1990 (7) TMI 153 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of reopening assessments under section 147(b) of the IT Act.
2. Classification of compensation as income from house property.
3. Accrual of enhanced compensation and its relation to earlier assessment years.
4. Jurisdiction of the ITO to initiate reassessment proceedings.

Detailed Analysis:

Legitimacy of Reopening Assessments Under Section 147(b):
The primary issue raised in these appeals was whether the reopening of assessments under section 147(b) of the IT Act was justified. The Income Tax Officer (ITO) had reopened the assessments based on the information received from the Estate Manager, Government of India, indicating that the rental income had been revised from Rs. 3,618 to Rs. 19,269 per month. The assessee contended that the ITO was not justified in reopening the assessments and recomputing the income from property based on the enhanced rent. The CIT(A) upheld the ITO's decision, stating that the rent receivable should be taken as the annual value, irrespective of the method of accounting followed by the assessee.

Classification of Compensation as Income from House Property:
The assessee argued that the property requisitioned by the Government of India was not 'let out' within the meaning of section 23(1)(b) of the IT Act, and the compensation paid was not 'rent'. The Tribunal rejected this argument, stating that the relationship created by the act of requisitioning was in the nature of a 'lease' and the payment was 'rent' within the meaning of section 23. The Tribunal noted that the enhanced compensation was payable under the provisions of the 1952 Act and was not a discretionary payment or a 'bounty'.

Accrual of Enhanced Compensation and Its Relation to Earlier Assessment Years:
The assessee contended that the enhanced compensation accrued only on 2-3-1983 when the communication was received from the Government of India, and it could not be related back to the earlier years. The Tribunal disagreed, stating that the enhanced compensation was payable by the operation of law and could be related back to the earlier years. The Tribunal emphasized that the knowledge of the law and its effect could be imputed to the assessee-landlord, and the ITO was correct in assessing the rental income on an accrual basis for the preceding three years.

Jurisdiction of the ITO to Initiate Reassessment Proceedings:
The assessee argued that the ITO lacked jurisdiction to initiate proceedings under section 147(b) as the information regarding the arrears of enhanced compensation was already available to the ITO before the completion of the original assessments. The Tribunal found this argument unconvincing, noting that the information available in the form of Note No. 16 was vague and incomplete. The Tribunal held that the ITO received definite, complete, and concrete information only after the completion of the original assessments, justifying the initiation of reassessment proceedings under section 147(b).

Conclusion:
The Tribunal upheld the CIT(A)'s decision, concluding that the ITO was justified in reopening the assessments and recomputing the income from house property based on the enhanced rent. The appeals were dismissed, affirming the reassessment orders passed under section 147(b) of the IT Act.