This is how it worked in Cata but no longer. It did work as you described on Gara at the start but got hotfixed, there's a blue somewhere about it. spreading combustion is always good for us but it no longer matters if we spread it off a target taking increased damage or not, it just gets reduced.
As proof, my spread combustion off a leg onto the body from last Wed:
[19:57:51.089] Summerwind casts Combustion on Garalon's Leg
[19:57:51.289] Summerwind Combustion Garalon's Leg 172724
[19:57:51.595] Summerwind casts Inferno Blast on Garalon's Leg
[19:57:51.628] Garalon's Leg afflicted by Combustion from Summerwind
[19:57:51.722] Summerwind Inferno Blast Garalon's Leg *117073*
[19:57:52.036] Garalon afflicted by Combustion from Summerwind
[19:57:52.328] Summerwind Combustion Garalon's Leg 31796
[19:57:52.733] Summerwind Combustion Garalon *31191*
[19:57:53.019] Summerwind Combustion Garalon's Leg 31796
[19:57:53.407] Summerwind Combustion Garalon 15141
[19:57:53.712] Summerwind Combustion Garalon's Leg 31796
[19:57:54.119] Summerwind Combustion Garalon 15141
[19:57:54.379] Summerwind Combustion Garalon's Leg *65499*
[19:57:54.820] Summerwind Combustion Garalon *31190*
[19:57:55.084] Summerwind Combustion Garalon's Leg 31796
[19:57:55.518] Summerwind Combustion Garalon 15141
[19:57:55.756] Summerwind Combustion Garalon's Leg 31796
[19:57:56.163] Summerwind Combustion Garalon 15141
[19:57:56.458] Summerwind Combustion Garalon's Leg *1* (O: 65499)
[19:57:56.846] Summerwind Combustion Garalon 15141
Ticks about 50 % on the body, got reduced :P