Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court pertaining to the assessment years 1982-83 and 1983-84 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the additional or extra rent attributable to preceding years of account which could not be taxed under Section 22 of the Act should, instead, be taxed under the head 'Income from other sources ?'
2. The facts giving rise to an identical question for both the years are as under :
The assessee derives income, inter alia, from house property being the premises known as 'Hamilton House' at Connaught Place, New Delhi. Theassessee received an aggregate amount of Rs. 9,70,960 by way of rent from as many as six tenants. This rent is attributable to 12 months, comprised in the previous year ending October 31, 1981, relevant to the assessment year 1982-83. The said amount represented what may be called the 'oddrent'.
3. 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 Income-tax 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.
4. 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 during the accounting year. But the sum of Rs. 1,30,430, though it related to the year of account ending October 31, 1981, but received after the close of the relevant previous year under an agreement dated May 15, 1982 (a date falling after the year ending, namely, October 31, 1981), was held not to be brought to charge in the assessment year 1982-83. In this regard, the Commissioner of Income-tax (Appeals) took the line that the Income-tax Appellate Tribunal, in its order relating to the assessee's appeal for the assessment year 1978-79, had held that, where the right to receive the additional rent accrued or arose after the close of the relevant previous year, the same could not be brought to tax in respect of the previous year that expired before such accrual of the additional rent.
5. As for the sum of Rs. 1,52,094.20 being the arrears of rent pertaining to the earlier previous year but received during the relevant previous year ending October 31, 1981, he held that it was correctly exigible to tax as income from house property arising in the previous year relevant to the assessment year 1982-83 because, not only did the right to receive the arrears of rent accrue but they were received during the relevant year of account.
6. A similar issue arose for consideration in the assessment for the assessment year 1983-84 and was likewise decided.
7. In its appeal before the Tribunal, it was urged on behalf of the assessee that the charge under Section 22 is limited to the notional value of a house property in a year. Therefore, rent not attributable to a particular previous year cannot be rental income of that year merely by reason of receipt. Any arrears of rent received on account of past previous years cannot be brought to tax in the year of receipt under Section 22 of the Act.
8. The Tribunal implicitly accepted this argument and observed that the scheme of Section 22 of the Income-tax Act, 1961, is clear as to what is chargeable under that section. According to the Tribunal, the charge is in respect of actual rent received or receivable by the owner in respect of property let throughout the previous year. Nothing more than the rent attributable to the previous year under Section 22 is taxable under that section and it finally concluded that, if additional rent attributable to the earlier years is received in a particular year of account, such rent cannot be taxed under Section 22 of the Act but can be taxed under the residual head of income 'Income from other sources'.
9. 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'.
10. 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.
11. The Revenue is not in cross reference on this particular issue as to whether the arrears of rent relating to past years received in a later year of account could be part of the actual rent of such later previous year in terms of Explanation 1 below Section 23 that defines annual rent.
12. But this particular issue is an inherent aspect of the question falling for determination by us. Income arising from the ownership of house property, which, for some reason or other, is precluded from taxability for not being the rent of the year but of a past year shall none the less remain 'Income from house property'. It will not cease to be income from house property. According to the Tribunal, for facility of being taxed, the arrears of rent shall have to be masked as income under the residual head. We find it hard to share the view of the Tribunal for reasons we shall state presently.
13. The question is whether the arrears of rent relating to another previous year are taxable as income from house property of the later previous year in which they were received. If the arrears of rent of past years are not part of the annual rent of the year of account in which such arrears are received, then the only rational inference should be that the annual rent or annual rents of the past year or years to which they pertain can be brought to charge only in the assessment years relevant to such past years of account. The receipt of arrears of rent cannot, by any stretch of imagination, be said to have shed their character as rent from property and to have ceased to be liable to tax as income from house property, The simple case is that the rent of a past year increased retrospectively shall be the annual rent of such past year or years but not the annual rent, of the year in which it is received consequent upon subsequent, increase.
14. This position squarely fits in with the scheme of taxation of 'Income from house property'. Section 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 Section 23. Sub-section (1) of Section 23, by virtue of the amendment with effect from the assessment year 1976-77, has two limbs, Clause (a) and Clause (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, Clause (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 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 a 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.'
15. The Explanation clearly shows that 'annual rent' means the rent for 12 months. Clause (a) says that rent is the actual rent received or receivable in respect of the previous year. The all-important expression is 'in respect of such year'. It leaves no uncertainty that rent not relating to a previous year cannot be the actual rent of that previous year and, therefore, any part of rent for a past previous year cannot be the actual rent of a later previous year. Clause (b) is more explicit ; it clearly refers to a period of 12 months and also leaves nobody in doubt that the actual rent is the rent for 12 months. It deals with the situation where the rent received or receivable is only for part of a year.
16. In this connection, the Circular of the Central Board of Direct Taxes explaining the purport of the said Explanation is of aid.
Circular No. 204, dated 24-7-1976 (See [1977] 110 ITR 21).
'Determination of annual value where the rent received exceeds the municipal valuation--section 23(1).
Hitherto, the annual value of house property chargeable to income-tax under the head 'Income from house property' was deemed to be the sum for which the property might reasonably be expected to be let from year to year, In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub-section (1) of Section 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to be let from year to year, the annual rent received or receivable shall be taken as the annual value of the property. Where the property is let out only for a part of the previous year, the annual rent for this purpose will be the rent received or receivable for a period of twelve months calculated on the basis of the average rent received or receivable for the period the property was actually let. This amendment has come into force with effect from April 1, 1976 and is, accordingly, applicable in relation to the assessment year 1976-77 and subsequent years.'
17. A reading of the provisions regarding determination of annual value as amended by the Taxation Laws (Amendment) Act, 1975, clearly indicates that the purpose of the amendment is not to take within the annual value any rental income in excess of the rent received or receivable for twelve months of the previous year under assessment.
18. 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 (See Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee : [1980]122ITR700(SC) .
19. Following Kapoor's case : [1980]122ITR700(SC) , 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]131ITR435(SC) and Amolak Ram Khosla v. CIT : [1981]131ITR589(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 the situation arising from the law as declared by the Supreme Court in those cases that the Legislature added a limb to Section 23 giving legal authority to bring to tax annual rent received or receivable by the owner even if such annual rent is in excess of the sum referred to in Clause (a), i.e., the sum which the owner may reasonably and, for that matter, lawfully expect as rent. The excessive rent or extortive rent extracted from the tenant was also thus made exigible to tax which, until the amendment, was not. But the amendment does not give authority to tax income by way of rent from a property for any period longer than the period of twelve months than the previous year relevant to an assessment year contains.
20. In this connection, it may be mentioned that the Explanation below Section 23(1) was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from the assessment year 1976-77 simultaneously with the amendment of Sub-section (1). The Tribunal is correct to the extent that the arrears of rent of a past year are not assessable as actual rent from the house property in the year in which it is received. The Tribunal, however, gave the receipt the complexion of income from other sources so as not to let it escape taxation in the year of receipt.
21. This leads us in the logical train on to the question whether the arrears of rent received in respect of tenancy of a house property lose their character as income from house property as the Tribunal's order postulates. The answer would be in the negative. Rent, whether current or in arrears, is the yield of the house property and the source of the income being the letting of a house property by the owner, the rent shall continue to have its character as 'income from house property'.
22. The Tribunal has gone by the consideration that it cannot be the legal position that a particular income receipt should get away without being taxed. The approach is undoubtedly a correct approach but cannot be of universal application. The Tribunal itself qualified its dictum by an adverbial Clause 'unless it is specifically exempt under one or other provision of the Act'. Here, under the provisions relating to the assessment of income from house property the arrears of rent being income from house property are actually not taxable in the year of receipt being referable as part of the annual value or the actual rent of a preceding previous year. That is the provision of law and the Tribunal appears to have lost sight of this aspect.
23. 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.
24. 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.'
25. 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 when it is received. Rent of a house property, in arrears or current, has to be income from house property. Every class of income has complete insularity. The heads of income under Section 14 of the Act are mutually exclusive. We find it difficult to reconcile with the approach of the Tribunal to this cardinal principle.
26. Mr. Chopra, learned counsel for the assessee, has relied on the decision of the Supreme Court in Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT : [1966]61ITR428(SC) , for the proposition that, merely on the ground that an income escapes taxation under a preceding head, such income cannot be computed as income from other sources.
27. The decision, in our opinion, supports his case. The expression 'total income' in section 4 has to be understood as defined in Section 2(45). Under the definition, the expression 'total income' means 'the total amount of income referred to in Section 5 computed in the manner laid down in this Act', that is, computed under appropriate sections, viz., from Sections 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 Sections 22 and 28. 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'.
28. If it is not, chargeable in the year of receipt as income from house property, the rent relating to earlier previous 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 charging section and the computation provisions together constitute an integrated code. The computation provisions do not envisage taxation as income from house property of more than the annual rent, that is the rent for a period of twelve months. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. This principle has been laid down by the Supreme Court in CIT v. R.C. Srinivasa Setty [1981] 28 ITR 294.
29. There being no provisions to bring to charge the arrears of rent in the previous year in which they were received, it must be held that the additional or extra rent from house property attributable to preceding years of account cannot be taxed under the head 'Income from other sources'.
30. For the reasons aforesaid, the question in this reference is answeredin the negative and in favour of the assessee.
31. There will be no order as to costs.
Shyamal Kumar Sen, J.
32. I agree.