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TMI Blog2012 (9) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee only upon the passing of the decree by the Civil Court on 14.10.1998?" 2. The facts necessary for deciding the appeal are that the assessee, a private limited company is engaged in the real estate business and derived rental income from its commercial building a multi-storied complex let out to various tenants. During the financial year, relevant to assessment year 1992-93, the lease agreement of between the assessee and its tenant Oriental Bank of Commerce, was to expire on 31.03.1991. The premises were not vacated and the assessee filed a civil Suit before this Court claiming a decree for possession by way of eviction. In the assessment proceedings, the assessee explained that this included the cost of Civil Suit and the advocate's expenses for the same. During the pendency of the suit, the tenant, Oriental Bank of Commerce, had been paying rent regularly @ Rs..45,900/- per month. This was charged to tax, on due basis. The Suit was decreed by this court in October, 1998. The assessee was paid a total amount of Rs..27,76,045/- as mesne profit towards arrears of rent. The decree for mesne profits/damages against the tenant-defendant was @ Rs..75,000/- per month from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25-B was introduced much later, after the AY in question here. There was nothing in the tenor of the amendment, to clarify that it had retrospective effect, or implicated past transactions. In the circumstances, the assessee could not take shelter under the fact that the arrears were disclosed in the later year. The revenue also relied on the judgment of this Court in Commissioner of Income Tax Vs. Ms. Sadhna Chadha, 270 ITR 534 as well as the judgment reported as B.M. Gupta & sons (HUF) vs ACIT (2008) 299 ITR 410 (Del). 7. Counsel for the assessee, Mr. Sethi, argued that the appeal is bereft of merit, and the ITAT's order does not call for interference. It was argued that having regard to the structure and tenor of the statute, there was no occasion for declaring something that was likely to arise in the future, as "payable". At the time the assessee filed its suit for eviction, and claimed mesne profits, it did not and could not ever have known whether it would have succeeded, and the extent to which its claim for mesne profits, would succeed, if at all it did. The right it had was only one to approach the court, claiming possession, and seeking mesne profits for the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpiry of limitation cannot be done unless income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Therefore, the reasoning assigned by the learned Commissioner (A) to give the nod to the alleged validity of the reopening of assessment, is not sustainable. The AO could not, under the law, bring the account ALV that would have been seen to be the rental income for the particular year/years. 9.3 Otherwise also, till the time of passing of the decree in the Civil Suit, the right of the assessee to arrear of rent was merely a contingent inchoate right. The rent became receivable only on the passing of the decree. Therefore, the is no question of the assessee having not disclosed any material facts before the AO. So, on this basis, the AO could not have invoked or assumed jurisdiction to re-assess." The above reasoning is unexceptionable. In P. Mariappa Gounder (supra) the Supreme Court described the "right" of a plaintiff/owner seeking possession and mesne profits (which were to be calculated and decreed after an enquiry) as "only an inchoate right". Such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amount so received or receivable : Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him ..." The Madras High Court, in Commissioner of Income-Tax, Tamil Nadu-V v. P. Mariappa Gounder 1983 (147) ITR 676 (Mad) explained the precise nature of the right of a landlord seeking possession of residential premises, through a civil suit which also includes a claim for mesne profits: "We do not think it should take us long to find the correct answer. A claim for mesne profits is usually directed against one who has deprived the true owner of possession of his property and who has thereby prevented the true owner from enjoying the income or usufruct of the property. When, in such a suit or proceeding, the court awards mesne profits to the true owner, that repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of mesne profits are quantified, that amount must relate back to an earlier point of time when the right to mesne profits itself was declared by a competent court. "Relation back" theory cannot work and would be quite inappropriate for settling the question of accrual of income, when both the accrual and income are unknown quantities. ............... ............... ............... The assessee did not know how much was the income. The proceedings had, therefore, to go through the whole hog of a judicial inquiry before mesne profits could be ascertained. As it happened, the amount was fixed by the trial court only on December 22, 1962, during the year of account ended March 31, 1963. On principle as well as on authority, therefore, the mesne profits as an amount of income could be said to have accrued, in the income-tax sense of the term, only during the year ended March 31, 1963. Hence, we must uphold the order of the AAC bringing to tax the entire amount in the assessment year 1963-64. The assessment of the same amount in 1964-65 relevant to the account year ended March 31, 1964, must be held to be erroneous." This understanding was endorsed by the Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in favour of the Department. We accordingly dismiss the appeals but in the circumstances of this case award no costs." 11. The revenue had relied on the judgment in Sadhna Chadha. However, that decision in fact favours the assessee, as can be seen from the following extract of this Court's judgment in that case: "Clause (b), which is more explicit, clearly refers to the period of 12 months, which leaves no scope for doubt that the annual rent has to be the rent for 12 months. Therefore, a bare reading of section 23(1) with Explanation I appended thereto, makes it clear that any rent not relating to the relevant previous year cannot form part of the "annual rent" for the previous year, for determining the annual value of the property for the purposes of section 22 of the Act. A similar view has been expressed by the Calcutta High Court in Hamilton & Co. (P) Ltd.'s case (supra), with which we are in respectful agreement." 12. In one of its earlier judgments, E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27 (SC), the Supreme Court examined the meaning of the expressions, 'arises' 'accrue', and 'is received' while considering what is "income". The Court's observations, extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is more or less inchoate." The Court held that: "In the instant case, as indicated hereinbefore, the Government Departments agreed to enhance the rent with retrospective effect from 1982, and thus, the parties were not ad idem in their mind as regards the actual quantum of rent payable to the Assessee by its tenants and, thus, the actual amount was not ascertainable. Fair rent, keeping in view the provisions of the West Bengal Premises Tenancy Act, has to be determined and till such fair rent is determined, actual rent has to be paid by the tenants. Although the said provisions have no application in case the Government is the tenant the rent has to be paid on the basis of the agreement entered into by the parties. A claim made by a landlord for enhancement of rent cannot, thus, be said to be an amount receivable within the meaning of Section 23(1) of the Act. A claim or a demand by itself does not come within the purview of the words 'income received or receivable' and keeping in view the provisions of Section 5 of the Income-tax Act there cannot be any doubt whatsoever such income either received or deemed to be received, accrued or arose or is deemed to accrue or arise to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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