JECHINS PHARMACEUTICALS LIMITED (IN LIQN.),,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-2(1)(2),, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD [CONDUCTED THROUGH VIRTUAL AT AHMEDABAD] BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER& Ms. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. No. 367/Ahd/2017 (Assessment Year: 2012-13) Jechins Pharmaceuticals Ltd. (in Vs. ITO Liqn.), C/o. Official Liquidator, Ward-2(1)(2), Jivabhai Chambers, Ashram Ahmedabad Road, Ahmedabad-380009 [PAN No. AABCJ2444F] (Appellant) .. (Respondent) Assessee by : Shri Mukund Bakshi, AR Revenue by : Shri R. R. Makwana, Sr. DR Date of Hearing 20.09.2021 Date of Pronouncement 17.11.2021 O R D E R PER Ms. MADHUMITA ROY - JM:

The instant appeal filed by the assessee is directed against the order dated 05.12.2016 passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad arising out of the order dated 30.01.2015 passed by the ITO, Ward – 2(1)(2), Ahmedabad under Section 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) for the Assessment Year (A.Y.) 2012-13 with the following revised grounds:- “1. The Ld. CIT(A) has erred in law and in facts in confirming the action of the Ld. A.O. in holding that the return of income filed in the physical form is non-est. 2. The Ld. CIT(A) has erred in law and in facts in holding that the land belonging to the Company is transferred during the year in terms of Sec. 2(47) r.w. 53A of the Transfer of Property Act and the capital gains is required to be computed in the year under consideration and that the gain is to be taxed as Short Term Capital Gain.

ITA No.367/Ahd/2017 Jechins Pharmaceuticals Ltd. vs. ITO Asst.Year –2012-13 - 2 - 3. The Ld. CIT(A) has further erred in law and in facts in confirming the action of the Ld. A.O. in assessing the sale proceeds of Rs. 2,31,67,620/- as gain without allowance of any costs in relation thereto. 4. The Ld. CIT(A) has erred in law and in facts in confirming the addition of Interest income of Rs. 23,08,797/- on mercantile basis as against the amount of Rs. 1,40,436/- received during the year accounted on cash basis without allowance of expenditure of Rs. 25,279/- as claimed to be allowed in the case of Companies under liquidation. 5. Your appellant craves liberty to add, alter, amend, substitute or withdraw any of the ground(s) of appeal hereinabove contained.”

ITA No.367/Ahd/2017 Jechins Pharmaceuticals Ltd. vs. ITO Asst.Year –2012-13 - 3 - Finally the property was purchased by one M/s. Samiya Infra, a partnership firm having its office at Thaltej, Ahmedabad, through the suggested nominee by the Confirming Party No. 2 namely Vaibhav Industries. The deed of conveyance was executed on 01.10.2013 by and between the vendors No. 1 the official liquidator appointed as the liquidator of the assessee company under the order dated 20.11.1991 in company Petition No. 34 of 1991 by the Hon’ble High Court at Gujarat and the No. 2 M/s. Reepal Pharmacaps Pvt. Ltd. through the Gujarat State Financial Corporation (GSFC) and the purchaser namely Samiya Infra. The State Bank of India, Ellisbridge Branch, Ahmedabad and Gujarat State Financial Corporation both as the lenders of the assessee company in liquidation were made as the Confirming Party No. 1. Vaibhav Industries having its office at Kalyanpura Road, Kadi has been made as the Confirming Party No. 2 therein. In fact, the deed of conveyance was executed through the sale deed by the vendor to the purchaser M/s. Samiya Infra the nominee as suggested by M/s. Vaibhav Induatries the Confirming Party No. 2 of the said deed as the permission granted by the Hon’ble High Court of Gujarat. The Confirming Party No. 1(A) being the State Bank of India through its authorized officer and through the Confirming Party No. 1(B) namely the GSFC through its authorized officer duly signed in the said deed of conveyance as the secured creditors. In fact, the direction in Petition No. 34 of 1991was given to the vendor to execute necessary sale deeds of full and final payment in favour of the nominee of the Confirming Party No. 2 i.e. Vaibhav Industries for total sale price of Rs. 3,78,00,000/-. The sale of assets of company liquidation has been demarcated by GSFC and SBI from the proceeds of the sale of assets on the following ratio:- SBI(%) GSFC(%) Land 58.54 41.46

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Assets other than land 60.72 39.27

Amount (Rs.) Bank Name Cheque Date No. 10,00,000/- Kadi Nagrik Sahkari 000002 25-01-2012 Bank Ltd. Stadium Road, Ahmedabad 10,00,000/- Kadi Nagrik Sahkari 000006 01-02-2012 Bank Ltd. Stadium Road, Ahmedabad 45,00,000/- Kadi Nagrik Sahkari 000013 24-03-2012 Bank Ltd. Stadium Road, Ahmedabad 1,04,00,000/- Kadi Nagrik Sahkari 000019 15-01-2013 Bank Ltd. Stadium Road, Ahmedabad 1,04,00,000/- Kadi Nagrik Sahkari 000020 15-02-2013 Bank Ltd. Stadium Road, Ahmedabad 1,05,00,000/- Kadi Nagrik Sahkari 000021 15-03-2013 Bank Ltd. Stadium Road, Ahmedabad Total Rs. 3,78,00,000/- (Rupees Three Crore Seventy Eight Lacs Only)

ITA No.367/Ahd/2017 Jechins Pharmaceuticals Ltd. vs. ITO Asst.Year –2012-13 - 5 - 7. The case of the Revenue is this that the Vaibhav Industires have given the possession of land and/or property 22.09.2011 against the total sale price of Rs. 3,78,00,000/- pertaining to F.Y. 2011-12. As per direction of the Hon’ble High Court the conveyance deed was though made in the name M/s. Samiya Infra since the possession of the said asset has already been transferred on 22.09.2011 and the consideration whereof was received fully during F.Y. 2011-12, the appellant company has not offered any income out of the said transaction. A show-cause notice was, therefore, issued on 07.10.2014. The Ld. AO sought to invoke Section 53A of the Transfer of Property Act, 1882. In order to compute the cash arising out of such transfer of property, the W.D.V. / cost of the property as on 01.04.2012 along with the documentary evidence was directed to be provided by the assessee. The appellant’s share in regard to the said property has been estimated at 59.63% and the short term capital gain to the tune of Rs. 2,31,67,620/- has sought to be determined and the show cause was, therefore, issued to the assessee in this regard. Finally the determination of Short Term Capital Gain was made considering the transfer being made in the F.Y. 2011-12 as per Section 53A of the Transfer of Property Act, 1882 and the short term capital gain of Rs. 2,31,67,620/- was added to the total income of the assessee which was further confirmed by the Ld. CIT(A). Hence, the instant appeal before us.

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on 01/10/2013 relevant to A. Y. 2014-15. It has been noticed that the aforesaid properties were jointly held by appellant company and another party namely; M/s. Reepal Pharmacap Pvt. Ltd. Thus the AO worked out the capital gain in the ratio of area of land held by the appellant i.e. 2604 Sq Mtrs. out of the total area of land of 4248 sq. Mts. and accordingly worked out the sale proceeds in that ratio i.e. 61.29% of the total consideration of Rs.3.78 crores which came to Rs.2,31,67,620/-. Since part performance in view of provisions of section 53A of Transfer of Property Act, 1882 has taken place in the year under consideration, thus the same has clearly fallen under the definition of section 2(47)(v) of the I. T. Act. 5.3. If has also been noticed that in spite of various requisitions made by the AO in the assessment proceedings, the appellant did not provide the complete details of the property sold, share of the assessee, purchase cost or written down value of the said assets to determine the capital gain of the assets sold. Thus there was no option left with the AO except to treat the proportionate sale proceeds of the assets at Rs.2,31,67,620/- as short term capital gain and fax them accordingly. 5.4. Even in the present appellate proceedings, the appellant has not provided any details of the property, share of ownership of the appellant therein, cost of the assets sold and WDV of the said assets. Even appellant has not submitted any details so as to know the holding period of the property to ascertain the short term capital gain or long term capital gain derived, if any, upon the same. Therefore, the appellant's objection about the non-observance of the provisions of section 48, 49 & 50 and also holding the capital gain as short term in place of long term is without any basis of supporting evidence and hence, the objections raised are not accepted. The appellant has simply made the objections without submitting the necessary details, which the AO does not have in possession. Rather these details and evidences were in possession of the appellant which ought to have been submitted to the AO for taking a decision on the basis on the basis of that, but by not filing such details, clearly indicates the facts against the appellant. Therefore, these objections cannot be met out unless the appellant would have filed the details necessary to examine its contentions either in the assessment proceedings or in the present appellate proceedings. The appellant has totally failed to establish its submissions and therefore, AOs action in this regard by treating the short term capital gain proportionately is correct and justified and hence the same is confirmed.”

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or gain which arose from transfer of a capital asset which could be brought to tax under Section 45 r.w.s. 48 of the Act. In this regard, we have further considered the judgment relied upon the Ld. AR in the case of CIT vs. Balbir Singh Maini passed by the Hon’ble Apex Court reported in, (2017) 86 taxmann.com 94 (SC) where it has been held that where for want of permission in that transaction of development of land envisaged in Joint Development Agreement (JDA) failed through, there were no profit or gain which arose from transfer of capital asset which could be brought to tax under Section 45 r.w.s 48 of the Act. While dealing with the matter the Hon’ble Apex Court has been pleased to observe as follows:- “19. It is also well-settled by this Court that the protection provided under Section 53A is only a shield, and can only be resorted to as a right of defence. Rambhau Namdeo Gajre v. Narayan Bapuji Dhgotra [2004] 8 SCC 614 , para 10. An agreement of sale which fulfilled the ingredients of Section 53A was not required to be executed through a registered instrument. This position was changed by the Registration and Other Related Laws (Amendment) Act, 2001. Amendments were made simultaneously in Section 53A of the Transfer of Property Act and Sections 17 and 49 of the Indian Registration Act. By the aforesaid amendment, the words "the contract, though required to be registered, has not been registered, or" in Section 53A of the 1882 Act have been omitted. Simultaneously, Sections 17 and 49 of the 1908 Act have been amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of Section 53A of 1882 Act) is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument. Section 17(1A) and Section 49 of the Registration Act, 1908 Act, as amended, read thus: "17(1A). The documents containing contracts to transfer for consideration, any immovable property for the purpose of Section 53A of the Transfer of Property Act, 1882 (4 of 1882) shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then they shall have no effect for the purposes of the said Section 53A." "49. Effect of non-registration of documents required to be registered. No document required by Section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882), to be registered shall— (a) affect any immovable property comprised therein, or (b) confer any power to adopt, or

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(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered: Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1887 (1 of 1877) or as evidence of any collateral transaction not required to be effected by registered instrument." 20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we are of the view that the High Court was right in stating that in order to qualify as a "transfer" of a capital asset under Section 2(47)(v) of the Act, there must be a "contract" which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of, for the purpose specified in Section 53A. The ITAT was not correct in referring to the expression "of the nature referred to in Section 53A" in Section 2(47)(v) in order to arrive at the opposite conclusion. This expression was used by the legislature ever since sub-section (v) was inserted by the Finance Act of 1987 w.e.f. 01.04.1988. All that is meant by this expression is to refer to the ingredients of applicability of Section 53A to the contracts mentioned therein. It is only where the contract contains all the six features mentioned in Shrimant Shamrao Suryavanshi (supra), that the Section applies, and this is what is meant by the expression "of the nature referred to in Section 53A". This expression cannot be stretched to refer to an amendment that was made years later in 2001, so as to then say that though registration of a contract is required by the Amendment Act of 2001, yet the aforesaid expression "of the nature referred to in Section 53A" would somehow refer only to the nature of contract mentioned in Section 53A, which would then in turn not require registration. As has been stated above, there is no contract in the eye of law in force under Section 53A after 2001 unless the said contract is registered. This being the case, and it being clear that the said JDA was never registered, since the JDA has no efficacy in the eye of law, obviously no "transfer" can be said to have taken place under the aforesaid document. Since we are deciding this case on this legal ground, it is unnecessary for us to go into the other questions decided by the High Court, namely, whether under the JDA possession was or was not taken; whether only a licence was granted to develop the property; and whether the developers were or were not ready and willing to carry out their part of the bargain. Since we are of the view that sub-clause (v) of Section 2(47) of the Act is not attracted on the facts of this case, we need not go into any other factual question. 21. However, the High Court has held that Section 2(47)(vi) will not apply for the reason that there was no change in membership of the society, as contemplated. We are afraid that we cannot agree with the High Court on this score. Under Section 2(47)(vi), any transaction which has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. The High Court has not adverted to

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the expression "or in any other manner whatsoever" in sub-clause (vi), which would show that it is not necessary that the transaction refers to the membership of a cooperative society. We have, therefore, to see whether the impugned transaction can fall within this provision. 22. The object of Section 2(47)(vi) appears to be to bring within the tax net a de facto transfer of any immovable property. The expression "enabling the enjoyment of" takes color from the earlier expression "transferring", so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof1 The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact. 23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must "arise" on the assumption that there is transfer of a capital asset. This income must have been received or have "accrued" under Section 48 as a result of the transfer of the capital asset. 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470 at 343 held: "It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him." 26. This Court, in CIT v. Excel Industries [2013] 358 ITR 295/219 Taxman 379/38 taxmann.com 100 (SC) at 463-464 referred to various judgments on the expression "accrues", and then held: '14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148) "… Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a 'hypothetical income', which does not materialise. Where income

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has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." 15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) "11. … the date of payment … does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately." 16. This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount". 17. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 18. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.' 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act. 28. In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains "arose" from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act.”

ITA No.367/Ahd/2017 Jechins Pharmaceuticals Ltd. vs. ITO Asst.Year –2012-13 - 11 - 10. We are also inspired by such ratio laid down by the Hon’ble Apex Court and respectfully relying upon the same we hold that since the property was actually transferred in A.Y. 2013-14 the computation of short-term capital gain holding the transfer took place in the A.Y. 2012-13 is not sustainable. In the present facts and circumstance of the case the deed since not registered in A.Y. 2012-13 it has no effect in law for the purpose of invocation of the provision of Section 53A of the Act. There is no profit or gain arose as there was no transfer in the year under consideration. Hence, the impugned order of addition passed by the authorities below is not sustainable in law and, thus, hereby quashed.

Ground No. 4:- 11. The Revenue has added the interest income of Rs. 23,08,797/- on mercantile basis as against the amount of Rs. 1,40,436/- received during the year accounted on cash basis without allowing the expenditure of Rs. 25,279/- as claimed by the appellant.

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year then the relief is also to be given to the assessee in the respective Assessment Year. The Ld. AO will consider the issue as directed hereinabove upon considering the evidence to be produced by the assessee and after affording opportunity of being herd to the assessee. Assessee’s this ground of appeal is, therefore, allowed for statistical purposes.

Ground No. 5:- 13. It is a usual ground taken by the assessee. No order, therefore, needs to be passed.

Sd/- Sd/- (WASEEM AHMED) (Ms. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 17/11/2021 TRUE COPY TANMAY, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad