TaxTMI 
TaxTMI 
2023 (12) TMI 285
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....ptember 2004 on the following question of law:- "1. Whether the Tribunal had erred in law in holding that the Assessing Officer was justified in reopening the assessment u/s. 148 of the Income Tax Act ? 2. Whether the Tribunal erred in not appreciating the fact that the collection of rent from I.D.B.I. was a unilateral act by the Assessing Officer and the appellant had no connection with the same. Furthermore, the appellant had objected to the collection of this rent which the Assessing Officer had not acceded?" 2. At the stage of final hearing of the above appeal for assessment year 1986-87, the Appellant did not press for adjudication of question no. 1 which relates to validity of proceedings under section 147 of the Income Tax Act, 1961. In all the other assessment years, including assessment year 1986-87, therefore, only following common question of law arises for consideration of this Court:- "Whether the Tribunal erred in not appreciating the fact that the collection of rent from I.D.B.I. was a unilateral act by the Assessing Officer and the appellant had no connection with the same. Furthermore, the appellant had objected to the collect....
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....ion for wrongful use and occupation of the flats. 5. The prayers in the eviction suit filed by the Appellant are as under:- "a) that it may be declared that the Sub-Lease dated 22^nd April, 1980 is lawfully terminated and forfeited by the Plaintiffs as stated in the Plaint. b) that it may be declared that : (i) the plaintiffs are the lawful owners of Rear Tower Building which includes part construction made by the Plaintiffs, further part construction made by the 2nd Defendants and further part construction made by the 1st Defendants after 22nd April 1980 on the plot of land sub-demised to the 1st Defendants under the Sub-Lease dated 22nd April 1980. (ii) the Defendants have no right, title or interest whatsoever therein. (c) that the Defendants be ordered and decreed to hand over vacant and peaceful possession of Rear Tower Building including part construction made by the Plaintiffs, further part construction made by the 2nd Defendants and further part construction made by the 1st and 2nd Defendants after 22nd April 1980 together with the land sub-leased to the 1st Defendant. (d) that the 1st Defendants be ordered and decree....
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....ed and decreed to pay to the Plaintiffs interest at the rate of 18% per annum on the amounts claimed in the prayers (d) and (i) mentioned hereinabove from the date of suit till payment or realisation. (l) That the Defendants be ordered to pay to the Plaintiffs the cost of the suit. (m) For such further and other directions and reliefs as this Honourable Court may deem fit and proper." (emphasis supplied) 6. On 3rd May 1999, on an application made by the IDBI (plaintiff) following order came to be passed by the Small Causes Court in the Declaratory suit filed by the IDBI :- "ORDER" The application is made absolute with no order as to cost. The plaintiffs are hereby allowed to deposit the lease rent in court as detailed in prayer clauses (a), (b) and (c) of the application within four weeks from the date of order and to go on depositing the same till the rights of the parties are decided. The order of deposit of the rent is without prejudice to the rights and contentions of the parties. The Defendants are at liberty to withdraw the amount deposited in the court. (emphasis supplied) However, the Appellant has not ....
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....hallenged before the Tribunal and the Tribunal, vide its order dated 19th December 2001, in ITA No. 4873/Bom/1992, confirmed the addition and the relevant para of the Tribunal giving its reasoning for confirming the addition reads as under :- "11. It is abundantly clear from the records that the assessee did not waive his right to receive the rent. The claim for the arrears rent and compensation was pending before the Court. The consideration, as agreed and stipulated in the agreement, was paid by IDBI. The assessee was demanding rent and compensation over and above that amount. Therefore, right to receive the amount as stipulated on the agreement was intact. The dispute was for the additional rent and compensation. Therefore, there is no doubt that in the year under consideration income did accrue to the assessee. It was being utilised towards the payment of tax arrears. There was absolutely no possibility of refunding this amount to the IDBI." (emphasis supplied) 13. It was on this background that the present appeal under Section 260A of the Act came to be filed before this Court and the same was admitted by an order dated 3rd September 2004. B. Submission....
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....ar 1986-87. It is further submitted that sum of Rs. 3,42,720/- is an ascertained sum and, therefore, same accrues to the Appellant moreso because IDBI has not accepted termination and is willing to pay the rent but the Appellant is not accepting the same. The Respondent further contended that the letter of termination dated 14th September 1981 only indicates intention of the Appellant to terminate and there is no actual termination of the sub-lease agreement and, therefore, agreement exists as on today and therefore rent is taxable on accrual basis. The Counsel for the Respondent distinguished the case laws relied upon by the Appellant on the ground that those cases dealt with enhanced compensation which was the subject matter of litigation and the sum was not ascertained whereas in the present case Rs. 3,42,720/- is an ascertained sum under the sub-lease agreement. An apprehension is expressed that if and when in future the Civil Court decrees certain amounts to be paid to the Appellant by the IDBI for use and occupation of the property from the date of filing the suit, the Appellant Assessee would contend in the year of the said decree, that the amount cannot be taxed because it ....
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.... somebody at that moment or, as is otherwise expressed, "debitum in praesenti solvendum in futuro". Until it is created in favour of the Assessee, the debt due by somebody, it cannot be said that he has acquired a right to receive to any income accrued to him. There is also a difference between "accrue or arise" or "earned" Earning the same is not the same as accrual of income but it is a stage anterior to accrual of income. A person does not have a legal right to receive the income by merely earning of income. Although, earning of income is a necessary pre-requisite for accrual of income, mere earning of income without right to receive the same does not suffice. A person may be said to have "earned" his income in the sense that he has contributed to its production by rendering service and the parenthood of the income can be traced to him but in order that the income that may be said to have "accrued" to him an additional element is necessary that he must have created a debt in his favour. The phrase "accrue or arise" has been the subject matter of judicial debate from inception which we now propose to deal with some of them. 20. The Supreme Court, in the case of E D Sassoon & C....
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....led proceedings for fixing of standard rent in the Small Causes Court at Bombay. The Assessee there did not follow the mercantile system of accounting but income was offered on receipt basis. The Revenue sought to add the lease money in the total income of the Assessee on accrual basis on the basis of agreed rent. The matter reached this Court and the Court in para 5 observed as under: "The right to receive the agreed lease money was in jeopardy because of pendency of proceedings for fixing of standard rent in a Court of law. There was neither factual accrual nor deemed accrual." In this case, although the Assessee was following the cash system of accounting, but the High Court observed that since the dispute between the Assessee and the lessee was pending in a court of law, there was no factual accrual or deemed accrual. 24. In Pal Proprieties (I) Pvt. Ltd. vs. CIT (2002) 254 ITR 687 (Del), following questions were raised before the Delhi High Court: "(i) Whether the Tribunal was right in law in holding that the damages or any part thereof for illegal occupation of the premises accrued to the appellant though the claim was yet to be adjudicated finally and was....
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....io of CIT vs. Hindustan Housing and Land Development Trust (1986) 161 ITR 524 (SC) and P. Mariappa Gounder (dead) by LRs vs. CIT-Madras (1998) 3 SCC 552, Godhra Electricity Ltd. vs. CIT (1997) 225 ITR 746 and observed in para 24 that the mesne profits, which are yet to be determined, do not come within the purview of an accrued income for the purposes of Section 4 and 5 of the Income Tax Act till the judgment in regard to civil dispute was rendered in this regard. The Delhi High Court answered the two questions raised in favour of the Assessee and against the Revenue. 25. The Supreme Court, in the case of P. Mariappa Gounder vs. CIT (1998) 3 SCC 552, had an occasion to consider the time of accrual of mesne profit in the suit for specific performance of agreement for sale of factory. The Supreme Court in the civil suit held the plaintiff-appellant therein to be entitled to mesne profit. Pursuant to the Supreme Court's direction, trial court quantified the amount of mesne profit in accounting year relevant to assessment year 1963-64 and the Assessee receiving the same in accounting year relevant to assessment year 1964-65. The issue arose whether the said mesne profit accrued to t....
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.... said award to the High Court. During the pendency of the appeal, the State Government deposited Rs. 736691/-, which the Assessee was permitted to withdraw on 9th of May 1956 on furnishing security. On receipt of the amount, the Assessee credited it in its suspense account on the same date. The issue arose when the sum of Rs. 736631/- can be said to have accrued during the relevant assessment year 1956-57 for the previous year ending 31st March 1956. The Supreme Court reiterating the principle laid down in the case of E.D. Sassoon & Co. Ltd. observed that there was no absolute right to receive the amount at the time of withdrawing the sum because if the appeal of the State Government was allowed in its entirety, the right to payment of the enhanced compensation would fall altogether. The Supreme Court referred to the observation of the Andhra Pradesh High Court in the case of Khan Bahadur Ahmed Alladin & Sons vs. Commissioner of Income-tax (1969) 74 ITR 651 as under: "Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of debt, something in the nature of an obligation to pay an ascertained amount. Till....
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.... Causes Court. It is also not disputed that the Appellant has not accepted the rent from IDBI post termination of the sub-lease agreement in the year 1981. The Appellant, in its suit for eviction, has prayed for a declaration that sublease dated 22nd April 1980 is lawfully terminated and forfeited by the Appellant in addition to various other prayers, including a prayer that IDBI be ordered and decreed to pay arrears of rent or compensation for wrongful use and occupation of the property in a suit at the rate of Rs. 4,50,000/- per month as against Rs. 3,42,720/- per annum as per the sub-lease agreement. The Appellant has also prayed for compensation for wrongful use of the Appellant's property, being Rear Tower building, which consists of 30 flats, which, according to the original agreement, was to come to the Appellant. IDBI, in turn, in its suit, has sought a prayer for restraining the Appellant from terminating the sub-lease agreement and from dispossessing them. The Small Causes Court has permitted IDBI to deposit the lease rent in the Court till the rights of the parties are decided and the order of deposit of the rent is without prejudice to the rights and contentions of the ....
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....bility of the sum received, as per the decree would be examined in the year of decree and they would not contend that same is income of assessment year 1986-87 for which the present appeals are filed and same would be offered to tax as per law. 35. The Respondent has sought to distinguish the judgments relied upon by the Appellant on the ground that those are cases where enhanced compensation was in dispute before the Civil Court and either the same was not ascertained or the lease had expired and, therefore, unascertained sum cannot be taxed whereas, in the instant case, the sum is already ascertained and the IDBI is willing to offer the said amount but the Appellant is not accepting the same and, therefore, merely because the Appellant is not accepting the rent offered by the IDBI, it cannot be said that no income accrues. It is on these facts that the decision relied upon by the Appellant, according to the Respondent, are not applicable to the facts of the present case. In our view, this is not a correct contention on the part of the Revenue. The ratio of the decisions in the case of Hindustan Housing and Land Development Trust (supra), P. Mariappa Gounder (supra) and other c....