Sec. 45 of Income Tax Act, 1961—Capital gain —Income from the Capital Gain on a transaction which never materialised, at best, can be termed only as a hypothetical income and that the assessee did not acquire any right to receive income.

Facts: Since there was a reason to believe that income has escaped assessment, assessment was reopened under Section 147 and a notice under Section 148 was issued. The said notice was followed by notices under Sections 143(2) .Subsequently, the assessment was completed under Section 143(3) read with Section 147 .Being aggrieved, assessee went on appeal before CIT(A) by invoking Section 246A(1). Before the Appellate Authority, assessee contended that the action on the part of AO in bringing to tax, as LTCG, by applying Section 2[47][v] read with Section 45, is per se unsustainable for the reason that the assessee Company had entered into an unregistered Joint Venture Agreement with Developer for developing multi-facility complex consisting of IT/ITES parks, commercial, service and residential apartments. The appellate authority partly allowed the appeal. The assessee and revenue filed the appeal before the tribunal. The tribunal had given a finding that due to non-disclosure of Capital Gain by the assessee Company, the income chargeable to tax, had escaped assessment and assessee Company did not produce anything before the CIT [Appeals] to show as to how there was no transfer of impugned property in the Assessment Year and how the provisions of Section 2(47) is applicable. Being aggrieved, assessee went on appeal before High Court.

Held that 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. 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 . Assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained, thus, 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.The case was remanded to the Assessing Officer for fresh consideration. - SUMERU SOFT P. LTD. V/s ITO - [2020] 423 ITR 518 (MAD)