These five appeals have been filed by the assessee on 14-5-2003 against the order of the learned CIT(A) XI, New Delhi dated 20-3-2003 in the case of the assessee in relation to assessment orders under section 143(3) for assessment years 1991-92 to 1995-96. In these appeals the assessee has objected to reopening of assessments under section 147; assessment under the head income from house property of the amount of enhanced rent received by the assessee subsequent to the financial years under assessment and levy of interest under sections 234B and 234C of the Act.
2. Facts of the case leading to these appeals briefly are that for the assessment years before us the following position obtained prior to issue of notices under section 148: Subsequently during the course of assessment proceedings for assessment year 1996-97, the learned assessing officer learnt that the assessee had received arrears of lease rent in respect of its property situated at Aggarwal Market, Ville Parle (East), Mumbai from the tenant Indian Overseas Bank. The arrears of rent involved assessment years 1991-92 to 1995-96 also. According to the assessing officer the assessee was paid additional rent of Rs. 2,30,400 for each of the assessment years 1991-92, 1992-93, 1993-94 & 1994-95. For assessment year 1995-96 additional rent amounted to Rs. 5,76,000. In addition for assessment years 1994-95 and 1995-96 the assessee also received a sum of Rs. 1,14,000 each by way of service charge. According to the learned assessing officer the assessee had not disclosed that some dispute with the tenant was going on for the enhancement of lease rent and service charges during the course of original assessment proceedings. As the income had escaped assessment in respect of additional rent pertaining to the assessment years in question, the learned assessing officer issued notices under section 148 to which the assessee responded to by filing the returns of income at the same amount as in respect of the original returns of income. The learned assessing officer issued notices for re-assessment proceedings and asked the assessee to show cause as to why additional rent pertaining to these assessment years should not be added to the income as originally assessed. Relying upon the judgments in Hamilton & Co. (P) Ltd. v. CIT (1992) 194 ITR 391 (Cal); In re Jagtar Singh Purewal (1995) 213 ITR 512 (AAR) and decision of Income Tax Appellate Tribunal, Delhi in the case of Parveen Chand Khanna & Sons, IT Appeal No. 2824 (Del) of 1996 the assessee argued that additional rent could not be brought to tax under the head "Income from other sources". The assessee further argued that under the provisions of section 23 it was not open to assess any amount exceeding the annual rent. Arrears of rent received by the assessee subsequent to the end of financial year in question could not be incorporated in annual rent within the meaning of section 23 of the Act. Newly introduced section 25B to take care of such situation was prospective in operation and did not apply to assessment years 1991-92 to 1995-96.
In support of these contentions the assessee also placed reliance on the judgment of Hon'ble Calcutta High Court Hope (India) Ltd. v. CIT (1999) 238 ITR 740.
The learned assessing officer found that the facts of the case of the assessee were exactly similar to that of the assessee in the case of Hamilton & Co. (P) Ltd. (supra). From that judgment it followed, (i) the arrears of rent for a previous year received in a later previous year retain their character as income from house property and (ii) such arrear rent cannot be taxed in the year of receipt. Thus, the only rational inference that could be drawn from the judgment of Honble Calcutta High Court in the case of Hamilton & Co. (P) Ltd. (supra) was that such arrear of rent should be brought to charge only in the assessment year for which it was paid. In fact the Hon'ble High Court observed, "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." The learned assessing officer held that the facts of the case in Hope India Ltd.'s case (supra) were not exactly the same as in the case before him. In that case Central Government departments only agreed to pay substantially higher rent. in that case any upward revision of rent was not permissible except with the mutual agreement between the parties. As a matter of fact in the grounds of appeal filed by the assessee before the learned CIT(A) for assessment year 1996-97, the assessee had himself stated that arrears would, if at all, be assessed under the head "Income from house property". Thus, the assessee had itself accepted and asked for treating the arrear rent as income from house property. The learned assessing officer, therefore, proceeded to add additional rent received by the assessee to the income originally assessed by way of enhanced income under the head "Income from house property".
For assessment years 1994-95 and 1995-96 the learned assessing officer further noted that the assessee had been paid a sum of Rs. 1,14,000 for providing the assessee a strong room, display facility of name Board of the bank, other amenities and facilities like washing, etc. According to the assessing officer the nature of these services and facilities clearly showed that they were not part of the annual letting value. The learned assessing officer, therefore, proceeded to assess the sum of Rs. 1,14,000 as the assessee's income from other sources.
During the course of hearing before the learned CIT(A), the assessee argued that the higher rent could not be brought to tax in the assessment years under consideration. The right to receive the enhanced rent accrued or arose to the assessee only in the financial year 1995-96 by reason of the fresh rent agreement having been entered into during that year. Section 23(1) referred to the annual rent received or receivable. As at the close of the financial years under assessment, the right to receive the higher amount had not accrued to the assessee.
That was the legal position even if the assessments for these financial years were pending when the agreement to receive the higher rent was reached. In support of this contention the assessee strongly relied upon the judgment of the Hon'ble Calcutta High Court in the case of Hope (India) Ltd. (supra). The learned Authorised Representative of the assessee also argued that to tackle the situation a new section 25B had been inserted by the Legislature by way of Finance Act, 2000 with effect from 1-4-2001 only. The new section introduced in the Act to overcome the legal lacuna was not retrospective and intended by the Legislature to be applied prospectively. That would mean that up to and including the assessment year 2001-02 no part of the arrears of rent could be brought to charge either in the year of receipt or in the earlier years to A which they pertained. The learned CIT(A) held that the arguments of the assessee were too simplistic. If the arrears of rent had been awarded as mesne profits by courts it would have become taxable. Merely because in the instant case the assessee and assessee's tenant had made out of court settlement could not alter the character of receipt. The assessee had himself accepted the position that the arrear of rent could not be assessed as income from house property in the year of receipt. The assessee could not, therefore, turn back and argue that they could not be assessed as income of the period for which the same were awarded. The learned CIT(A), therefore, upheld the additions as made by the learned assessing officer. Still aggrieved the assessee is in appeal before us.
During the course of hearing before us the learned counsel for the assessee argued that in so far as income chargeable to tax under the head 'Income from house property' is concerned, the assessment is of a notional income. Amount of such income could not vary from time to time. During the course of assessment proceedings the assessee had duly declared rental income under the head 'income from house property'. The same was assessed under section 143(3) for first two years and processed under section 143(1)(a) for the last three years before us.
The learned counsel argued that there was no possibility of there being any escapement of income under the head 'income from house property' as long as the assessee had disclosed the house property and the particulars of letting it out. In all these years the assessee did not receive any extra amount by way of lease rent or service charge. As a matter of fact the learned assessing officer erred in assessing for assessment years 1994-95 and 1995-96 service charge under the head 'income from other sources'. In fact there was no separate character of service charge and the same were part and parcel of income from house property only. During the financial years under assessment no right had accrued to the assessee to receive a single rupee more than what had been disclosed by the assessee in the returns of income originally filed. The right to receive higher rent accrued to the assessee only on 6-11-1995. However, at that time there was no provision in law to assess this higher rent in the year of accrual in so far as the same was paid to the assessee in relation to the financial years under consideration. The provisions of sections 25A, 25AA and 25B promulgated by the Parliament were substantive provisions of law, in as much as they brought to tax an income which was hitherto not chargeable to tax.
The amendment was pointer that right to receive accrued to the assessee on 6-11-1995. Were the provisions of section 25B on the statute book as on 6-11-1995, the higher rent would have been chargeable to tax under the head 'Income from house property' for assessment year 1996-97. As far as assessment years 1991-92 to 1995-96 were concerned, the position remained unaffected even after amendment.
The learned counsel argued that the assessing officer completely erred in initiating proceedings under section 147 more so after the expiry of a period of four years from the end of the assessment year. There was no non-disclosure of any material fact on the part of the assessee. The assessee could not be expected to know or disclose the facts that came into existence only after the expiry of period under assessments. As a matter of fact in the reasons recorded by the learned assessing officer there was no finding that there was any failure or omission on the part of the assessee to disclose any particular material fact necessary for the assessment of the assessee. At the time when the assessee filed returns of income and thereafter the assessments were completed by the assessing officer, there was no law to bring this income to the charge of tax for the financial years in question or for that matter in the financial year in which the right to receive higher rent accrued to the assessee or in relation to the year of receipt. The provisions of section 25B are titled "Special provision for arrears of rent receipt".
The Legislature themselves have called section 25B a special provision signifying that earlier there was no provision at all. How could there be any failure or omission on the part of the assessee to disclose any material fact when there was no law in existence to bring such amount to charge of tax. The learned counsel for the assessee heavily relied upon in this respect on the decision of the ITAT, Delhi Bench 'D' New Delhi dated 6-10-2004 in ITA No. 731 (Del)/2000 and ITA Nos. 2708 to 2715 (Del)/2000 in the case of Parveen Chand Khanna & Sons for assessment years 1988-89 to 1995-96. The learned counsel argued that in the years under assessment the assessee had been pleading with the tenant for vacating the property. Nobody could know what the settlement would be until the settlement was made. On such facts what was the failure or omission to disclose. The learned counsel relied upon the judgment of Hon'ble Allahabad High Court in Modi Spg. & Wvg. Mills v.ITO (1975) 101 ITR 637. The learned counsel referred to assessment of ratable value of the property by Assistant Assessor & Collector, K-East Ward, Mumbai dated 11-6-1993. The Ratable Value of the portion occupied by the bank was assessed at Rs. 1,41,615 only.
The learned counsel argued that the legal position under section 23 was quite clear. Assessment under the head 'Income from house property' was either of the sum for which the property might reasonably be expected to let from year to year or where the property was let out, the annual rent received or receivable by the owner of the property. In so far as the sum for which the property might reasonably be expected to let was concerned, the same could not exceed the standard rent of the property, as held by the judgments in the case of Dewan Daulat Rai Kapoor v. NDMC (1980) 122 ITR 700 (SC); Shiela Kaushish v. CIT (1981) 131 ITR 435 (SC) and CIT v. Raghbir Saran Charitable Trust (1990) 183 ITR 297 (Del). As to the rent actually received or receivable that referred to the position as obtained during the financial year when the property was let out. The assessment could be only of the amount that the assessee had actually received or had a vested right to receive as at the end of the close of the financial year.
9. The learned counsel argued that there was no force in the allegation that the assessee had withheld any information relating to any dispute going on with tenant. There was no column in the return of income where the assessee could state that there was dispute with the tenant. He relied upon the judgment in Modi Spg. & Wvg. Mills' case (supra) in that respect. Even otherwise under law the obligation of the assessee was only to state primary facts and the assessee was not required to enumerate each and every minute detail. The learned counsel argued that it was settled legal position that proceedings under section 147 cannot be initiated on change of opinion by the subsequent assessing officer.
He relied upon the judgments in Indian & Eastern Newspaper Society v.CIT (1979) 119 ITR 996 (SC), CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del)(FB) and United Electrical Co. (P) Ltd. v. CIT (2002) 258 ITR 317 (Del) in that respect. He mentioned in particular the judgment of Hon'ble Madras High Court in CIT v. M. Ratanchand Chordia (1997) 228 ITR 626 and argued that in that judgment it had been held that annual value of house property could not be assessed under section 147.
The learned counsel for the assessee argued that had the assessing officer gone through the files for earlier assessment years carefully, he would have known that in so far as the tenancy agreement period was concerned, the same had expired long back. It could not, therefore, be said that the material facts were not on the file of the assessing officer. The assessee had entered into a lease period of 10 years only.
It was true that during the financial years in question no rent had been received by the assessee from the tenant. However, the assessee had to file the return of income based on the rent that was previously being received because the assessee was obliged under law to file the returns of income on the basis of rent receivable. There was, thus, no failure on the part of the assessee not to have disclosed fully and truly all material facts necessary for assessment. As to the service charges of Rs. 1,14,000 no service was rendered by the assessee. It was simply that certain amounts were being paid to the assessee not by way of rent but under different descriptions. If the assessee had provided strong room, the income did not cease to be income from house property.
The learned counsel argued that there was no force in the argument of the learned CIT(A) based on mesne profits, etc. If the amount was paid to the assessee by the bank to avoid eviction, the same represented capital receipt that could not be brought to tax. The learned counsel in this respect referred to page 51 of the first paper book containing narration in the lease deed dated 6-11-1995 that the assessee had filed a suit against the lessee for ejectment in the small causes court at Bandra.
The learned counsel argued that in this case the assessment was completed without application of mind. The learned assessing officer had also taxed the original rent for which the assessee had already been assessed in the original assessment. Thus, to that extent the assessing officer had made double assessment of the same amount.
Further more, the learned assessing officer did not even allow the assessee statutory deduction on account of repairs. The learned counsel argued that as far as the financial years under assessment were concerned, the assessee did not receive any rent from the bank. The lease had already expired and it could not be said that the assessee had even the right to receive the rent. Hence on the facts of the case the assessment could be made only under the provisions of section 23(1)(a).
The learned counsel also disputed levy of interest under sections 234B and 234C. He argued that in the assessment orders the assessing officer had merely stated, "Interest is charged under sections 234B and 234C as per rules". That was contrary to the Supreme Court judgment.
The learned Departmental Representative argued that the case of the assessee was covered in favour of the revenue and against the assessee by the judgment of Hon'ble Delhi High Court in CIT v. Ms. Sadhna Chadha (2004) 270 ITR 534 (Del) as well as by the judgment of Hon'ble Calcutta High Court in Hamilton & Co. (P) Ltd.'s case (supra). Further the learned Departmental Representative argued that the assessee was on the one hand arguing that it received in November, 1995 additional rent by way of enhanced rent as compared to the rent being paid to the assessee in past. If that was so, there was a clear case of escapement of income as far as the original assessment proceedings were concerned. Moreover in the returns of income originally filed the assessee had not declared any income under the head 'Income from house property'. The assessee simply offered certain amounts calculated on the basis of past rent by way of 'other income'. Therefore, non-disclosure of material facts necessary for assessment was patent on the face of the records. The assessee declared the income as business income in the garb of other income. There was no disclosure of full facts. Along with the return of income no basis was furnished as to why such treatment was given. The fact that no rent was received and the matter was subjudice was not disclosed. Even the fact that the tenant had continued in possession was not disclosed. The learned Department Representative argued that the assessee's case was also covered by Explanation 1 to section 147.
Relying upon the judgment of Hon'ble Supreme Court in Sri Krishna (P) Ltd. v. IT0 (1996) 221 ITR 538 (SC), the learned Departmental Representative argued that the requirement of law was that there should be full disclosure and not partial disclosure. He also placed reliance on Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. (1986) 159 ITR 624 (SC) and Esskay Engg. (P) Ltd. v. CIT The learned counsel for the assessee in his reply argued that the judgment of Hon'ble Delhi High Court in Ms. Sadhna Chadha case (supra) was required to be read as a whole. If that were done there was no support to the case of the revenue in that judgment. In that case Honble Delhi High Court dealt with the short question before them and did not examine the position relating to the earlier years. As far as the judgment of Hon'ble Calcutta High Court in the case of Hamilton & Co. (P) Ltd. (supra) was concerned, that case related to the assessment of the whole amount in the year of the receipt and did not have any impact on the assessment of assessee in relation to financial years prior to actual receipt of enhanced rent. As against these, the matter had been fully considered by the Income Tax Appellate Tribunal, Delhi Bench in ITA No. 731 (Del)/2000. Prior to enactment of provisions of section 25B there was no provision on the statute book to assess the income as received by the assessee in November, 1995. The provisions of section 25B have been brought prospectively with effect from 1-4-2001.
This would show that the enhanced rent received by the assessee was not chargeable to tax at all.
We have considered the rival submissions. In our opinion the assessee has no case against reopening of assessments under section 147. It is not the case of the assessee that it had disclosed to the assessing officer in relation to assessment proceedings for assessment years 1991-92 to 1995-96 that the assessee had received during the previous year relevant to assessment year 1996-97 substantial amounts from the occupant of the property Indian Overseas Bank in relation to the occupation by the later of the assessee's property for the period relevant to assessment years 1991-92 to 1995-96. It is not in dispute that these facts came to the notice of the assessing officer much after during the course of assessment proceedings for assessment year 1996-97. It cannot, therefore, be said that it is a case of mere change of opinion from one assessing officer to another assessing officer on the basis of the same facts of the case. A substantial fact relating to the property of the assessee and the income derived by the assessee from such property was before the assessing officer for the first time subsequent to the completion of original assessment proceedings. During the course of hearing before us the learned counsel for the assessee has raised the legal ground that there cannot be reopening of assessment under section 147 in relation to income from house property.
To say the least, this contention of the assessee is not free from debate. For the purpose of a valid reopening of assessment under the provisions of section 147 it is not necessary that the view entertained by the learned assessing officer at that point of time should be fool proof and hundred per cent accurate. Reference in this respect may be made to the judgment of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC) and the judgment of the Hon'ble Kerala High Court in G. Sukesh v. Dy. CIT (2001) 252 ITR 230 (Ker).
During the course of hearing before us the learned counsel raised another argument also that after the expiry of a period of four years the assessment could not be reopened under section 147 unless the income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
It is admitted fact that for all these years in the returns of income filed by the assessee did not disclose any income under the head "Income from house property". According to the assessee it had included under the sub-head "Other sources" certain amount as business income at the same rate at which rent was being received by the assessee in the distant past. The fact that there was no mutually agreed upon rent between the assessee and the bank after the expiry of the lease period of 10 years and that the assessee had offered for assessment certain income as business income on his own was nowhere brought to the notice of the assessing officer during the course of original assessment proceedings. We find the argument of the learned counsel of the assessee that had the learned assessing officer shifted through past records, he would have learnt that the lease period had expired long back not meeting the requirements of the provisions of the first proviso to section 147 that the assessee should have disclosed fully and truly all material facts necessary for his assessment (emphasis ours). Reference in this respect may be made to the judgments in Dr.
Amin's Pathology Laboratory v. P.N. Prasad, Jt. CIT (2001) 252 ITR 673 (Bom), Malegaon Electricity Co. (P) Ltd. v. CIT ( 1970) 78 ITR 466 (SC), CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC), Kantamani Venkata Narayana & Sons v. First Addl. (1967) 63 ITR 638 (SC) and Sowdagar Ahmed Khan v. ITO (1968) 70 ITR 79 (SC).
In view of the discussion in the foregoing paragraphs, we hold that in these appeals the learned assessing officer and validly initiated assessment proceedings under section 147. The assessee's grounds of appeal challenging the initiation of assessment proceedings under section 147 are, therefore, rejected.
We now come to the dispute as to whether the amounts received by the assessee from Indian Overseas Bank subsequent to the end of the relevant previous years under assessment in these appeals could be rightly brought to tax as assessee's income chargeable to tax under the head "Income from house property". Under the provisions of section 22 the charge of tax is on "annual value of property". The annual value of property up to 1-4-1976 was a deemed sum for which the property might reasonably be expected to let from year to year. After 1-4-1976 the annual value is deemed to be either the sum for which the property might reasonably be expected to let from year to year or where the property is let and the annual rent received or receivable by the owner is in excess of the former sum, the amount so received or receivable Hon'ble Supreme Court held in the case of Smt. Sheila Kaushish (supra) that the sum for which the property might reasonably be expected to let from year to year could not be in excess of lawful rent as provided by any Rent Control Act. The controversy in the present case has arisen on account of the charge of tax under section 22 being on the annual value of property and not on any income as such from the property.
The question as to whether arrears of rent relating to earlier years can be brought to tax in the subsequent year of receipt has been considered by Hon'ble Calcutta High Court in the case of Hamilton & Co.
(P) Ltd. (supra). The Hon'ble Calcutta High Court held that income from property is to be computed only on the annual value of that year and that cannot include income for more than 12 months. In that judgment Hon'ble Calcutta High Court further held that where the income is derived from house property, the same cannot be taxed under the head income from other sources". The same view was later on held by authority for Advance Ruling in the case of Jagtar Singh Porewal (supra).
With a view to encounter the difficulties relating to the assessment of arrears of rent being received in a subsequent year, the Legislature intervened and provisions of section 25B have been inserted by the Finance Act, 2000 with effect from 1-4-2001. Section 25B provided that if any arrears of rent other than what has already been taxed under section 23 are received in a subsequent year, the same will be taxed in the year of receipt whether the property is owned by the assessee in the year of receipt or not. A deduction of sum equal to 1/4th of such amount of rent is allowed against the amount of arrears of rent.
However, the provisions of section 25B have come into force from 1-4-2001 and, therefore, they apply only in relation to assessment year 2001-02 and subsequent assessment years. Hence the provisions of section 25B are not applicable to any of the assessment years before us.
The question whether enhanced rent received subsequently may be assessed under the head "Income from house property" in the earlier year to which it relates has been considered by Hon'ble Calcutta High Court in the case of Hope (India) Ltd. (supra). In that case the tenants agreed to pay the landlord enhanced rent with retrospective effect. The Tribunal directed the assessing officer to recompute the income on the basis of enhanced rent agreed to after the close of the previous year. The Hon'ble Calcutta High Court held that there was no accrual of rent in the year of account and the enhanced rent agreed to after close of previous year is not to be assessed as income from house property of that year.
On a combined reading of the judgments of the Hon'ble Calcutta High Court in the case of Hamilton & Co. (P) Ltd. (supra) and Hope (India) Ltd. (supra) would have the effect that the enhanced rent received subsequently may not be brought to tax at all prior to assessment year 2001-02 when the provisions of section 25B have become effective. This situation came to be considered by Hon'ble Calcutta High Court in the case of Jasmine Commercials Ltd. v. Dy. CIT (1999) 109 Taxman 172 (Cal). The Hon'ble Bench of the High Court held that the question involved is highly vexed and requires an authoritative pronouncement by a larger Bench. The matter has, therefore, been referred to in that case for decision by the larger Bench of Hon'ble Calcutta High Court.
We may also mention here that in the case of Hamilton & Co. (P) Ltd. (supra) there appears in relation to Explanation-1 to section 23 following observations from the court at page 398 : "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. " Hon'ble Delhi High Court have also considered the related issue in the case of Ms. Sadhna Chadha (supra). In that case the issue was whether the arrears of rent received in a subsequent year can be brought to tax in the year of receipt of the arrears. Hon'ble High Court after having referred to the judgment of Hon'ble Calcutta High Court in Hamiltons case, found themselves in agreement with that judgment.
As the matter stands now there is only one judgment, i.e., Calcutta High Court in the case of Hope (India) Ltd. where the reverse situation as to whether arrears of rent can be assessed retrospectively in the earlier years has been considered. That judgment is in favour of the assessee and against the revenue. Though certain reservations have been expressed in relation to that judgment by the subsequent Bench in the case of Jasmine Commercials Ltd. (supra) and the matter has been referred to the larger Bench of the Hon'ble Calcutta High Court as of now it is judgment in the case of Hope (India) that holds the field.Having regard to this fact and also the fact that the provisions of section 25B of the Act have been introduced only prospectively from assessment year 2001-02, we are of the view that the assessee should win insofar as these five appeals before us are concerned. We, therefore, delete the additions as made by the learned assessing officer insofar as the arrears of rent received by the assessee after the expiry of relevant financial years.
During the course of hearing before us the assessee has also challenged the levy of interest under sections 234B and 234C. On consideration of the matter we do not see any substance in those grounds of appeal. In the assessment orders the learned assessing officer has specifically ordered for charging of interest under sections 234B and 234C. We, therefore, reject these grounds of appeal. However, the assessing officer shall re-compute the amount of interest under sections 234B and 234C, if any, after giving effect to this order.