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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 ..... n P. Mariappa Gounder Versus Commissioner of Income-Tax [1998 (1) TMI 3 - SUPREME COURT] liability became ascertained only with the order of the trial court comes and not earlier - thus as the revenue had not however, re-opened the assessment in respect of the year of receipt of the amounts the reopening of assessment is not warranted - in favour of assessee. - ITA 166/2006, ITA 168/2006, ITA 243/2006, ITA 778/2006 - - - Dated:- 31-8-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Ms. Rashmi Chopra, Sr. Standing Counsel. For Respondent: Sh. Satyen Sethi with Sh. Arta Trana Panda, Advocates. MR. JUSTICE S.RAVINDRA BHAT 1. The present appeals by the revenue are directed against a common order of the Income Tax Appellate Tribunal (ITAT) dated 5th April, 2005 in seven appeals (by the revenue) and cross objections preferred by the assessee. The following questions of law were framed for consideration of this Court: (i) Whether the ITAT was, in the facts and circumstances of the case, correct in law in quashing the re-assessment order passed by the Assessing Officer under Section 147(1) of the Income Tax Act, 1961? (ii) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cross objections. The assessee argued that there was no failure on its part to disclose fully and truly all material facts necessary for assessment and so, the jurisdiction to re-assess the income was not validly assumed. The Tribunal upheld this contention, and held that the invocation of provisions of Section 147 was not sustainable in law. 5. It is contended on behalf of the revenue, by Ms. Rashmi Chopra that the assessee was under a duty to disclose the details of the claim it had made before the court, towards arrears of rent, because the provision (Section 23) not only contemplated declaration of actual rent, but also amounts that were payable or receivable. In this regard, it was stated that the assessee had not only received the rents during pendency of suit, but even enhancement, according to the contractual dates, till its claim was finally decreed. Therefore, it was in a position to reasonably declare the amount payable by the tenant, each year, during pendency of the litigation. However, details of such amounts claimed or receivable, were deliberately not mentioned in the returns for the earlier accounting years. The AO justifiably re-opened the assessments, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 lays down that where an assessment u/s 143(3) has been made, no action shall be taken u/s 147 after the expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee, inter alia, to disclose fully and truly all material facts necessary for his assessment, for that assessment year. The stand of the assessee has been that in the course of original assessment proceedings u/s 143(3), it was specifically pointed out and explained to the AO by the assessee that the reason for the heavy expenditure claimed under the head of legal expenses was that this expenses was in respect of Advocate fee and cost of Civil Suit filed in the High Court for possession and eviction against its tenant/OBC. This has not been denied .. .. . 9.2 Even the learned Commissioner (A) has not directly address himself to this issue. It has been held that the AO reopened the assessment to bring to account the ALV that would have been seen to be the rental income for the particular year/years and that it was not so much for any omission or default of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the purpose of the Act is to charge real income. Real income arose to the assessee only on the passing of the decree. Therefore, the learned CIT(A) was well justified in deleting the addition on account of arrears of rent. 13. Also, the decree was for mesne profits. Mesne profits are the amounts awarded against a person in wrongful possession of property. Such profits, in order to constitute income have also be have been actually received along with interest thereon. Mesne profits hitherto in a state of flux, in the sense that which are undecided as to whether they accrued to the claimant or not, cannot, in any manner amount to real income chargeable under the Act. They only accrued to the assessee on 14.10.1998, on which date, the decree for mesne profits was passed in favor of the assessee. 10. Section 23 of the Act explains annual letting value, for purposes, of income from house property. The said provision reads as follows: Section 23. ANNUAL VALUE HOW DETERMINED. (1) For the purposes of section 22, the annual value of any property shall be deemed to be - (a) The sum for which the property might reasonably be expected to let from year to year; or (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the true owner in that regard by paying either the actual income from the property or a reasonable estimate of that income. Having regard to these characteristics of mesne profits, there can be no doubt that they are also a species of taxable income. Under the scheme of the I.T. Act, anything which can properly be regarded as income and which is not expressly exempted from taxation under a specific provision of the statute must be regarded as taxable income. We are, therefore, satisfied that the Tribunal and the other authorities were right in their view that mesne profits has to be assessed as taxable income in the hands of the present assessee. To say that we do not know how much is the mesne profits but nevertheless assert that mesne profits have accrued at a given moment of time, out of ignorance, is very much like an Irish Bull, an example of which was found in the description of an escaped convict from an Irish prison: "Age not known but looks older than he really is". If we do not know how much the mesne profits are, how can we say, with any modicum of confidence, that the mesne profits have already accrued? The question of accrual, like the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [1986] 161 ITR 524, in which case also this court was called upon to deal with a question as to when the additional compensation awarded was liable to be taxed. In that case the amount of compensation awarded by the arbitrator was in dispute. On an appeal having been filed by the State Government it was held that the said amount could be taxed only when the dispute was resolved because if the appeal had been allowed in its entirety, the right of payment of enhanced compensation would have fallen altogether. Applying the ratio of the aforesaid decisions, it appears to us that the decree dated April 22, 1958, passed by this court only created an inchoate right in favour of the appellant. It is only when the trial court determined the amount of mesne profits that the right to receive the same accrued in favour of the appellant. In other words, the liability became ascertained only with the order of the trial court on December 22, 1962, and not earlier. Following the mercantile system of accounting, the mesne profits awarded by order dated December 22, 1962, were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was in fact re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th "arising" in the sense of springing as a natural growth or result. The three expressions "accrues", "arises" and "is received" having been used in the section, strictly speaking "accrues" should not be taken as synonymous with "arises" but in the distinct sense of growing up by way of addition or increase or as an accession or advantage; while the word "arises" means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry L. J. in Colquhoun v. Brooks [1888] 21 QBD 52, 59, [this part of the decision not having been affected by the reversal of the decision by the House of Lords [1889] 14 AC 493] that both the words are used in contradistinction to the word "receive" and indicate a right to receive. They represent a state a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, i.e., 1996-97 to 1999-2000. The above conclusion is in conformity with the law declared by the Supreme Court in P. Mariappa Gounder (supra). Therefore, this Court holds that there is no infirmity in the findings of the Tribunal that even on merits, the arrears of rent received by the assessee (as mesne profits) could not be brought to tax for the previous years, when they fell due. They could be brought to tax only during the year of receipt. The revenue had further argued that during the year of receipt, the assessee had shown the amount so received as capital. Its character was clearly as that of income, as is evident from the ruling of the Madras High Court in P. Mariyappa Gounder which was later affirmed by the Supreme Court a fact recognized by this Court in R.J. Wood. The revenue had not however, re-opened the assessment in respect of the year of receipt of the amounts, in this case. As a result, this Court holds that though the amount received by the assessee was liable to tax, in accordance with the law declared by the Supreme Court in the year of its receipt- there is no infirmity with the findings and conclusions of the Tribunal. The questions of law framed are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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