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TMI Blog1991 (10) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1982-83. The said amount represented what may be called the "odd rent". It would appear that, as a sequel to negotiations going on for quite some time, higher rents were agreed to by some tenants with retrospective effect. Consequently, during the year of account ending October 31, 1981, relevant to the assessment year 1982-83, the assessee received an aggregate amount of Rs. 1,52,094.20 as arrears of rent relatable to the period from July, 1979, to October, 1980, relevant to the earlier assessment year. The assessee, it would appear, also received a further sum of Rs. 1,30,430 pertaining to the year of account relevant to the instant assessment year 1982-83 but after the close of the relevant year of account. The Incometax Officer included both the amounts as the gross rent for the said accounting year, though the first amount of Rs. 1,52,094.20 relates to the earlier accounting period, namely, July 1979, to October, 1980. On appeal, the Commissioner of Income-tax (Appeals) held that the arrears of rent of Rs. 1,52,094.20 are assessable as rent for the accounting year relevant to the assessment year 1982-83 by reason of the same having been received dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 22 of the Act but can be taxed under the residual head of income "Income from other sources". In the view of the Tribunal, the taxable income is to be taxed under one head or the other unless specifically exempted under any provision. There is no provision in the Act, according to the Tribunal, exempting from taxation any additional rent of a past year received in the year of account under assessment. It will have to be taxed by other means. Therefore, the Tribunal decided that the arrears of rent are taxable, though arising from ownership of a house property not as income from house property but as income under the residuary head "Income from other sources". What is worth noting in the Tribunal's decision is the implicit premise that the arrears of rent cannot be roped in by the provisions of sections 22 and 23. The question as referred to us also proceeds on the footing that the additional or extra rent pertaining to the preceding year of account could not be taxed under section 22 of the Act in the later year of account when the arrears of rent are received. The Revenue is not in cross reference on this particular issue as to whether the arrears of rent rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonably be expected to be let from year to year. To our mind, this clause (b), a later insertion by the Taxation Laws (Amendment) Act, 1975, is meant to cover a case where the rent for a year actually received by the owner is in excess of the lawful rent which is known as fair rent or standard rent under the various rent control legislations. It does not cover a case where a person receives in a year of account rent for a period larger than the year of account. This will be clear if we look at Explanation 1 below the sub-section where the annual rent is defined clearly to show that nothing more than year's yield from the property can be brought to charge as income from house property. The said Explanation reads as under : "Explanation 1.-For the purposes of this sub-section, 'annual rent' means (a) in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year; and (b) in any other case, the amount which bears the same proportion to the amount of the actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears to such period." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or receivable for twelve months of the previous year under assessment. It may be of historical interest to mention that this amendment came in the wake of a decision of the Supreme Court wherein it has been held that where rent control legislation provides for fixation of standard or fair rent, the assessing authority would have to arrive at the annual value at the figure of such standard rent by applying the principles laid down in such rent control legislation ( Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700 (SC). Following Kapoor's case [1980] 122 ITR 700, the Supreme Court applied the same principle to determination of annual value under the Income-tax Act, 1961, in Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) and Amolak Ram Khosla v. CIT [1981] 131 ITR 589 (SC). The Supreme Court has held that any rent received in excess of such lawful rent cannot be the annual rent of a property going by the unamended section 23. Before the amendment, it merely stated that the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to be let from year to year. It was for the purpose of overcoming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a preceding previous year. That is the provision of law and the Tribunal appears to have lost sight of this aspect. The Tribunal's view is that if the arrears of rent of the house property relating to a past year are not taxable in the year of receipt, taxation cannot be given a go-by; they shall find place under the residuary head "Income from other sources" for the expedient of taxing them in the year of receipt. But the legal position is that such arrears of rent are the annual rent or part of the annual rent of the year or years to which the arrears relate by virtue of the definition of the annual rent in Explanation 1 below section 23 and not really the income of the year of receipt under the head "Income from other sources. " The Explanation defines "annual rent" of a year as the actual rent received or receivable by the owner, "in respect of such year". The arrears of rent are rent received or receivable in respect of the past year to which the arrears relate. This gives the element of immutability to the character of rent as income from house property. Legitimately, its chargeability is in such past year or years. It cannot be held chargeable in the later year whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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