TaxTMI 
TaxTMI 
2013 (4) TMI 138
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....vious years relevant to the assessment years 1993-94, 1994-95 and 1995-96, arrears of rent received in the said years though in respect of earlier years could be subjected to tax in the years of receipt ? (iii) Whether the Tribunal was justified in law in holding that the ratio of the judgment of this Hon'ble Court in the case of Hope India Ltd., - vs.- CIT (1999) 138 ITR 740 was that arrears of rent were taxable in the year of receipt and the purported finding of the Tribunal that any such concession was made by the appellant's authorised representative is arbitrary, unreasonable and perverse ? (iv) Whether the Tribunal was justified in law in upholding the reassessments for the assessment years 1993-94, 1994-95 and 1995-96 on the purported ground that arrears rent received in the said years had escaped assessment by reason of the appellant's failure to include the same in its taxable Income? The present appeal was preferred and admitted for hearing because of part dismissal of the appeal by the learned Tribunal in relation to the assessment years 1993-94, 1994-95 and 1995-96. The brief fact of the case is that the appellant-assessee is a co-owner of the property situated at 8....
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.... relation to relevant previous years can be assessed in these three years namely 1993-94, 1994-95 and 1995-96 on receipt basis. Mr. Khaitan, learned counsel appearing for the appellant contends that Section 22 of the Income Tax Act, 1961 (the Act) provides for taxation of annual value of house property. Method of determination of annual value is provided in Section 23. But this section does not provide for inclusion in the annual value rent for any period other than 12 months comprised of the previous year. Arrears of rent relating to the earlier years thus cannot be brought for taxation in the year of receipt under Section 22 since such arrears are not rent for the year of receipt. Arrears of rent, which do not get taxed under the specific head applicable thereto, cannot be taxed under Section 56 as the income from other sources. He refers in this connection to the decision of this Court and that of Supreme Court, in cases of Hamilton & Company Pvt. Ltd. v. CIT (1992) 194 ITR 391 (Cal), and CIT v. D. P. Sandu Brothers, Chembur P. Ltd. (2005) 273 ITR 1 (SC). He submits that Section 25B cannot be made applicable for assessment of arrears of rent, as this section has no retrospecti....
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....ving read all the authorities cited and considering the facts herein we think that in order to decide this appeal two fundamental points were required to be decided: (a) Whether the arrears of rent recovered in relation to the past years but not in relation to the immediately previous years can be subjected to payment of tax? (b) The insertion of Section 25B by way of amendment by Finance Act, 2000 can be of any help to the assessee on the facts and circumstances of this case. While we read the ratio in the decision of the Hamilton case reported in (1992) 194 ITR 391 (Cal) we find force in the submission of Mr. Khaitan that arrears of rent received in relation to the past years and not in relation to the immediately previous years has to be brought under the under the heading income from house and property under the Act. At page 398 of the said report the Division Bench in its last paragraph observed as follows:- "...............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. In the instan....
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....s treated to be previous year for assessment. Therefore a fiction has been created in order to eliminate the difficulty as far as chargeability of the income from house property which is actually or notionally received later, is concerned. In order to appreciate this case properly few relevant sections of the aforesaid Act are to be considered. Section 4 of the said Act makes provisions for charging of tax for any assessment year in respect of the total income of the previous year of any person. The previous year has been defined in Section 3 of the Act which says the financial year immediately preceding the assessment year. Thus in regular assessment under Section 139 the previous year has got absolute relevancy meaning thereby no other year can be taken into consideration except the year immediately preceding the assessment year. However, there may be an exception in case of reassessment under Sections 147 and 148 of the Act. This charging section however again is subject to other provisions of this Act. Section 5 of the Act provides income is to be subjected to tax. This section provides all incomes from whatever source derived which, is received or is deemed to have been rec....
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....lause (a), the amount so received or receivable." Upon close reading of two clauses of Section 25 it will appear that the legislature intends to apply higher amount of annual valuation obviously with an idea to levy maximum amount of tax. In our considered opinion it will be clear from the reading of clause (b) as emphasis is given to actual rent received or receivable if it is in excess of hypothetical amount of rent as mentioned in clause (a) of the said section. Conversely by necessary implication if hypothetical rent is higher it will be applied for the purpose. We are of the view that in the case on hand rate of rent determined by the award would be the basis for determination of Annual Valuation within Section 22 read with Section 23 of the Act 1961. Thus the annual value determined before the award was passed, basing on actual receipt is less than the rate fixed by the award which is deemed to be hypothetical annual valuation within the meaning of Clause (a) of Section 23 of the Act of 1961. Under such circumstances the difference of arrears must be added in order to give effect to the language of the said computation section. As we have already indicated that during reg....