9911796707
TMI Blog2000 (9) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... ase vide lease deed dated18-8-1981with the Traders Bank. The Traders Bank regularly paid the rent till 1988 at the rate of Rs. 24,201.75 P. On nationalisation the Bank of Baroda took over the possession of the premises from Traders Bank. On15-6-1989this sublease expired. Since the Bank of Baroda after taking over from Traders Bank failed to pay the rent to the assessee , the assessee vide its letter dated 11-1-1989 terminated the tenancy agreement with effect from 31-1-1989 on the ground of non-payment of rent. After11-1-1989the assessee received a letter from the Bank dated6-1-1989along with a cheque dated 19-121988 for Rs. 96,807 representing the rent for the months of July to October, 1988. The assessee vide its letter dated13-1-1989returned the cheque clarifying that the tenancy was terminated vide its letter dated11-1-1989. Though the assessee terminated the tenancy agreement and returned some of the cheques received towards rent, rental income was shown in the return of income for the assessment year 1989-90 and for three months i.e. from 1-4-1989 to 30-6-1989 in its return of income for the assessment year 1990-9 1. The Assessing Officer while framing assessment for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the period July, 1988 to May, 1989 i.e., for 11 months at the rate of Rs. 24,201.75P. totalling Rs. 2,66,219.25P. (b) Compensation for the period 1-6-1989 to 31-7-1991 i.e., 26 months at the rate of Rs. 70,000 per month as the market value of the premises on1-6-1989was approximately Rs. 70,000 per month and since then it had further gone up, totalling Rs. 18,20,000. Referring to paragraph 18 of the suit filed before the High Court, the learned counsel pleaded that the assessee's total claim of Rs. 2,66,219.25P. was towards the rent received from July, 1988 to May, 1989 and of Rs. 18,20,000 was towards compensation from1-6-1989to31-7-1991. The learned counsel explained that the lease deed entered into with the Bank was for a specified period and had expired in May, 1989 and there was no provision contained in the deed for its further renewal the choice of the Bank. He, therefore, pleaded that even if it was presumed for the sake of argument that the assessee was maintaining its accounts on mercantile system of accounting, the assessee had no right to record the rent from the Bank after the expiry of the said lease deed. Placing reliance on the judgment of the Apex Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the occupation of the Bank and the Bank-had sent the payment through cheques. He pointed out that the compensation of Rs. 70,000 per month included rent of Rs. 24,000 and odd which was in accordance with the agreement with the Bank, though it had expired in the month of May, 1989 and the balance amount, was attributable to the damages as claimed by the assessee. He further pointed out that the Assessing Officer had taxed only the portion attributable to the rent at the rate of Rs. 24,000 and odd per month and not the balance of around Rs. 46,000 per month towards damages. It was further pointed out by the learned Departmental Representative that the assessee was maintaining its accounts on mercantile system of account, as was evident from the order of the Assessing Officer itself, wherein a specific finding to this effect had been given. Following the mercantile system of accounting, the learned Departmental Representative pointed out that the income becomes taxable when the assessee acquires the right to receive same, irrespective of the fact that whether it was received or not. In his final submissions, the learned Departmental Representative supported the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of rent under the head 'Income from other sources' in her returns of income and no books of account were maintained by her. Also mercantile system of accounting was not followed. The ITO added the lease money in the total income of the assessee ' on accrual basis. The Hon'ble High Court reversed the action of the Assessing Officer by holding that the option regarding adoption of system of accounting was with the assessee and not with the Income-tax Department and if the assessee was not following mercantile system of accounting, the income could not be taxed on the basis of accrual. As against this, the facts in the present case are that it is not established positively that the assessee was not maintaining its accounts on mercantile system of accounting basis and that apart the cheques were received from the Bank during the relevant assessment years though these were not encashed. In the case of Ganesh Das the facts are found to be quite distinguishable because in that case when the arrears of rent beyond the stipulated lease period were received by the assessee and the Assessing Officer sought to tax the same in assessment year 1961-62, the assessee voluntarily revised its re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y decided. The Hon'ble Supreme Court in the case of Hindustan Housing Land Development Trust Ltd. was dealing with the taxability of enhancement of compensation and not the original compensation, which was undisputably put to tax in the year of its receipt. Here also so far as part 'A' is concerned, there is no dispute in the sense that the assessee had the right to receive the same and the Bank was bound to pay that in view of the fact that the property under consideration was in the possession of the Bank during the relevant assessment years and the Bank had itself sent the cheques for the amount of rent. Thus, the dispute can be said to be surviving only so far as the balance amount of around Rs. 46,000 per month is concerned. Whether the assessee finally succeeds in vacating the property or not, whether the assessee succeeds in getting the total compensation ('A+") or not, in any case, it will not receive anything less than the agreed rent even if it pertains to period after the expiry of lease deed on the simple logic that the Bank had been using the said property for the relevant assessment years and had regularly sent the cheques. It implies that to the extent of Rs. 24,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired, the right to receive part 'A', being the rent, in the relevant years itself. As regards the receipt of rent after expiry of lease is concerned, it is to be noted that the Bank sent the payment of rent through cheques to the assessee, which were received by it though not encashed. The Hon'ble Supreme Court in the case of CIT v. Ogale Glass Works [1954] 25 ITR 529 held that when the payment is received by cheque, the receipt is at the time when the cheque is delivered and not when it is encashed. This leads us to the conclusion that under both the situations Le., irrespective of the method of accounting followed by the assessee, the assessee is liable to tax in respect of the rent of Rs. 24,000, and odd per month in the years under consideration. We, therefore, uphold the order of the CIT (Appeals) on this issue. 4. The next ground for assessment year 1991-92 relates to disallowance to the extent of 1/5th out of car maintenance expenses of Rs. 10 1,331. The Assessing Officer while making assessment for the assessment year 1991-92 found that the expenses claimed by the assessee on account of user of cars for business purposes were excessive. Relying on the possibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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