TMI Blog2005 (6) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... section 148 : Assessment Year Date of return of income Income returned Whether Intimation or asst. Date of Intimation/ asst. Income assessed (Rs.) 1991-92 23-12-91 Nil 143(3) 22-3-94 1,93,305 1992-93 29-12-92 Nil 143(3) 29-3-95 2,33,610 1993-94 30-12-93 Nil 143(1)( a ) 27-5-94 Nil 1994-95 30-9-94 (-) 10,126 143(1)( a ) 28-2-95 (-) 10,126 1995-96 30-11-95 (-) 6,491 143(1)( a ) 21-1-96 (-) 6,491 Subsequently during the course of assessment proceedings for assessment year 1996-97, the learned Assessing Officer learnt that the assessee had received arrears of lease rent in respect of its property situated at Aggarwal Market, Ville Parle (East), Mumbai from the tenant Indian Overseas Bank. The arrears of rent involved assessment years 1991-92 to 1995-96 also. According to the Assessing Officer the assessee was paid additional rent of Rs. 2,30,400 for each of the assessment years 1991-92, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrear rent cannot be taxed in the year of receipt. Thus, the only rational inference that could be drawn from the judgment of Hon ble Calcutta High Court in the case of Hamilton Co. (P.) Ltd. ( supra ) was that such arrear of rent should be brought to charge only in the assessment year for which it was paid. In fact the Hon ble High Court observed, "Any arrears of rent for a previous year received in a later previous year shall, under those sections, have to be computed as income from house property of the former previous year. This is the clear position arising from those provisions." The learned Assessing Officer held that the facts of the case in Hope India Ltd. s case ( supra ) were not exactly the same as in the case before him. In that case Central Government departments only agreed to pay substantially higher rent. In that case any upward revision of rent was not permissible except with the mutual agreement between the parties. As a matter of fact in the grounds of appeal filed by the assessee before the learned CIT (Appeals) for assessment year 1996-97, the assessee had himself stated that arrears would, if at all, be assessed under the head "Income from house prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been awarded as mesne profits by courts it would have become taxable. Merely because in the instant case the assessee and assessee s tenant had made out of court settlement could not alter the character of receipt. The assessee had himself accepted the position that the arrear of rent could not be assessed as income from house property in the year of receipt. The assessee could not, therefore, turn back and argue that they could not be assessed as income of the period for which the same were awarded. The learned CIT(Appeals), therefore, upheld the additions as made by the learned Assessing Officer. Still aggrieved the assessee is in appeal before us. 6. During the course of hearing before us the learned counsel for the assessee argued that in so far as income chargeable to tax under the head Income from house property is concerned, the assessment is of a notional income. Amount of such income could not vary from time to time. During the course of assessment proceedings the assessee had duly declared rental income under the head income from house property . The same was assessed under section 143(3) for first two years and processed under section 143(1)( a ) for the last t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. At the time when the assessee filed returns of income and thereafter the assessments were completed by the Assessing Officer, there was no law to bring this income to the charge of tax for the financial years in question or for that matter in the financial year in which the right to receive higher rent accrued to the assessee or in relation to the year of receipt. The provisions of section 25B are titled "Special provision for arrears of rent receipt". The Legislature themselves have called section 25B a special provision signifying that earlier there was no provision at all. How could there be any failure or omission on the part of the assessee to disclose any material fact when there was no law in existence to bring such amount to charge of tax. The learned counsel for the assessee heavily relied upon in this respect on the decision of the ITAT, Delhi Bench D New Delhi dated 6-10-2004 in ITA No. 731 (Delhi)/2000 and ITA Nos. 2708 to 2715 (Delhi)/2000 in the case of Parveen Chand Khanna Sons for assessment years 1988-89 to 1995-96. The learned counsel argued that in the years under assessment the assessee had been pleading with the tenant for vacating the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India Ltd. [2002] 256 ITR 1 (Delhi) (FB) and United Electrical Co. (P.) Ltd. v. CIT [2002] 258 ITR 317 (Delhi) in that respect. He mentioned in particular the judgment of Hon ble Madras High Court in CIT v. M. Ratanchand Chordia [1997] 228 ITR 626 and argued that in that judgment it had been held that annual value of house property could not be assessed under section 147. 10. The learned counsel for the assessee argued that had the Assessing Officer gone through the files for earlier assessment years carefully, he would have known that in so far as the tenancy agreement period was concerned, the same had expired long back. It could not, therefore, be said that the material facts were not on the file of the Assessing Officer. The assessee had entered into a lease period of 10 years only. It was true that during the financial years in question no rent had been received by the assessee from the tenant. However, the assessee had to file the return of income based on the rent that was previously being received because the assessee was obliged under law to file the returns of income on the basis of rent receivable. There was, thus, no failure on the part of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on the one hand arguing that it received in November, 1995 additional rent by way of enhanced rent as compared to the rent being paid to the assessee in past. If that was so, there was a clear case of escapement of income as far as the original assessment proceedings were concerned. Moreover in the returns of income originally filed the assessee had not declared any income under the head Income from house property . The assessee simply offered certain amounts calculated on the basis of past rent by way of other income . Therefore non-disclosure of material facts necessary for assessment was patent on the face of the records. The assessee declared the income as business income in the garb of other income. There was no disclosure of full facts. Along with the return of income no basis was furnished as to why such treatment was given. The fact that no rent was received and the matter was subjudice was not disclosed. Even the fact that the tenant had continued in possession was not disclosed. The learned D.R. argued that the assessee s case was also covered by Explanation 1 to section 147. Relying upon the judgment of Hon ble Supreme Court in Sri Krishna (P.) Ltd. v. ITO [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer to another Assessing Officer on the basis of the same facts of the case. A substantial fact relating to the property of the assessee and the income derived by the assessee from such property was before the Assessing Officer for the first time subsequent to the completion of original assessment proceedings. During the course of hearing before us the learned counsel for the assessee has raised the legal ground that there cannot be reopening of assessment under section 147 in relation to income from house property. To say the least, this contention of the assessee is not free from debate. For the purpose of a valid reopening of assessment under the provisions of section 147 it is not necessary that the view entertained by the learned Assessing Officer at that point of time should be fool proof and hundred per cent accurate. Reference in this respect may be made to the judgment of Hon ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) and the judgment of the Hon ble Kerala High Court in G. Sukesh v. Dy. CIT [2001] 252 ITR 230 (Ker.). 17. During the course of hearing before us the learned counsel raised another argument also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come chargeable to tax under the head "Income from house property". Under the provisions of section 22 the charge of tax is on "annual value of property". The annual value of property up to 1-4-1976 was a deemed sum for which the property might reasonably be expected to let from year to year. After 1-4-1976 the annual value is deemed to be either the sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable by the owner is in excess of the former sum, the amount so received or receivable Hon ble Supreme Court held in the case of Smt. Sheila Kaushish ( supra ) that the sum for which the property might reasonably be expected to let from year to year could not be in excess of lawful rent as provided by any Rent Control Act. The controversy in the present case has arisen on account of the charge of tax under section 22 being on the annual value of property and not on any income as such from the property. 20. The question as to whether arrears of rent relating to earlier years can be brought to tax in the subsequent year of receipt has been considered by Hon ble Calcutta High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll prior to assessment year 2001-02 when the provisions of section 25B have become effective. This situation came to be considered by Hon ble Calcutta High Court in the case of Jasmine Commercials Ltd. v. Dy. CIT [1999] 109 Taxman 172 (Cal.). The Hon ble Bench of the High Court held that the question involved is highly vexed and requires an authoritative pronouncement by a larger Bench. The matter has, therefore, been referred to in that case for decision by the larger Bench of Hon ble Calcutta High Court. 24. We may also mention here that in the case of Hamilton Co. (P.) Ltd. ( supra ) there appears in relation to Explanation-I to section 23 following observations from the court at page 398 : "The Explanation defines annual rent of a year as the actual rent received or receivable by the owner, in respect of such year . The arrears of rent are rent received or receivable in respect of the past year to which the arrears relate." Hon ble Delhi High Court have also considered the related issue in the case of Ms. Sadhna Chadha ( supra ). In that case the issue was whether the arrears of rent received in a subsequent year can be brought to tax in the year of re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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