9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (12) TMI 285 - HC - Income TaxAccrual of income - Income from Other Sources - rent on account of sub-lease agreement of the Appellant with IDBI - terminated the agreement - Appellant has not accepted the rent from IDBI post termination of the sub-lease agreement - cross-suits filed by the Appellant and the IDBI against each other are pending as of today before the Small Causes Court - assessee argued since the sub lease agreement with the IDBI has been terminated and a suit is filed against it, no amount is due from IDBI as lease rent and, therefore, question of taxing the same does not arise - HELD THAT - Section 56 of the Act which deals with Income from other sources provides for charging to income tax, income of every kind which is not chargeable for income tax under any of the heads specified in Section 14, items A to E. The Appellant is a company governed by the Indian Companies Act, 1956 (now Companies Act, 2013) and maintains its books of accounts on mercantile basis. Section 5(1)(b) of the Act provides for scope of total income to include all income which accrues or arises or is deemed to accrue or arise in India during such year. The words accrue or arise have different meanings attributed to them while the former connotes the idea of a growth or accumulation, the latter connotes the idea of crystallization of the former into a definite sum that can be demanded as a matter of right. 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. Whether sub-lease rent sought to be taxed accrues or arises to the Appellant in the assessment year 1986-87? - It is not disputed by the Revenue that the cross-suits filed by the Appellant and the IDBI against each other are pending as of today before the Small 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 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 parties. In the light of these facts, whether the sub-lease agreement between the IDBI and the Appellant subsists post 1981 termination by the Appellant, is itself a subject matter of dispute between the Appellant and IDBI which is pending adjudication. Thus it cannot be said that the Appellant is entitled to receive a sum under the sublease agreement with IDBI or a right is vested in the Appellant to that sum. In our view, one cannot tax the amount having not accrued to the Assessee and not received by an Assessee on an assumption and presumption that in future the Small Causes Court will at least order the said sum in favour of the Appellant. The determination of the amount payable by the IDBI to the Appellant as prayed for by the Appellant in its suit is to be determined by the Small Causes Court and it is as and when the Court passes a final decree that one can say that right to receive the sum decreed by the Small Causes Court as having accrued to the Appellant. Till then, the right to receive any sum by the Appellant is in jeopardy and sub-judice before the Small Causes Court. The Appellant had informed the Revenue and the IDBI that the garnishee proceedings are illegal because post-termination no rent is due and payable by IDBI to the Appellant. This fact has been missed out by the Tribunal in coming to its conclusion. Even otherwise, merely because a party to a civil dispute to protect its rights makes a payment to the Income Tax Department pursuant to garnishee proceedings, it would not amount to subsistence or existence of the sub-lease agreement between the Appellant and the IDBI for bringing to tax Rs. 3,42,720/- per annum as income for the assessment year under considerations. In our view, the Tribunal has not correctly appreciated the facts of the Appellant's case and the effect of the civil dispute pending between the Appellant and the IDBI on the income tax proceedings. Revenue is not justified in bringing to tax sum as accrued income for the assessment year 1986-87 and for the other years, which are subject matter of appeal before this Court in appeal.
Issues Involved:
1. Reopening of Assessment u/s. 148 of the Income Tax Act 2. Collection of Rent from IDBI as Unilateral Act by Assessing Officer Summary: Issue 1: Reopening of Assessment u/s. 148 of the Income Tax Act At the stage of final hearing, the appellant did not press for adjudication of this issue. Thus, the main issue considered was: Issue 2: Collection of Rent from IDBI as Unilateral Act by Assessing Officer The appellant contended that since the sub-lease agreement with IDBI was terminated in 1981, and cross-suits were pending adjudication, there was no accrual of income of Rs. 3,42,720/- under the sub-lease agreement for the assessment year 1986-87. The Revenue argued that regardless of the pending suits, the amount was chargeable to tax as it was an ascertained sum and the appellant had not waived the right to receive it. Relevant Facts: - The appellant entered into a sub-lease with IDBI in 1980. - The sub-lease was terminated by the appellant in 1981 due to disputes. - IDBI filed a suit to restrain the appellant from terminating the sub-lease. - The Revenue issued a garnishee notice to IDBI to pay the rent to the Income-tax department. - The appellant refused to accept the rent post-termination and filed a suit for eviction and compensation against IDBI. Court's Analysis: - The court examined whether the sum of Rs. 3,42,720/- could be said to have accrued to the appellant in the assessment year 1986-87. - The court referred to several judicial precedents to determine the principles of accrual of income. - It was emphasized that income accrues when there is a legal right to receive a definite sum, and the right to receive the income must not be in dispute. - Since the sub-lease agreement's termination and the right to receive rent were sub-judice, no income could be said to have accrued to the appellant. - The court held that taxing the amount would pre-empt the decision of the Small Causes Court. Conclusion: - The Revenue was not justified in taxing the sum of Rs. 3,42,720/- as accrued income for the assessment year 1986-87 and other years under appeal. - The question raised was decided in favor of the appellant/assessee and against the respondent/revenue. Final Observation: - The court's findings and observations were restricted to the disposal of the appeals under the Income Tax Act and should not influence the pending civil suits between the appellant and IDBI.
|
