(1967) 66 ITR 622 (SC)
Mode of computation of capital gains
The consideration actually agreed. 'Full value of the consideration' means the whole price received or receivable for the transfer, and is not the same thing as the fair market value of the asset.
Does 'full value of the consideration' mean the market value of the asset transferred, or the consideration actually agreed between the parties?
The assessee company transferred shares to another company at a price lower than the market quotation on the date of transfer. The Revenue computed the capital gain by substituting the market value of the shares for the price actually agreed, on the footing that 'full value of the consideration' must mean the true worth of what was given up. The assessee contended that the expression refers to the entirety of the price agreed between the parties and that the statute, as it then stood, contained no power to substitute market value in an ordinary transaction.
The matter came before the Supreme Court by reference, the question being the correct construction of the words 'full value of the consideration' in the computation provision.
For the assessee
The words describe the consideration for the transfer, and the adjective 'full' requires the whole of it to be brought in rather than a part. It does not convert the consideration into something else. Where Parliament intended market value to be substituted, it said so expressly in specific provisions dealing with particular transactions.
For the Revenue
Capital gains are meant to tax the accretion in the value of an asset. If a taxpayer can transfer at an undervalue and be assessed only on the stated price, the charge is easily defeated. 'Full value' should therefore be read as the true or market value of the asset.
The Court held that the expression 'full value of the consideration' means the whole price received or receivable by the transferor in exchange for the asset. The word 'full' is used in contradistinction to a part of the consideration: it directs that the entire amount agreed be taken, including any part paid in kind or deferred, and precludes deducting from it anything other than what the provision allows. It does not mean market value, which is a distinct concept the statute employs elsewhere in express terms. The Court pointed to provisions in which Parliament had specifically directed that fair market value be substituted in defined circumstances, and reasoned that the existence of those provisions shows that the general computation provision does not itself carry that meaning. Consideration is what the transferor receives; market value is what the asset is worth, and the two need not coincide. Absent a specific provision permitting substitution, the price actually agreed governs the computation.
The general rule in Section 72 of the IT Act 2025 remains that the consideration agreed governs. The practical significance now lies in how extensively that rule has been displaced by specific deeming provisions — Section 78 for immovable property by reference to stamp duty value, Section 79 for unquoted shares, and Section 80 where consideration is not ascertainable. George Henderson identifies the default; those sections mark out where the default no longer applies.