2008 (9) TMI 92 - HC - Income Tax

Arrears of rent taxable as income from house property when received; court upholds validity of reassessment notice.

The court resolved the conflict between decisions regarding the taxability of additional rent, holding that arrears of rent are taxable as income from ... Reassessment - escapement of income regarding the enhanced rent - Question relates to whether additional or extra rent attributable to preceding years of account which could not be taxed under Section 22 of the Act should be taxed under the head “income from other sources” – petitioner claim that impugned notice issued u/s 148 is vitiated – held that when intimation is done u/s 143(1)(a), impugned notice issued u/s 148 cannot be held invalid – petitioner’s appeal is dismissed Issues Involved:1. Direct conflict between decisions in Hope India Ltd. vs. Commissioner of Income Tax and Hamilton and Co. Pvt. Ltd. vs. Commissioner of Income Tax.2. Taxability of additional or extra rent attributable to preceding years under Section 22 or as 'income from other sources.'3. Interpretation of 'income received or receivable' under Section 23(1) of the Income-Tax Act.4. Validity of notice under Section 147 of the Income-Tax Act for reopening assessment.Detailed Analysis:Issue 1: Conflict Between DecisionsThe judgment begins by addressing the conflict between the decisions in Hope India Ltd. vs. Commissioner of Income Tax [1999] 238 ITR 740 (Cal) and Hamilton and Co. Pvt. Ltd. vs. Commissioner of Income Tax [1992] 194 ITR 391 (Cal). The matter was referred to a larger bench to resolve this conflict.Issue 2: Taxability of Additional RentIn Hamilton and Co. Pvt. Ltd. [1992] 194 ITR 391 (Cal), the court held that arrears of rent retain their character as rent from property and should be taxed as income from house property in the year they are received. The court stated: 'The receipt of the arrears of rent cannot, by any stretch of imagination, be said to have shed their character as rent from property and to have ceased to be liable to tax as income from house property.'Conversely, in Hope India Ltd. [1999] 238 ITR 740 (Cal), the court considered the meaning of 'accrue,' 'arises,' and 'is received.' It concluded that a claim for enhanced rent does not constitute income until it is actually received or there is a right to receive it. The court stated: 'A claim made by a landlord for enhancement of rent cannot, thus, be said to be an amount receivable within the meaning of section 23(1) of the Act.'Issue 3: Interpretation of 'Income Received or Receivable'Hope India Ltd. [1999] 238 ITR 740 (Cal) emphasized that income must be both received or there must be a right to receive it for it to be taxable. The court cited the Supreme Court's decision in E. D. Sassoon Ltd. vs. Commissioner of Income-Tax [1954] 26 ITR 27, which clarified that income accrues when there is a right to receive it, even if it is received later.Issue 4: Validity of Notice Under Section 147The appellant challenged the jurisdiction of the Assessing Officer to issue a notice under Section 147 for the Assessment Year 1989-90, arguing that the enhanced rent decided in 1994 could not be considered income for the earlier assessment year. The court noted that the notice was issued after the appellant's own request for reassessment and the subsequent deposit of tax. The court held that the notice was valid, stating: 'The assessment was completed under Section 143(1) by accepting the Assessee's Return and intimation was duly sent to the assessee. No scrutiny assessment was done.'Conclusion:The court concluded that there is no conflict between the two decisions. Hamilton's case dealt with the retrospective increase of rent as income from house property, while Hope India's case addressed the accrual of income and the right to receive it. The court upheld the validity of the notice under Section 147, dismissing the appeal. The court stated: 'We do not find that there is any conflict in those two judgments.'