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TMI Blog1999 (4) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... unt by adopting the mercantile system of accounting. A sum of Rs. 49,85,648 was shown towards rent received by it from the tenants of the house property known as "Poddar Court" situated at 18, Rabindra Sarani, Calcutta. The assessee is the owner of 2/3rds share in the said property. The final determination of annual valuation of the Calcutta Municipal Corporation was under revision. The Assessing Officer upon invoking the provisions of section 23(1) of the Income-tax Act, took the view that the annual value of the property shall be deemed to be the sum for which the property might reasonably be expected to be let from year to year. However, the Assessing Officer was of the view that the fair market annual value of the property being much higher than the actual rent received which was not fair and reasonable in comparison to rent receivable in the locality for other premises similarly situated. He took the view that the assessee could reasonably expect to receive a higher rent than actually revised. The Assessing Officer further stated that in some cases the assessee received rent at the rate of Rs. 8.50 per sq. ft. per month and as per its own admission in Suit No. C-794 of 1987 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the tenants had been occupying the premises for more than 15 years and under the provision of the West Bengal Premises Act, any upward revision of the rent was not permissible except with the mutual agreement between the parties also cannot be fully accepted in view of the fact that the major tenants, i.e., the Central Government Departments, had duly agreed to pay the enhanced rent as stated above. The contention that the assessee made a claim which was not a legally enforceable right and it was merely an inchoate right is also not fully acceptable for the reasons stated above, i.e., the enhanced rent agreed to be paid by the tenants, namely, the Central Government departments. It may be that there are many tenants and only a few tenants agreed to pay enhanced rent but the fact remains that substantial increase in the rent was agreed to by the Income-tax Department, Central Excise and Accountant-General office with effect from September, 1982, at various rates. From the letters of the above Departments copies of which were filed at pages 35 to 37 of the paper book it is clearly shown that although the enhanced rents were agreed to be paid in September, 1986, March, 1987 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arrear rent received in the subsequent year was offered for taxation and in view of the said fact there was no justification not to accept the income from house property as shown by the assessee. The Income-tax Officer, therefore, was directed to recompute the income from house property on the basis of the enhanced rent sanctioned and agreed to be paid by the various tenants and to determine the income in accordance with law. Mr. N. K. Poddar, learned counsel appearing on behalf of the petitioner, inter alia, submitted that enhancement of rent on a subsequent date with retrospective effect cannot be assessed for the year from which they had been determined. According to learned counsel, the decision of this court in Hamilton and Co. Pvt. Ltd. v. CIT [1992] 194 ITR 391, had wrongly been relied upon by the learned Tribunal inasmuch as the question involved in this reference did not strictly arise therein. Mr. Poddar would urge that keeping in view the amendments made in the provisions of section 23 of the Income-tax Act, income which did not accrue or had been received or had been received or receivable in terms of the contract entered into by and between the landlord and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year, shall be chargeable to tax under the head 'Income from house property' ". As indicated hereinbefore the Tribunal below has relied, for arriving at aforementioned finding, on the Division Bench decision of this court in Hamilton and Co. Pvt. Ltd.'s case [1992] 194 ITR 391. In that case the question raised was in the following terms : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the additional or extra rent attributable to preceding years of account which could not be taxed under section 22 of the Act should, instead, be taxed under the head 'Income from other sources'? " It is now a well-settled principle of law that a decision is an authority for what it decides and not what can logically be deduced therefrom. The main question which was required to be determined in the aforementioned case was as to whether any additional or extra rent attributable to preceding years would be entitled to tax under the head "Income from other sources". The questions which have been raised in the instant case had, therefore, not been raised in the case at all. The learned judges, however, upon considering the provision of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot required to be made keeping in view the questions raised in the said reference and. thus, the same even does not partake of the character of obiter dictum. With a view to consider the question involved in this reference it is profitable to note the meaning of the word "receivable" as defined in Black's Law Dictionary, sixth edition, 1268 and Stroud's Judicial Dictionary, fourth edition, 2280, which are : "Black's Law Dictionary.---That which is due and owing a person or company (e.g., account receivable). In book keeping the name of an account which reflects a debt due. Stroud's judicial Dictionary.---(1) 'I myself should have held that the words "receivable" and "payable" were the same thing, and that both were equivalent to "vested", but I am happy to find that the judgment of the M.R. in Hayward v. James (29 L. J. Ch. 822) expresses exactly the same conclusion' (per Malins V. C., West v. Miller [1868] Lr 6 Eq. 59). See further Watson Eq. (2nd Ed.) 1228. (2) 'Receivable' may be construed as 'received' (Wms. Exs. (12th ed.), 689, citing Re Dodgson, I Drew. 440). In that case there was a gift over if any member of a class died 'before receiving' his share ; held, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 4931 that both the words are used in contradistinction to the word 'receive' and indicate a right to receive. They represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called 'income'. The observations of Lord justice Fry quoted above by Mukerji, J., were made in Colquhoun v. Brooks [1888] 21 QBD 52 while construing the provisions of 16 and 17 Victoria Chapter 34, Section 2, Schedule 'D'. The words to be construed there were 'profits or gains, arising or accruing' and it was observed by Lord justice Fry at page 59 : 'In the first place, I would observe that the tax is in respect of "profits or gains arising or accruing". I cannot read those words as meaning " received by." If the enactment were limited to profits and gains " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in praesenti, solvendum in futuro it cannot be said that any income has accrued to him. The mere expression 'earned' in the sense of rendering the services, etc., by itself is of no avail." Unfortunately the decision of the apex court in Sassoon's case [1954] 26 ITR 27 had not been considered in Hamilton's case [1992] 194 ITR 392 (Cal) nor probably in the facts of the said case was it required to be considered. In CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC), while following Sassoon's case [1954] 26 ITR 27 (SC), it was held : "For that purpose the correct item may be taken into consideration in the matter of assessment. But strictly speaking even in those cases there is no reopening of the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 word "income received or receivable" and keeping in view the provision 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 him or accrues or arises in India or accrues or arises outside India during the previous year. An agreement entered into between the parties in terms whereof the quantum of rent is determined with retrospective effect, in our considered view, does not come within the purview of any of the provisions of section 5 aforementioned. In P. Mariappa Gounder v. CIT [1998] 232 ITR 2, the apex court while considering a claim to mesne profits held that determination of the said claim could be ascertained only from the date of order of the trial court and not earlier. In Ondal Investments Co. Ltd. v. CIT [1979] 116 ITR 143, the Calcutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be said that the amount the assessee has actually received would be liable to be treated as its income during the year in which it was received. In such a case, the receipt would not be on the basis of any right vesting in the assessee-company under the contract, but on the basis of its actual receipt. It would be liable to be brought to tax in the year the money was actually received. Since the right to this amount did not arise or accrue at all, it could not be held that merely because the assessee followed the mercantile system of accounting, the income accrued in the year in which the breach of contract took place." In CIT v. Nadiad Electric Supply Co. Ltd. [1971] 80 ITR 650, the Bombay High Court, in a case where bills were sent for excess amount and entries for such amounts made in accounts but less amount was legally due, held that the assessee was under no obligation to credit in its books of account, even though they were maintained on the mercantile system, any amount for the electricity supplied by it to the municipality calculated at any rate other than the rate of 19 paise per unit and the only amount which could be brought to tax in this connection was the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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