2003 (10) TMI 267 - AT - Income Tax

Summary

Issues Involved:
1. Legality of initiating action under Section 147 by issuance of notice under Section 148.
2. Taxability of arrears of rent under the head 'House Property' or 'Income from Other Sources'.
3. General grounds reserved by the appellant.

Issue-wise Detailed Analysis:

1. Legality of Initiating Action Under Section 147 by Issuance of Notice Under Section 148:
The assessee argued that the issuance of notice under Section 148 was void ab initio and without justification. The facts reveal that the assessee, a partnership firm, derived income from rents and interest on deposits and had let out properties to the District Agricultural Officer. The Rent Control & Eviction Officer (RC&EO) enhanced the rent from Rs. 110 to Rs. 2,925 per month, which was later reduced to Rs. 2,530 per month by the Additional District Judge (ADJ). The assessee did not disclose the enhanced rental income in the returns for the assessment years 1989-90, 1990-91, and 1991-92. The AO initiated reassessment proceedings after discovering arrears of enhanced rent amounting to Rs. 1,28,300 for the period from 1st Nov. 1987 to 31st March 1991. The AO recorded reasons for issuing the notice under Section 148, citing the assessee's failure to declare the enhanced rent receivable, leading to income escaping assessment. The CIT(A) upheld the AO's action, stating that the AO's satisfaction regarding income escaping assessment was sufficient for reopening the case under Section 147. The Tribunal agreed with the CIT(A), noting that the assessee neither disclosed the rental income of Rs. 110 per month nor the enhanced rental income of Rs. 2,925 per month, justifying the AO's action in reopening the assessment.

2. Taxability of Arrears of Rent Under the Head 'House Property' or 'Income from Other Sources':
The assessee contended that the arrears of rent were not taxable under the head 'House Property' or 'Income from Other Sources.' The Tribunal examined Section 23 of the IT Act, which determines the annual value of property based on the rent received or receivable. The RC&EO, after following statutory procedures, had determined the rent receivable by the assessee, which was later modified by the ADJ. The Tribunal found that the enhanced rent determined by the competent authority should be considered the fair rent or rent receivable by the assessee. The Tribunal referred to the case of Hamilton & Co. (P) Ltd. vs. CIT, where it was held that arrears of rent relating to past years could not be taxed in the year of receipt but should be assessed in the years to which they pertain. The Tribunal concluded that the enhanced rent related to earlier years should be taxed in those assessment years under the head 'Income from House Property.' The Tribunal also noted that the amendment in Section 25B, effective from 1st April 2001, allowing such income to be taxed in the year of receipt, did not apply to the assessee's case.

3. General Grounds Reserved by the Appellant:
The assessee reserved the right to add, amend, or alter any ground of appeal. However, the Tribunal found this ground to be general in nature and requiring no comments.

Conclusion:
The Tribunal dismissed all three appeals, upholding the AO's action in reopening the assessments and taxing the enhanced rent under the head 'Income from House Property' for the relevant assessment years.