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TMI Blog2023 (12) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... had erred in law in holding that the Assessing Officer was justified in reopening the assessment u/s. 148 of the Income Tax Act ? 2. Whether the Tribunal erred in not appreciating the fact that the collection of rent from I.D.B.I. was a unilateral act by the Assessing Officer and the appellant had no connection with the same. Furthermore, the appellant had objected to the collection of this rent which the Assessing Officer had not acceded?" 2. At the stage of final hearing of the above appeal for assessment year 1986-87, the Appellant did not press for adjudication of question no. 1 which relates to validity of proceedings under section 147 of the Income Tax Act, 1961. In all the other assessment years, including assessment year 1986-87, therefore, only following common question of law arises for consideration of this Court:- "Whether the Tribunal erred in not appreciating the fact that the collection of rent from I.D.B.I. was a unilateral act by the Assessing Officer and the appellant had no connection with the same. Furthermore, the appellant had objected to the collection of this rent which the Assessing Officer had not acceded ?" A. Relevant facts : 3. On 1st Octo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant are as under:- "a) that it may be declared that the Sub-Lease dated 22nd April, 1980 is lawfully terminated and forfeited by the Plaintiffs as stated in the Plaint. b) that it may be declared that : (i) the plaintiffs are the lawful owners of Rear Tower Building which includes part construction made by the Plaintiffs, further part construction made by the 2nd Defendants and further part construction made by the 1st Defendants after 22nd April 1980 on the plot of land sub-demised to the 1st Defendants under the Sub-Lease dated 22nd April 1980. (ii) the Defendants have no right, title or interest whatsoever therein. (c) that the Defendants be ordered and decreed to hand over vacant and peaceful possession of Rear Tower Building including part construction made by the Plaintiffs, further part construction made by the 2nd Defendants and further part construction made by the 1st and 2nd Defendants after 22nd April 1980 together with the land sub-leased to the 1st Defendant. (d) that the 1st Defendants be ordered and decreed to pay to the Plaintiffs arrears of rent or compensation for wrongful use and occupation of the property in suit, a sum of Rs. 1,12,50,000/- at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realisation. (l) That the Defendants be ordered to pay to the Plaintiffs the cost of the suit. (m) For such further and other directions and reliefs as this Honourable Court may deem fit and proper." (emphasis supplied) 6. On 3rd May 1999, on an application made by the IDBI (plaintiff) following order came to be passed by the Small Causes Court in the Declaratory suit filed by the IDBI :- "ORDER" The application is made absolute with no order as to cost. The plaintiffs are hereby allowed to deposit the lease rent in court as detailed in prayer clauses (a), (b) and (c) of the application within four weeks from the date of order and to go on depositing the same till the rights of the parties are decided. The order of deposit of the rent is without prejudice to the rights and contentions of the parties. The Defendants are at liberty to withdraw the amount deposited in the court. (emphasis supplied) However, the Appellant has not withdrawn any amount. 7. We are informed that both the suits, namely, the suit filed by the IDBI and the suit filed by the Appellant are pending as on today. 8. On 20th February 1985, an assessment order for assessment year 1981-82 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. It is abundantly clear from the records that the assessee did not waive his right to receive the rent. The claim for the arrears rent and compensation was pending before the Court. The consideration, as agreed and stipulated in the agreement, was paid by IDBI. The assessee was demanding rent and compensation over and above that amount. Therefore, right to receive the amount as stipulated on the agreement was intact. The dispute was for the additional rent and compensation. Therefore, there is no doubt that in the year under consideration income did accrue to the assessee. It was being utilised towards the payment of tax arrears. There was absolutely no possibility of refunding this amount to the IDBI." (emphasis supplied) 13. It was on this background that the present appeal under Section 260A of the Act came to be filed before this Court and the same was admitted by an order dated 3rd September 2004. B. Submissions of the Appellant/Assessee : 14. The learned Counsel for the Appellant would contend that since the Appellant had terminated the sub-lease agreement with the IDBI in 1981 itself and it had filed a suit for eviction before the Small Cause Court and the IDBI has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of termination dated 14th September 1981 only indicates intention of the Appellant to terminate and there is no actual termination of the sub-lease agreement and, therefore, agreement exists as on today and therefore rent is taxable on accrual basis. The Counsel for the Respondent distinguished the case laws relied upon by the Appellant on the ground that those cases dealt with enhanced compensation which was the subject matter of litigation and the sum was not ascertained whereas in the present case Rs. 3,42,720/- is an ascertained sum under the sub-lease agreement. An apprehension is expressed that if and when in future the Civil Court decrees certain amounts to be paid to the Appellant by the IDBI for use and occupation of the property from the date of filing the suit, the Appellant Assessee would contend in the year of the said decree, that the amount cannot be taxed because it pertains to assessment year 1986-87 and, in such a scenario, the Revenue would not have any recourse to tax the said amount in assessment year 1986-87 on account of limitation. Therefore, it is contended by the Respondent that the Revenue is justified in taxing the said amount in the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise" or "earned" Earning the same is not the same as accrual of income but it is a stage anterior to accrual of income. A person does not have a legal right to receive the income by merely earning of income. Although, earning of income is a necessary pre-requisite for accrual of income, mere earning of income without right to receive the same does not suffice. A person may be said to have "earned" his income in the sense that he has contributed to its production by rendering service and the parenthood of the income can be traced to him but in order that the income that may be said to have "accrued" to him an additional element is necessary that he must have created a debt in his favour. The phrase "accrue or arise" has been the subject matter of judicial debate from inception which we now propose to deal with some of them. 20. The Supreme Court, in the case of E D Sassoon & Co. Ltd. vs. CIT (1954) 26 ITR 27(SC), observed thus: "'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth or result. ..., strictly speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter reached this Court and the Court in para 5 observed as under: "The right to receive the agreed lease money was in jeopardy because of pendency of proceedings for fixing of standard rent in a Court of law. There was neither factual accrual nor deemed accrual." In this case, although the Assessee was following the cash system of accounting, but the High Court observed that since the dispute between the Assessee and the lessee was pending in a court of law, there was no factual accrual or deemed accrual. 24. In Pal Proprieties (I) Pvt. Ltd. vs. CIT (2002) 254 ITR 687 (Del), following questions were raised before the Delhi High Court: "(i) Whether the Tribunal was right in law in holding that the damages or any part thereof for illegal occupation of the premises accrued to the appellant though the claim was yet to be adjudicated finally and was pending disposal before the High Court ? (ii) Whether the Tribunal is right in law in holding that the amount received by the appellant under interim order of the High Court dated January 6 1993, relevant to the assessment year 1993-94 is taxable on month to month basis in the assessment years 1990-91 and 1991-92 as relatable the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of Section 4 and 5 of the Income Tax Act till the judgment in regard to civil dispute was rendered in this regard. The Delhi High Court answered the two questions raised in favour of the Assessee and against the Revenue. 25. The Supreme Court, in the case of P. Mariappa Gounder vs. CIT (1998) 3 SCC 552, had an occasion to consider the time of accrual of mesne profit in the suit for specific performance of agreement for sale of factory. The Supreme Court in the civil suit held the plaintiff-appellant therein to be entitled to mesne profit. Pursuant to the Supreme Court's direction, trial court quantified the amount of mesne profit in accounting year relevant to assessment year 1963-64 and the Assessee receiving the same in accounting year relevant to assessment year 1964-65. The issue arose whether the said mesne profit accrued to the Assessee in the assessment year 1963-64 when the trial court quantified the same or in the year 1964-65 when the Assessee received the amount. The Assessee in this case was following mercantile system of accounting. The Supreme Court held that the decree passed by them only created inchoate right in favour of the Assessee. It is only when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued during the relevant assessment year 1956-57 for the previous year ending 31st March 1956. The Supreme Court reiterating the principle laid down in the case of E.D. Sassoon & Co. Ltd. observed that there was no absolute right to receive the amount at the time of withdrawing the sum because if the appeal of the State Government was allowed in its entirety, the right to payment of the enhanced compensation would fall altogether. The Supreme Court referred to the observation of the Andhra Pradesh High Court in the case of Khan Bahadur Ahmed Alladin & Sons vs. Commissioner of Income-tax (1969) 74 ITR 651 as under: "Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued." The Supreme Court held that it was on the final determination of the amount of compensation that the right to such income would arise or accrue and, till then, there was no liability in presenti in respect of the additional amount of compensation claimed by the owner of the land. The Supreme Court made a distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay arrears of rent or compensation for wrongful use and occupation of the property in a suit at the rate of Rs. 4,50,000/- per month as against Rs. 3,42,720/- per annum as per the sub-lease agreement. The Appellant has also prayed for compensation for wrongful use of the Appellant's property, being Rear Tower building, which consists of 30 flats, which, according to the original agreement, was to come to the Appellant. IDBI, in turn, in its suit, has sought a prayer for restraining the Appellant from terminating the sub-lease agreement and from dispossessing them. The Small Causes Court has permitted IDBI to deposit the lease rent in the Court till the rights of the parties are decided and the order of deposit of the rent is without prejudice to the rights and contentions of the parties. In the light of these facts, whether the sub-lease agreement between the IDBI and the Appellant subsists post 1981 termination by the Appellant, is itself a subject matter of dispute between the Appellant and IDBI which is pending adjudication. 32. In the light of these facts, it cannot be said that the Appellant is entitled to receive a sum of Rs. 3,42,720/- under the sublease agreement with IDB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Civil Court and either the same was not ascertained or the lease had expired and, therefore, unascertained sum cannot be taxed whereas, in the instant case, the sum is already ascertained and the IDBI is willing to offer the said amount but the Appellant is not accepting the same and, therefore, merely because the Appellant is not accepting the rent offered by the IDBI, it cannot be said that no income accrues. It is on these facts that the decision relied upon by the Appellant, according to the Respondent, are not applicable to the facts of the present case. In our view, this is not a correct contention on the part of the Revenue. The ratio of the decisions in the case of Hindustan Housing and Land Development Trust (supra), P. Mariappa Gounder (supra) and other cases relied upon by the Appellant and further cases quoted by us above is that if the dispute is pending before the Civil Court, no income can be said to have accrued or arise to an Assessee pending adjudication of the said dispute for the purpose of Section 5 of the Income Tax Act, 1961. It is the ratio of these judgments, which requires to be applied to the present case before us. 36. The Respondent Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that because in garnishee proceedings IDBI has paid the rent towards the tax arrears of the Appellant, income accrues for the year under consideration. The Appellant had informed the Revenue and the IDBI that the garnishee proceedings are illegal because post-termination no rent is due and payable by IDBI to the Appellant. This fact has been missed out by the Tribunal in coming to its conclusion. Even otherwise, merely because a party to a civil dispute to protect its rights makes a payment to the Income Tax Department pursuant to garnishee proceedings, it would not amount to subsistence or existence of the sub-lease agreement between the Appellant and the IDBI for bringing to tax Rs. 3,42,720/- per annum as income for the assessment year under considerations. In our view, the Tribunal has not correctly appreciated the facts of the Appellant's case and the effect of the civil dispute pending between the Appellant and the IDBI on the income tax proceedings. E. Conclusion :- 39. For the aforesaid reasons, the Revenue is not justified in bringing to tax sum of Rs. 3,42,720/- as accrued income for the assessment year 1986-87 and for the other years, which are subject matter of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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