2013 (4) TMI 138 - HC - Income Tax

Arrears of rent - Escaped Assessement U/s 147 & 148 - The assessee had received arrears of rent pertaining to the years under consideration after the assessee filed returns declaring income received during the said assessment years originally - Held that - During regular assessment under Section 139 the aforesaid amount could not be brought into tax network prior to insertion of Section 25B. Now it has become possible to take into consideration of the arrears of rent irrespective of the years of receipt under the heading of income from house property within the meaning of Section 22. Since it relates to the period prior to insertion of Section 25B the said income can be brought under Sections 147 and 148. There is no clear decision or indication in the judgment of Delhi High Court that Section 25B of the Act has been declared to be clarificatory in nature. Mr. Khaitan, learned Senior Counsel seems to be right that no ratio has been laid down in that judgment. But ultimately the Court held that arrears of rent is taxable by virtue of the provision of Section 5(1)(a) of the Income Tax Act, 1961. In view of the discussion as above, we are unable to accept the contention of Mr. Khaitan. If his contention is accepted then the aforesaid income which is not otherwise permitted to be escaped by the Act has to be exempted from income tax. Neither the Hamilton case (1992) 194 ITR 391 nor Hope (India) 1999 (4) TMI 72 - CALCUTTA HIGH COURT case has dealt with the aforesaid aspect of the matter. Even the Full Bench decision rendered in case of P.G. and Sawoo Private Ltd. v. Assistant Commissioner of Income Tax 2008 (9) TMI 92 - CALCUTTA HIGH COURT did not deal with this aspect rather this Full Bench decision has merely explained that there was no conflict between the judgment of this Hon ble Court in Hamilton case and Hope (India) case. - Decided against the assessee.

Issues Involved:

1. Authority and jurisdiction of the Tribunal in directing assessment of arrears of rent and upholding the reopening of assessments.
2. Taxability of arrears of rent received in the years of receipt under the Income Tax Act, 1961.
3. Justification of the Tribunal's reliance on the judgment in Hope India Ltd. v. CIT.
4. Justification of the Tribunal in upholding the reassessments for the assessment years 1993-94, 1994-95, and 1995-96.

Issue-wise Detailed Analysis:

1. Authority and Jurisdiction of the Tribunal:
The Tribunal directed the assessment of arrears of rent in the year of receipt and upheld the reopening of assessments for the years 1993-94, 1994-95, and 1995-96. The Assessing Officer had reopened the assessments based on the ground that the increase in rent agreed upon retrospectively was chargeable to tax in the relevant previous years. The Tribunal's findings were beyond the scope of the appeals before it.

2. Taxability of Arrears of Rent:
The appellant-assessee contended that under Section 22 of the Income Tax Act, 1961, the annual value of house property is determined based on the rent for the 12 months of the previous year. Arrears of rent relating to earlier years cannot be taxed in the year of receipt under Section 22. The appellant argued that Section 25B, which provides for the taxation of arrears of rent, was not applicable retrospectively and only applied from the year 2001-02 onwards. The Revenue, however, argued that arrears of rent are taxable in the year of receipt under Sections 2(24)(i) and 5(1)(a) of the Act. The Tribunal upheld the taxability of arrears of rent received during the years 1993-94, 1994-95, and 1995-96.

3. Reliance on Hope India Ltd. v. CIT:
The Tribunal held that the ratio of the judgment in Hope India Ltd. v. CIT was that arrears of rent were taxable in the year of receipt. The appellant contended that the Tribunal's finding was arbitrary and perverse. The Tribunal's interpretation of the relevant sections and decisions led to the conclusion that arrears of rent received in the assessment years 1993-94, 1994-95, and 1995-96 were assessable to tax.

4. Justification of Reassessments:
The Tribunal upheld the reassessments for the assessment years 1993-94, 1994-95, and 1995-96 on the ground that arrears of rent received in those years had escaped assessment due to the appellant's failure to include them in its taxable income. The appellant argued that the reopening of assessments was not justified. However, the Tribunal found that there was an escape of income and that the arrears of rent received in subsequent years were taxable.

Conclusion:
The High Court dismissed the appeal, holding that the arrears of rent received in relation to past years but not immediately previous years can be subjected to tax. The Court found that Section 25B, although inserted later, clarified the taxation of arrears of rent received in subsequent years. The Court upheld the Tribunal's decision to assess the arrears of rent in the years of receipt and found no infirmity in the reassessments for the years 1993-94, 1994-95, and 1995-96. The appeal was dismissed with no order as to costs.

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