 53 Mad. 188 at 198 : 57 M.L.<NAME> 746 is not correct and that in any event it ought not to be extended to a mortgagee He has also contended that whatever might have been the position prior to 1930, the matter must now be taken to be settled in the appellant's favour by Section 92 of the Transfer of property Act as amended by Act XX of 1929, which he claims should be held to have retrospective operation, though the discharge of the prior mortgages in this case was made in 1927. On behalf of the respondent, it has been argued that the principle enunciated by <NAME>, <NAME> is correct and is equally applicable to the case of a mortgagee, that Act XX of 1929 is not retrospective in its operation and that even under Section 2 as amended, the appellant will not obtain priority, as the case must be held to be governed by Clause (3) and not by Clause (1) of that section.

13. The argument based on Section 92 may first be disposed of. in the view I take of the construction of that section; it is not necessary to come to a decision in this case on the question of its retrospective operation. It is true that in <CITATION> (1932) I.L.R. 54 All. 897 (F.B.) Full Bench of <ORG> held that the provision on had retrospective effect but a contrary opinion has been expressed by a Bench of this Court in <CITATION> (1932) 63 M.L.J. 587. I would only add that in deciding how far an inference in tavour of 'retrospective operation' is to be drawn from the fact that Section 63 of the Act XX of 1929 expressly excludes retrospective operation in respect of certain specified sections, the remarks of Lord <NAME> in <NAME> v <NAME> (1878) L.R. 3 A.C. 582 at 599, might have to be borne in mind, namely, that it may well be a provision inserted ex majore cautela. With reference to the concluding words of Section 63 of Act XX of 1929 the learned Judges of <ORG> observed that in that case nothing had already been done before the first day of April, 1930, in any pending proceeding and no remedy or proceeding was being affected by the new provisions. I beg leave to doubt the correctness of this statement. If the learned Judges were right in their view that the law was the same even prior to Act XX of 1929, or that Act XX of 1929 must only be understood as having declared the previous law (with a view to set conflicting decisions at rest) no exception could be taken to their relying on Act XX of 1929, because there will then be no question of 'retrospective operation' at all. If, on the other hand, Act XX of 1929 must be held to have changed the law prevailing prior thereto, it is difficult to agree that the learned Judges were giving full effect to the concluding words of Section 63 , of Act XX of 1929, because in that case the suit was undoubtedly pending when the Act of 1929 came into force and that section not merely provides that the Act shall not affect "anything already done" in any pending proceeding but goes on to say that such proceeding may be continued "as if this Act had not been passed".

14. Turning now to Section 92 as amended, the appellant contends that the present case must be held to be governed by the first clause in view of the generality of its language, and here again strong reliance is placed on the decision in <CITATION> (1932) I.L.R. 54 All. 897 (F.B.). There can be little doubt that the proper method of interpreting the first clause is to construe it in the light of the third clause of the same section. It will be seen from the report of <ORG> which considered the Bill that they assumed that under the previous state of the law a transferee from a mortgagor who has undertaken to discharge a prior mortgage debt cannot by the mere fact of paying off a prior mortgage claim subrogation though in certain circumstances the <ORG> may presume an intention on his part to keep alive the security thus paid off by him. To meet such cases they recommended the provision now enacted as Clause (3) of Section 92 whereunder a person advancing money to a mortgagor to pay off a prior mortgage shall be subrogated to the rights of the mortgagee thus redeemed only if "the mortgagor has by registered instrument agreed that such person shall be so subrogated". This provision corresponds to what is described by <NAME>, J., in <NAME> v. <NAME> and <NAME> v. <NAME> (1907) I.L.R. 36 Cal. 193 at 218 as 'conventional subrogation'; and it gives effect to the decision in <NAME> v. <NAME> (1901) L.R. 29 I.A. 9 : I.L.R. 29 Cal. 154 : 12 M.L.J. 73 (P.C.) <CITATION> (1912) L.R. 39 I.A. 68 : I.L.R. 39 Cal. 527 : 22 M.L.J. 468 (P.C.) and <NAME> v. <NAME> (1905) I.L.R. 29 mad. 37 subject to the condition that the right of subrogation must be provided for by an agreement in writing registered. Cf. In re, Wrexham Mold Connah's Quay Railway (1899) L.R. 1 Ch. 440 at 463. In the present case the right to subrogation is claimed not as the result of an agreement between the parties but only on general principles of equity. The learned Judges of the Allahabad High <ORG> make no reference to the third clause of Section 92 . Mr. <NAME> contends that the third clause must be held to apply only to cases in which a person advances money without taking a mortgage therefore. I am unable to agree that that is the true construction of that clause. There is a well established distinction between cases in which a person who has a preexisting interest in property pays off a prior charge on that property for the protection of his own interest and cases in which a person acquires an interest in property only by reason of his advancing money to pay off an existing mortgage debt. It seems to me that the first clause of Section 92 must be held to relate to the first type of cases above referred to and the third clause to the second type.

15. Mr. <NAME> next contended that the <ORG> decision is an authority in favour of the appellant even independently of Act XX of 1929. In this connection he also relied upon the decision of a Bench of this Court in <CITATION> (1920) 39 M.L.J. 445 and upon certain observations in the judgment in S.A. No. 401 of 1925. In the Referring Order in this case <NAME>, J. also mentions the apparent conflict between <NAME> v. <NAME> (1933) 64 M.L.J. 606 and <CITATION> (1933) 65 M.L.J. 390.

16. So far as the two recent decisions reported in Law Journal are concerned, I may observe that the conflict must be held to be not so much as to the rule of law to be applied as to the application of it to particular circumstances; because both the decisions were pronounced by the same Bench and in the later case they accept the rule stated by <NAME>, J., in <CITATION> (1929) I.L.R. 53 Mad. 188 : 57 M.L.J. 746. It is not necessary for me to canvass whether the circumstances in <CITATION> (1933) 64 M.L.J. 606 would not also have justified the application of the same rule because we are only concerned with the correctness of the principle enunciated in <CITATION> (1929) I.L.R. 53 Mad. 188 : 57 M.L.J. 746. So far as we can gather from the judgment, the decision in <CITATION> (1929) I.L.R. 53 Mad. 188 : 57 M.L.J. 746 does not appear to have been brought to the notice of the learned Judges and it seems to me unaccountable that when referring to the <ORG> decision in Ayyareddi v. <NAME> (1923) I.L.R. 47 Mad. 190 : L.R. 51 I.A. 140 : 46 M.L.J. 164 (P.C.) the learned Judges should have lost sight of the express reservation made on page 195 that the rule as to keeping alive the discharged5 mortgage for the benefit of the owner 'would not apply if the owner of the property had covenanted to pay the later mortgage debt'. The decision in <CITATION> (1920) 39 M.L.J. 445 does not conflict with the decision in <CITATION> (1929) I.L.R. 53 Mad. 188 : 57 M.L.J. 746 because the right to subrogation was there recognised only as against a person whose debt the later mortgagee had not covenanted to discharge. The judgment in S.A. No. 401 of 1925, though it contains some observations on <NAME> v. <NAME> (1910) I.L.R. 34 Mad. 119 : 20 M.L.J. 380 does not bear on the question now under consideration.

17. <ORG> point out that Section 101 of the Transfer of Property Act deals only with cases in which there is a possibility of merger by reason of the prior mortgage interest and the residuary ownership vesting in the same person and the observations made in cases relating to discharge of prior mortgages, by a person who has become owner of the property, ought not to be applied to a case of discharge by a puisne mortgagee, because in the latter case no question of merger can arise. It is true that Section 101 will in terms apply only to an "owner" paying off a prior charge and not to a mortgagee paying off a prior charge; but in the judgments in <NAME> v. <NAME> (1901) L.R. 29 I.A. 9 : I.L.R. 29 Cal. 154 : 12 M.L.J. 73 (P.C.) and <CITATION> (1912) L.R. 39 I.A. 68 : I.L.R. 39 Cal. 527 : 22 M.L.J. 468 (P.C.) <ORG> base their conclusions only on the theory or presumption of an 'intention to keep alive' even in cases when the prior charge has been discharged by a mortgagee. In <NAME> v. <NAME> (1883) L.R. 10 I.A 62 : I.L.R. 9 Cal. 961 (P.C.) also, the discussion proceeded on similar lines. The reference to this case in <CITATION> (1932) I.L.R. 54 All. 897 (F.B.) and in <CITATION> (1929) I.L.R. 52 All. 139 at 146 as the case of a purchaser whose interest it may be to extinguish the mortgage is somewhat misleading; for their Lordships discuss the question of intention not merely from the point of view of <NAME> (the purchaser) but also from the point of view of the plaintiff who was the mortgagee that lent the money utilised to pay off the prior mortgage in favour of <ORG>.

18. <CITATION> (1932) I.L.R. 54 All. 897 at p. 900 the learned Judges recognise that in the majority of cases in that Court it has been held that a third mortgagee paying off the first mortgage in similar circumstances was not entitled to be subrogated to the position of the first mortgagee. To the cases cited by them I may add <CITATION> A.I.R. 1931 All. 347. But they refer to <NAME> v. <NAME> (1906) I.L.R. 28 All.778 and <NAME> v. Bansidar (1926) 24 A.L.J. 570 <CITATION> (1905) I.L.R. 29 Mad. 37 and <CITATION> (1906) I.L.R. 33 Cal. 1133 as taking a contrary view. With due respect, I may point out that in none of these cases was subrogation claimed or allowed as against a person whose debt the later mortgagee had undertaken to pay. This distinguishing circumstance seems to have escaped the notice of the learned Judges.

19. The discussion at the bottom of p. 901 and at the top of p. 902 suggests that they proceeded on the assumption that subrogation has been denied in similar cases only on the strength of the theory of agency namely, that in paying off the prior charge, the purchaser or puisne incumbrancer merely acted as the agent of the mortgagor. The observation already extracted from the judgment of <ORG> in <NAME> v. <NAME> (1923) I.L.R. 47 Mad. 190 : L.R. 51 I.A. 140 : 46 M.L.J. 164 (P.C.) shows that that is not the true basis of the rule but an inference derived from or a disability founded on the fact that the person claiming subrogation has covenanted to discharge the debt due to the very person against whom he seeks to claim the priority. Among the Indian authorities, some cases hold that a covenant to discharge several pre-existing mortgages indicate an intention to extinguish them all, <CITATION> (1910) I.L.R. 34 Mad. 119 : 20 M.L.J. 380, <CITATION> (1923) 45 M.L.J. 693 at 698, <CITATION> (1910) I.L.R. 35 All. 101 at 103, or to treat them as a consolidated debt without reference to the dates when they were incurred. <CITATION> (1929) I.L.R. 53 Mad. 188 at 198 : 57 M.L.J. 746. It is some times said that a presumption most beneficial to the person paying off the prior charge can be made only when two courses are open to him in law, but no such option can be recognised in favour of a person who has bound himself by covenant to pay off another encumbrance also, <NAME> v. Sheo Mangal A.I.R. 1931 All. 347 at 348 for it will in effect be to permit him to benefit by breaking his own contract. <NAME> v. <NAME> (1905) 2 C.L.J. 291 at 299. Again it has been said that subrogation is only a rule of 'equity' and it cannot be allowed where its application will lead to injustice or inequitable results. <NAME> v. <NAME> (1907) 6 C.L.J. 134 at 138. Whichever of these views be held to be the true basis of the rule, it can make no difference whether the subrogation is claimed by a purchaser or a puisne incumbrancer, so long as there is a covenant between him and his transferor that the transferee should discharge the debt due to the person whom he seeks to postpone. There is no doubt a difference between a covenant in a sale-deed about payment of consideration and a similar covenant in a mortgage deed, in that the latter covenant may not be specifically enforced and even damages for its breach may ordinarily be nominal but it is nonetheless a legal covenant which may, in certain circumstances sustain a claim for substantial damages (see A.S. No. 114 of 1923; see also <ORG>, v. W.A. Cook & C0 (1883) 49 L.T. (N.S.) 674 and <ORG> quoting from the <ORG> v. <NAME> (1897) 1 Q.B. 696 at 697 and <NAME> v. <ORG> (1870) L.R.5 Ex. 92.

20. In the <ORG> case the learned Judges say (at the bottom of p. 901) that there appears to be no difference between the case of a purchaser or mortgagee paying off a prior charge out of his own funds and at his own choice and the case where he pays off the prior charge out of funds forming part of the consideration for the transfer in his favour. With all respect, I am unable to agree; in the former case, there will be no occasion for suggesting an inference of disability founded on the fact of a covenant to discharge the intermediate mortgage as well, whereas in the latter case the question can arise whether out of the consideration amount, the transferee has agreed to pay off not merely the prior charge but also the debt due to the intermediate incumbrancer against whom priority is claimed.

21. I am of opinion that the rule as stated in <CITATION> (1920) I.L.R. 53 Mad. 188 at 198 and <CITATION> (1933) 65 M.L.J. 399 is correct and well founded in principle. I agree that the Second Appeal must be dismissed with cost's.

<NAME>, J.

22. I agree with the judgments just delivered. As laid down by their Lordships of <ORG> in <NAME> v. <NAME> (1928) I.L.R. 47 Mad. 190 at 194 : L.R. 51 I.A. 140 : 46 M.L.J. 164 (P.C.):

It is now settled law that where in India there are several mortgages on a property, the owner of the property subject to the mortgages may, if he pays off an earlier charge, treat himself as buying it and stand in the same position as his vendor, or to put it in another way, he may keep the incumbrance alive for his benefit and thus come in before a later mortgagee. This rule would not apply if the owner of the property had covenanted to pay the later mortgage debt.

23. Therefore if, as in this case, a person advances money or covenants to discharge three incumbrances payment of two prior incumbrances cannot be availed of by him as a shield against the third vide <CITATION> (1920) I.L.R. 53 Mad. 188 at 198. The principle of subrogation cannot be invoked in such a case for as explained in <CITATION> (1910) I.L.R. 34 Mad. 119 : 20 M.L.J. 380 "the object of the transaction was not to keep alive a mortgage against the puisne incumbrancer but to discharge the puisne incumbrancer as well". This was undoubted law before the amendment of the Transfer of Property Act . But Mr. <NAME> contends that this rule of law would apply to the case of a purchaser but not to that of a mortgagee. I see no distinction in principle, vide Balbaddra v. Sheomangal A.I.R. 1931 All. 347.

24. The next argument of Mr. <NAME> is that Section 92 of the amended Transfer of Property Act is retrospective and under Clause (1) of that section his client's right to subrogation cannot be questioned and he is supported in this view by the <ORG> decision in <CITATION> (1932) I.L.R. 54 All. 897 (F.B.). Assuming Section 92 to be retrospective, I am, with due respect, unable to agree with the interpretation placed on Clause (1) Clauses 1 and 3 of Section 92 must be read together Clause 1 enunciates no new principle (vide Section 74 of the Transfer of Property Act since repealed). It applies to all persons who have an interest in Equity of Redemption and are under no personal obligation to discharge prior incumbrances. Clause 3 has been enacted to confer a benefit on persons who advance money to discharge an incumbrance only if the mortgagee has by a registered instrument agreed that such persons shall be subrogated. The clause is intended to apply to all persons who acquire an interest in the mortgaged property by advancing moneys to discharge prior incumbrances and there is no warrant for restricting the scope of that clause to persons other than purchasers or mortgagees as contended by Mr. <NAME>. The distinction between the two classes of cases aforesaid namely, those who have an existing interest in the property and those who acquire an interest therein by advancing money is well recognised in the law relating to subrogation. The <ORG> decision in <NAME> v. <NAME> (1931) 36 C.W.N. 4 (P.C.) illustrates this clearly. A purchaser covenanted to pay half the amount of the money due on a prior mortgage but he was compelled to pay the whole and the right of subrogation was allowed only as to half the amount he had not covenanted to pay. In respect of this half he would now come under Clause 1 of Section 92 and in respect of the other half under Clause 3 if he obtains a registered instrument securing the right. Clauses 1 and 3 unmistakably indicate that the legislature has kept this distinction in view. The Allahabad decision fails to note this and consider Clause 3 and the principle underlying it. To give effect to the contention of Mr. <NAME> would be to enable every purchaser or mortgagee who enters into a contract to discharge a particular incumbrance to commit a breach thereof and profit by his own wrong and thus violate the equitable principles on which the doctrine of subrogation is based and it is impossible to attribute this intention to the legislature. There is no registered instrument as required by Clause 3 in this case and the appellant's claim is unsustainable.