Judgment:
1. This appeal is directed against the order of the CIT (Appeals) dated 19-9-1994 for the assessment year 1989-90. The grounds taken read as follows :- "In the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in coming to the conclusion that provisions of section 154 cannot be invoked as the issue being contentious requiring a decision after application of mind without appreciating the facts that assessee has adopted transitional previous year consisting the period from 23-10-1987 to 31-3-1989 (17 months) and even rent receipts shown in the statement in respect of properties known as "Tulsiani Chambers" and "Maker Chambers" is for the period of 17 months reflected in the Profit and Loss Account of the year in question.
The learned CIT (Appeals) further failed to appreciate that the Assessing Officer did not accept the contention of adopting the rent receipts as Business Income and adopted the same income to be assessed as Income from Other Sources on the basis of earlier years decision, and therefore wrongly adopted receipts for 12 months as against the transitional period of 17 months and a such the mistake was apparent from the records and provisions of section 154 was rightly invoked by the Assessing Officer and rightly brought to tax the additional income of Rs. 9,11,458 and Rs. 3,28,063 in respect of properties known as Tulsiani Chambers and Maker Chambers." 2. The assessee filed its return on 31-8-1989 for the assessment year 1989-90 declaring an income of Rs. 13,02,030. Books of account were maintained and the income disclosed included rental income from two properties situated at Nariman Point, Bombay, i.e., Tulsiani Chambers and Maker Chambers. The assessee treated the income from the said properties as income under the head 'Business' but the Assessing Officer assessed the income in the assessment order passed under section 143(3), dated 23-12-1991 under the head 'Income from house property'. The assessee returned the rental income from Tulsiani Chambers at Rs. 13,31,354 and from Maker Chambers at Rs. 6,39,742.
However, the Assessing Officer determined the annual value of Tulsiani Chambers as was done in the earlier years at Rs. 21,87,500 and in the case of Maker Chambers at Rs. 7,87,352. Subsequent to the completion of the assessment under section 143(3), the Assessing Officer realised that in the earlier years wherein the annual value of the two properties in question was determined at the aforesaid figures, the previous year consisted of only 12 months whereas in the present assessment year, i.e., 1989-90, the previous year consisted of 17 months in view of the amended definition of the "previous year" contained in section 3 of the Income-tax Act w.e.f. 1-4-1989. Under the amended section 2(3) of the Income-tax Act, the previous year for the assessment year 1989-90 means the period which begins with the date immediately following the last day of the previous year relevant to the assessment year commencing on the 1st day of April, 1988 and ends on the 31st day of March, 1989.
3. In the case of the assessee, the previous year for the assessment year 1989-90 consisted of about 17 months ending on 31-3-1989. As already mentioned, books of accounts were also maintained for this period and the rental income from the two properties was accounted for the period of 17 months in the books. In the circumstances, the Assessing Officer came to the conclusion that there is a mistake in the assessment order inasmuch as, the income from the house property was computed on the basis of the annual value of the two properties in question as adopted in the earlier years ignoring the fact that the previous year for the assessment year 1989-90 consisted of 17 months as against the period of 12 months in the earlier year. Accordingly, he redetermined the income from house property as per the computation given below :"Total Income as per Original order Rs. 26,11,519Add : Difference in annual value(for 17 months) 9,11,458of Maker Chambers 11,15,415 - 7,87,352 3,28,063 Rs. 12,39,521 --------- -------------Revised total income : Rs. 38,51,040" -------------- "3. In appellate proceedings, it was contended that as per Explanation 1(b) to section 23(1), the annual value is based on a period only of 12 months. It was contended that the annual value cannot exceed the period of 12 months, for which proposition reliance was placed on the Calcutta High Court decision reported at 194 ITR 391. It was further contended, relying on the decision of the Supreme Court in the case of Volkart Bros. reported at 82 ITR 50, that this was not a case of a mistake apparent from the records for which the Assessing Officer could invoke the provisions of section 154 of the Income-tax Act, 1961.
4. I agree with the submissions made on behalf of the appellant. As this issue is contentious requiring a decision after application of mind, the Assessing Officer was precluded from resorting to action under section 154. Accordingly, the order under section 154 is cancelled." 5. Before us, the learned D.R. pleaded that as the previous year consisted of 17 months, clearly there is a mistake apparent from record in the original assessment order, inasmuch as, the income from property was determined as it was done in the earlier years and was not proportionately increased taking into account the extended previous year of 17 months. So, he defended the order under section 154 made by the Assessing Officer.
6. The learned counsel for the assessee, on the other hand, pleaded that the annual value is defined in section 23(1) of the Act and it represented the sums for which the property might be let from year to year or the annual rent received. In other words, it represented the value received or receivable only for a period of 12 months. In this context, he has also relied upon the decision of the Hon'ble Calcutta High Court in the case of Hamilton & Co. (P.) Ltd. v. CIT [1994] 194 ITR 391, the decision of the Tribunal (SB) in the case of M.Raghunandan v. ITO [1985] 11 ITD 298 (Mad.) and also the decision of the Hon'ble Calcutta High Court in the case of CIT v. Satyanarayan Bhalotia [1994] 74 Taxman 34 for the proposition that a mistake discovered on interpretation of the provisions of the Act cannot be said to be a mistake apparent from record within the meaning of section 154 of the Act.
7. We have to allow the appeal of the Revenue. The decision of the Hon'ble Calcutta High Court in the case of Hamilton & Co. (P.) Ltd. cited (supra) by the learned counsel for the assessee is distinguishable as in that case, the Court dealt with the taxability under the head 'Income from house property' of arrears of rent received during a previous year. Similarly, the decision of the Special Bench of the Tribunal cited supra is also distinguishable as it related to a totally different situation, i.e., where the property was not owned during the entire previous year. The situation in the present case is altogether different. In this case, there is no dispute about the arithmetical correctness of the annual value of the two properties in question adopted by the Assessing Officer in his order under section "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 actual rent received or receivable by the owner for the period for which the property is let, as the period of twelve months bears such period." Under the terms of the above explanation, where the property is let throughout the previous year, the rent received or receivable during the entire year is to be taken as the annual rent and annual value is based upon the annual rent. Similarly, if the property is let out only for a part of the previous year, the annual rent and the annual value have to be proportionately reduced. In the light of the explanation, we are of the view that the Assessing Officer was justified in enhancing the income from house property as he did in his order under section 154 as the previous year consisted of 17 months and the properties were let out during the entire period of 17 months. The Hon'ble Madras High Court in the case of T. S. Rajam v. CED [1968] 69 ITR 342 held that simply because there is a complexity of the problems or some genuine argument is necessary to discover a mistake, the jurisdiction of the taxing authority to rectify such a mistake under section 154 is not ousted. It is also evident that a rectifiable mistake under section 154 can be either a mistake of law or of fact. In this view of the matter, we find that the Assessing Officer was justified in passing the impugned order under section 154. We accordingly set aside the order of the CIT (Appeals) and restore that of the Assessing Officer.