9911796707
TMI Blog2002 (11) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, payable by the Government after payment of revised municipal taxes. While the assessee offered Rs. 10,96,737 to tax in the previous year in which the sum was received, the assessee did not include the sum of Rs. 2,96,628 in its returned income. The AO, in the backdrop of these facts, made an addition of Rs. 2,96,628 to assessee's income under the head 'income from house property' by observing as follows: "From the details of rental income filed, which has been credited in P L a/c, the assessee deducted 20 per amounting to Rs. 2,96,628 and it is stated that it will be accounted for as and when received. This has also been mentioned in the audit note. Since the assessee is following mercantile method of accounting, this amount should have been shown as rental income as the assessee also credited enhanced rate of earlier years. Therefore, in view of the above facts, this rent of Rs. 2,96,628 has been added while computing the rental income". 3. The assessee accepted the aforesaid addition of Rs. 2,96,628, and withdraw the appeal against the same. 4. Revenue was, however, not content with the addition alone and the penalty proceedings under s. 271(1)(c) were also initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me" in s. 4 has to be understood as defined in s. 2(45). Under the definition, the expression "total income" means "the total amount of income referred to in s. 5 computed in the manner laid down in this Act," that is, computed under appropriate sections, viz., from ss. 15 to 59. The rent received or receivable by the owner for the period of twelve months of every previous year is computable as the income from house property under ss. 22 and 23. Any arrears of rent for a previous year received in a later previous year shall, under those sections, have to be computed as income from house property of the former previous year. This is the clear position arising from those provisions. In the instant case, the arrears of rent shall retain their character as income from house property. Such character is immutable. That being so, they have to be classified under the head "Income from house property". If it is not chargeable in the year of receipt as income from house property, the rent relating to earlier provisions years cannot be taxed under the residuary head giving a go-by to the mandatory computation provisions relating to income from house property. That is not permissible. The char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h past year or years but not the annual rent of the year in which it is received consequent upon subsequent increase. This portion squarely fits in with the scheme of taxation of "Income from house property", s. 22 says that the measure of income from house property is its annual value. The annual value is to be determined in accordance with the provisions of s. 23. Sub-s. (1) of s. 23, by virtue of the amendment w.e.f. the asst. yr. 1976-77, has two limbs, cl. (a) and cl. (b). Clause (a) says that the annual value is the sum for which the property might reasonably, be expected to be let from year to year; cl. (b) covers a case where the property is let and the annual rent is in excess of the sum for which the property might reasonably, be expected to be let from year to year. To our mind, this cl. (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 accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 had not been considered in Hamilton's case nor probably in the fact of the said case was required to be considered. 8. In this view of the matter, the legal position staring at us is that until the time Hon'ble jurisdictional High Court's decision in the case of Hope India Ltd. there was no support for taxability of the impugned amount in the hands of the assessee. An assessee cannot be expected to have the clairvoyance of knowing future judicial developments and, as the law stood in the time of filing of return and in view of the Hon'ble Calcutta High Court's judgment dt. 1st Oct., 1991, in Hamilton's case, the impugned amount of rent arrears receivable was not taxable. As we make this observations, we are not adjudicating upon taxability of the rent arrears of Rs. 2,96,628, nor that question can be raised or decided at this stage of appeal in the penalty matter, but our concern is confined to the broad q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said to lack bona fides. The very basis of imposition of penalty in the instant case, therefore, was not legally sound. 10. In any event, it is not in dispute that the assessee had given an appropriate disclosure about the factum of these rent arrears in the documents accompanying the income-tax return itself and in view of the legal position then prevailing, the amount was not taxable in nature. On these facts, in our considered view, the assessee had reasonable explanation for not including the impugned amount in its taxable income, and, therefore, it was not a fit case for imposition of penalty. It is also noteworthy that the assessee's claim for taxability of impugned amount in the year of receipt at best sought to shift the assessment year in which the amount is taxable but then, as held by Hon'ble Gujarat High Court in the case of CIT vs. Manilal Tarachand (2001) 170 CTR (Guj) 466 : (2002) 254 ITR 630 (Guj) where the dispute in the assessment between the assessee and Department was regarding the year in which a particular amount is taxable, it cannot be a fit case for either concealment of income of for furnishing of inaccurate particulars. Respectfully following t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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