2003 (12) TMI 21

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....involves the following substantial questions of law: "1. Whether the Income-tax Appellate Tribunal was correct in law in deleting the addition of Rs. 4,07,286 being the arrears of rent, made by the Assessing Officer to the income of the assessee? 2. Whether the amount of Rs. 4,07,286 being the arrears of rent could be taxed under the head 'Income from house property' or under the head 'Income from other sources'? 3. Whether the provisions of section 25B introduced by the Finance Act, 2000, are clarificatory in nature and therefore have retrospective effect?" The material facts, which lie in a narrow compass, are as follows: The respondent-assessee is a lessor of a portion of the property bearing No. C-37, Connaught Place, New....

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....matter of prima facie adjustment under section 143(1)(a) of the Act, and (ii) the concept of annual letting value under sections 22 and 23 of the Act does not permit the Assessing Officer to assess the arrears of rent for more than 12 months as the annual rent. The Commissioner, without going into the question whether the arrears of rent could be brought to tax while issuing intimation under section 143(1)(a) of the Act, deleted the addition on the merits. Relying on the decision of the Calcutta High Court in Hamilton and Co. (P.) Ltd. v. CIT [l992] 194 ITR 391, the Commissioner came to the conclusion that the arrears of rent were to be assessed in the year to which they relate and not in the year of actual receipt. The Commissioner observe....

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....in the total income have been classified. As per section 22 of the Act, the basis of charge of income from house property is its "annual value". The annual value has to be determined in accordance with the provisions of section 23 of the Act. The relevant part of section 23, as substituted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, reads as follows: "23. Annual value how determined. - (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum refer....

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....n Explanation 1 which defines "annual rent". According to clause (a) of the Explanation, rent is actual rent received or receivable in respect of the previous year. Clause (b), which is more explicit, clearly refers to the period of 12 months, which leaves no scope for doubt that the annual rent has to be the rent for 12 months. Therefore, a bare reading of section 23(1) with Explanation 1 appended thereto, makes it clear that any rent not relating to the relevant previous year cannot form part of the "annual rent" for the previous year, for determining the annual value of the property for the purposes of section 22 of the Act. A similar view has been expressed by the Calcutta High Court in Hamilton's case [1992] 194 ITR 391, with which we ....