TaxTMI 
TaxTMI 
2019 (2) TMI 910
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....Lindsay Towers' in Kolkata, which was purchased in 1971. On the assessee seeking enhancement of rent from the tenants, the tenants refused and the matter was referred to an Arbitrator, which was settled much later. The rent so fixed by the Arbitrator along with interest as awarded, for many previous years, was received by the assessee from the various tenants in a far subsequent year. The Assessing Officer [for brevity "AO"] for certain years initiated proceedings under Section 147 for re-assessment. In the A.Y. 2000-01, the AO brought to tax the entire arrears, other than that for the relevant previous year, as 'income from other sources', ie: in the year of its receipt and also made protective assessments for the A.Ys in which they actually fell due. 3. First we refer to I.T.A.No.1422 of 2009 relating to the A.Y.2000-2001. The arrears of rent received of Rs. 6,11,18,381/- in the relevant previous year was for housing the offices of the Provident Fund Commissioner, Kolkata. The assessee offered Rs. 25,39,971/- as the arrears due between April to August, 1999, ie: the arrears of rent applicable to the relevant previous year. The assessee claimed that income-tax was not....
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....that merely because the rent arrears was received in a subsequent year, it would not change the character of the income and it could be assessed as income from house property itself. There is no restriction insofar as assessing the income from house property in the year in which it accrues or arises and the receipt in a subsequent year would also enable such assessment in that year when the amounts are received, since the charge is on the income from house property which is the annual value of the property as seen from Section 22 and determined as per Section 23. Section 25B, according to the learned Senior Counsel, is clarificatory in nature as has been held by the High Court of Delhi in B.M.Gupta and Sons v. Asst. CIT [(2008) 299 ITR 410 (Delhi)] and CIT v. R.J. Wood P.Ltd. [(2011) 334 ITR 358 (Delhi)]. The facts in R.J. Wood P.Ltd. are also identical and despite noticing the decisions of the Calcutta High Court, found Section 25B to be applicable holding it to be clarificatory. 6. The learned Counsel for the assessee would rely on P.G.&W. Sawoo (P) Ltd. v. Assistant CIT [(2017) 13 SCC 284]. According to him, the issues stand settled by the decision of the Supreme Court and ther....
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....nbsp; xxx xxx Explanation 1.- For the purposes of this sub-section, "annual rent" means - (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period". 9. Section 22 provides that the annual value of the property is the measure on which the charge has been created for 'income from house property'. By Section 23, annual value of a property is deemed to be the reasonable rent expected to be received from year to year, or where the property is let, the annual rent received or receivable; if in excess of the reasonable rent expected, then the amou....
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....ght to additional income but also received the arrears of rent during the financial year 1999-2000, attracting the provisions of Section 5(1)(a) of the Act. 11. R.J.Wood P.Ltd. is in identical circumstances of a letting out made by the assessee to five tenants. A dispute arose as to who is to bear maintenance charges, upon which the tenants filed a suit before the Small Causes Court for fixation of standard rent. The Court by an interim order fixed a rent on a lump sum basis; lesser than that agreed upon between the parties. The assessee paid the maintenance charges during the period of the pendency of the suit and claimed it as expenditure. The AO disallowed the claim finding that the agreement created the liability for maintenance on the tenants. The suit came to be finally decided, in which the contractual rate was affirmed. The income tax returns filed for the years 1996-1997 to 1999-2000 showed only the standard rent received by the appellant as fixed by the Court as an interim measure. After the order of the Small Causes Court, the AO issued notice under Section 148 in respect of the A.Ys 1996-1997 to 1999-2000 including the annual rental, at the contractual rent for the sai....
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....t of 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. The simple case is that the rent of a past year increased retrospectively shall be the annual rent of such past year or years but not the annual rent of the year in which it is received consequent upon subsequent increase". 14. In this context, we also notice the following from Departmental Circular No.494 dated 9th August 2000: "Introduction.- Section 25B [enacting special provision for arrears of rent received] has newly been inserted (w.e.f. 1.4.2001) by the finance Act, 2000. The scope and effect of such insertion of section 25B by the Finance Act, 2000, have been elaborated in the following portion of the departmental circular No.794, dated 9th August, 2000, as under:- '21. Taxation of arrears of rent in the year of receipt.- 21.1 The scheme of taxing the income from house property under the Income-tax Act involves the concept of "annual value". Annual value has been deemed to be the sum for which the property might reasonably be expected to be let from year to year or annual rent....
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....n 23, Section 25B was brought in as a special provision for arrears of rent received subsequently, by Finance Act, 2000 with effect from 01.04.2001. Hence, when Section 25B was first brought into the Statute, Section 23 existed as it did from 1993 onwards, with the annual value deemed to be the annual rent and the definition of "annual rent" found in Explanation I to be the rent accruing for that previous year when the property was let. Section 25B sought to remove the prohibition, insofar as the arrears of rent received in a subsequent year not being charged under Section 22 for reason of the measure of 'annual value' as defined by 'annual rent' not enabling the assessment of any rent, which is not received or receivable for the previous year relevant to the assessment year. Section 25B is a deeming provision, enabling arrears of rent received from a property to be deemed an income chargeable as 'income from house property' and accordingly charged to income tax as the income of that previous year in which such arrears is received. 16. A substantial change in the levy was brought in by introducing Section 25B, which was also specifically made effective from....
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....r receivable for that previous year's letting. We also do not agree with the order of the CIT (Appeals) and the Tribunal that Section 25B is clarificatory; which ground has been taken to sustain the assessment in the assessment year 2000-01. 18. Admittedly the rent arrears received in 2000-01 also related to the various prior years. However, there was no attempt to reopen the assessments of the earlier years by the AO; at least, those in which the limitation period had not expired. Hence for the assessment year 2000-01 reopening of assessment under Section 147 does not arise. All the same, we make it clear that there could be no protective assessment for the earlier years as made by the AO. Hence, for the year 2000-2001, we uphold the order of the Tribunal insofar as setting aside the assessment made on the arrears of rent received in the relevant previous year, which was not the annual rent received or receivable for that previous year's letting of the property. We answer both the questions framed as (i) & (ii) in favour of the assessee and against the revenue. 19. Then we come to the other appeals where the issue of re-assessment arise. The Tribunal considered the appea....
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....romise of a suit. The Division Bench of the Delhi High Court specifically looked into the order of the Civil Court and found that the plea of damages and mesne profits is unfounded. In the present case also, admittedly, the assessee purchased a property in which there were tenants. On expiry of the lease period, the assessee claimed enhancement to which the tenants did not accede. The assessee approached the Arbitrator and the arrears of rent obtained by the assessee is by virtue of the award on arbitration. Hence the claim of damages and mesne profits cannot be sustained. The amounts received from the tenants were with respect to the rent of the relevant previous years, as enhanced by the award on arbitration. 21. Section 147 proceedings were initiated by a notice under Section 148 in all the above years. We find that for the A.Ys 1985-86 and 1996-97 the notices under Section 148 were issued respectively on 03.07.1995 and 25.08.1998. For the A.Y 1997-98, the return filed in response to the notice under Section 148 was dated 09.12.1998. The notice for those A.Ys hence, are within the period of limitation of ten years. Again for the year 1998-99, 1999-2000 and 2000-2001 the notices....
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....m also should have returned the rent claimed by them before the arbitrator as accruing in the respective previous years of the assessment year when the matter was pending arbitration. The argument holds no merit and is rejected. The question raised as (iii) is answered in favour of the revenue and against the assessee. 23. For the assessment years 1996-1997, 1999-2000 and 2000-2001 the question arises as to: (iv) whether there could be a claim of deduction of Municipal tax, for which cheque was issued to the local authority prior to the end of the previous year relevant to the assessment year; but, however, the Bank statements show realization only on the commencement of the next assessment year. 24. The Tribunal has remanded the matter for fresh consideration in the years 1996-1997 and 1999-2000. For the year 2002-2003, it was specifically found that the cheque was tendered on 30.03.2002, which was cleared on 08.04.2002. The Tribunal relying on the decision of the Hon'ble Supreme Court in CIT v. Ogale Glass Works Ltd. [25 ITR 529], held that when a cheque is not dishonoured but encashed, the payment relates back to the date of tendering of cheque. The date of payment woul....
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....ed a return and there was an assessment completed under Section 143(3). Here, the proceedings coming up for consideration is the proceeding under Section 147, for reassessment. The assessee, if at all, had the claim of vacancy allowance, ought to have claimed it in the regular assessment. Reliance is also placed on the decision in Chettinad Corporation P. Ltd. v. CIT [(1993) 200 ITR 320 (SC)]. 28. We see from the assessment orders for the respective years that they are all assessments completed under Section 147 read with Section 143(3). We also see a recital as to the regular assessments in which the assessee had returned rental income obtained from the very same building at Kolkata. We agree with the learned Senior Counsel that if at all a claim had to be made, it had to be made in the regular assessment. It is also pertinent that the Revenue would be disabled insofar as conducting an enquiry after long years within the period in which the reassessment is made. The Hon'ble Supreme Court has also held that re-opening is for the benefit of Revenue to bring to tax the escaped income and the assessee cannot agitate matters concluded in the original assessment. A reassessment has....
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....ction on depreciation under the Act is not a mere allowance for natural wear and tear on account of the ageing process. A deduction is enabled under the Income Tax Act, only when the assets, on which depreciation is claimed are put to use. The two conditions for claiming depreciation as per Section 32(1) of the Act were found to be (i) ownership in the property and (ii) use it is put to for the purpose of business or profession. It was found that unless these two conditions are satisfied, no allowance in respect of depreciation can be allowed. Mere preparation for the user or keeping the machinery for use cannot amount to actual use. A number of decisions of various High Courts as proffered by the assessee and those ferreted out by the AO were discussed. Eventually, the claim for depreciation allowance of that year was declined; both of the carried forward depreciation as also the depreciation applicable to the relevant previous year. The further carry forward to the next year too, stood declined. The First Appellate Authority affirmed the same. However, the Tribunal found that there is passive use insofar as the assets having been kept ready for use and there was never an intentio....
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.... C.I.T. v. Geo Tech Construction Corporation, [2000] 244 ITR 452 to contend that the user as found in Section 32(1) has to be given a wider meaning and includes a passive use. The decision in C.I.T. v. Vikram Cotton Mills Ltd., [1988] 169 ITR 597 (SC) was relied on to contend that the facts were almost similar and the amounts obtained as lease rent for the machineries; though the assessee having not put it to use for the purpose of the business, was allowed when the lease was effected under a scheme formulated by the High Court. 35. Sri.Joseph Markos, learned Senior Counsel, assisting us, would, at the outset, submit that the question as to whether there can be a carry forward or not in the identical facts and circumstances of the case is no longer res integra. The same is covered by a decision of the Hon'ble Supreme Court in C.I.T. v. Virmani Industries Pvt.Ltd., (1995) 6 SCC 466. Therein, the last year on which the assessee had put its assets to use was 1956-57 and the business was revived after a gap of eight years in the previous year relevant to 1965-66. The assessee had claimed carry forward of the depreciation as it existed in 1956-57, which was declined by the AO, but ....
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....ment required after a period of time. As we see from the Income Tax Act, depreciation is calculated based on the accounting standards by determining the written down value of an asset in a particular previous year. Allowance is insofar as granting the deduction to the extent of what is reduced from the written down value, determined in the previous assessment year, which along with carry forward depreciation, can be set off as against the income arising; not only from the profits and gains of business or profession, but also from other heads under Section 14. The carry forward is also permitted till the written down value is brought to "nil" and there is no limitation for the number of years in which it could be carried forward; unlike a business loss. 38. Pausing here for a moment, we notice that the business loss in the year in which it arises can be set off as against any income under Section 14 of the Act, but on carry forward it can only be set off against the income from profits and gains of business or profession. In this context it also has to be noticed that when there is carry forward of business loss and depreciation; set-off is permitted first of the business loss carr....
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....so into the said sub-section. This is evident from the words "or if there is no such allowance for that previous year, be deemed to be the allowance for the previous year" occurring in the sub-section. 22. Yet another question which has to be answered before we can answer the question concerned in this appeal is whether it is necessary that in the following year the assessee must carry on business, i.e., some or other business, to avail of the benefit of the said sub-section? Two views are possible in this behalf, viz., (I) since the sub-section speaks of unabsorbed depreciation being carried forward to the next year and "added it the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance" the sub-section necessarily contemplates existence of a business in the following year and (2) inasmuch as the sub-section not only speaks of adding the unabsorbed depreciation to the depreciation allowance allowed in the following year but also says that in the absence of such allowance, the carried forward depreciation allowance shall be the allowance for that year it means that in the following year the assessee need not carry on any....
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....nsideration: "32. Depreciation: (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:" 42. As was correctly pin-pointed by the AO, a reading of the provision would make it clear that there are two conditions, necessary and essential, for claiming the allowance by way of deduction on depreciation. The tangible assets and the intangible ones; should be (i) owned wholly or partly by the assessee and (ii) used for the purpose of business or profession, upon which alone the deductions....
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....45. Geo Tech Construction Corporation was a case in which on March 29th of the previous year the assessee had purchased two tipper lorries. The AO had refused depreciation allowance claimed on the ground that it was never put to use by the company in the relevant previous year. On facts, it was found by the Division Bench that there was a possibility of the assessee having put to use the tipper lorries in the very same previous year in which it was purchased, since it could have been transported from the place of purchase within a day. The fact that the use could have been for only a day, cannot affect the claim, was the finding of the Division Bench. We have to notice that later, an Explanation was added to the provision restricting the claim of depreciation to the extent of the use in the previous year in which the purchase or investment was made. However, that need not detain us in considering the "passive use", which proposition was dilated upon by the Division Bench in Geo Tech Construction Corporation. 46. Blend Well Bottles P.Ltd. was also a case in which the "passive use" was found when the closure of the business was due to riots. Chennai Petroleum Corporation Ltd. permit....
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....functional. The "passive user", in these circumstances, cannot be extended to absurd limits. Otherwise, the words "used for the purpose of business" will lose their total sanctity. It cannot be the intention of the Legislature that the words "used" when it is to be interpreted in a wider sense to mean, "ready to use", the same is stretched to the limits of non-user for number of years. 22. We may point out at this stage that some of the High Courts have taken the view that the expression "used" should mean actual user (see CIT v. J.K. Transport [1998] 231 ITR 798 (MP)], CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884 (Guj.)], Malabar Agricultural Co. Ltd. v. CIT [1998] 229 ITR 548 (Ker).] and Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768 (Bom.)]. Though we are subscribing in view of the judgments of our own High Court, at the same time we would not like to give the expression a meaning which would make the provision superfluous. 23. Mr. C.S. Aggarwal, learned Senior counsel appearing for the assessee, had highlighted that the assessee was a 50 year old company and non user of the Bhopal Unit for six years or so should be treated as temporary non-user. It is difficult to ....
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.... is the business expenses claimed by the assessee for that year. The question arising is so reframed: (viii) Whether the business expenses claimed by the assessee for that year in which there was no use of assets by the assessee can be permitted? As we noticed in the earlier paragraphs the assessee had not carried on any business in 24 years, manufacturing activities having been closed down from 1987. The assessee had claimed business expenditure in the respective years under Section 37 to be set off against income from house property and income from other sources. The Assessing Officer had allowed the same which in re-assessment proceedings was sought to be over turned. The justification of the Assessing Officer, in the proceedings under Section 147, was that since the assessee had not been carrying on any business for the previous years relevant to the subject assessment years, there could be no claim of business expenses. The learned Senior Counsel appearing for the Department would argue that the very same principle as adopted for depreciation allowance, would apply to business loss under Section 37. 51. Sri. Raja Kannan however, would argue that Section 37 is quite distin....
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....is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income. S.57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction".(sic). Hence even when the expenditure was substantial and the return was nil, the deduction permissible under Section 57 was allowable. The Hon'ble Supreme Court held that the applicability of Section 57, is to be determined on the basis of the purpose and not necessarily looking at whether the purpose was fulfilled or not. As far as Section 37 is concerned, it is trite that the business loss for a particular year can be set off against any head of income. The restriction is in the carry forward business loss being set off against any income other than income from profits and gains of business or profession. 54. In the subject assessment years, there is no issue of a carried forward business loss having been claimed by the assessee. The assessee for the relevant previous years had only claimed business expenditure. The contention of the assessee was that they had no intention to close down the business and had....
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....enant in the premises. 57. As far as business loss, it is an accepted position that carry forward can be set off only against business income. The assessee had no business income for the said year. Hence, the said question has to be answered against the assessee and in favour of the Revenue. 58. On depreciation, though the carried forward depreciation is enabled to be set off against any income other than income from profits and gains of business or profession, the carry forward is occasioned only if there is a depreciation allowable in the previous assessment year to the subject assessment year. Here, we are in the assessment year 2002-03, when the business of the assessee was not functioning and the factory remained closed. In the earlier assessment year of 2000-01 also the factory was remaining closed in the relevant previous year. There was no use to which the plant and machinery were put to and, hence, there could be no deduction of depreciation claimed for the previous year. When such claim could not have been made under Section 32(1), then there is no question of any carry forward of such depreciation for reason of the claim for depreciation having never arisen in that pr....