Pinaki chandra Ghose, J.
1. A reference has been made by the hon'ble Division Bench on the question that whether there is a direct conflict of decisions delivered by the hon'ble Division Bench in the decision of Hope (India) Ltd. v. CIT : [1999]238ITR740(Cal) and in the decision of Hamilton and Co. P. Ltd. v. CIT : [1992]194ITR391(Cal) . The reference has been made to resolve the conflict between the said two decisions of the hon'ble Division Bench. The matter has been referred before the Larger Bench to resolve the conflict in respect of the said two decisions.
2. The question relates to whether additional or extra rent attributable to preceding years of account which could not be taxed under Section 22 of the Act should be taxed under the head 'Income from other sources'. The said question was decided by the hon'ble Division Bench in the case of Hamilton and Co. P. Ltd. : [1992]194ITR391(Cal) when their Lordships observed (page 394):
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 interference 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 the 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.
3. Therefore, the hon'ble Division Bench in the said decision of Hamilton& Co. P. Ltd. : [1992]194ITR391(Cal) held that 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 the year in which it is received consequent upon the subsequent increase.
4. But in the case of Hope (India) Ltd. : [1999]238ITR740(Cal) the hon'ble Division Bench considered the judgment and held that the questions which have been raised in Hope (India) Ltd. : [1999]238ITR740(Cal) had not been raised in the case of Hamilton & Co. P. Ltd. : [1992]194ITR391(Cal) .
5 In the decision of Hope (India) Ltd. : [1999]238ITR740(Cal) the hon'ble Division Bench relied on a decision in E. D. Sassoon Ltd. v. CIT reported in : [1954]26ITR27(SC) where the apex court considered the meaning of the words 'accrue', 'arises' and 'is received', in the context of the definition of income. In the said decision the hon'ble Supreme Court held at page 50:
Now what is income The term is nowhere defined in the Act. . . In the absence of a statutory definition we must take its ordinary dictionary meaning- 'that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation' (Oxford Dictionary). The work clearly implies the ideal of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. 'Accrue', 'arises' and 'is received' are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning plainer than the word 'receiving7 itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth or result. The three expressions 'accrues', 'arises' and 'is received' having been used in the section, strictly speaking 'accrues' should not be taken as synonymous with 'arises' but in the distinct sense of growing up by way of addition or increase or as an accession or advantage ; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry, L. J., in Colquhoun v. Brooks [1888] 21 QB 52 [this part of the decision not having been affected by the reversal of the decision by the House of Lords [1889] 14 AC 493 that both the words are used in contradistinction to the word 'receive' and indicate a right to receive. They represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate.
6. One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called 'income'.
7. The observations of Lord Justice Fry quoted above by Mukerji J., were made in Colquhoun v. Brooks [1888] 21 QB 52 while constating the provisions of 16 and 17 Victoria Chapter 34, Section 2, Schedule 'D'. The words to be construed there were 'profits or gains, arising or accruing7 and it was observed by Lord Justice Fry at page 59:
In the first place, I would observe that the tax is in respect of 'profits or gains arising or accruing'. I cannot read those words as meaning 'received by'. If the enactment were limited to profits and gains 'received by' the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this country. The result would be that no income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits.
8. To the same effect are the observations of Satyanarayana Rao., in CIT v. Anamallais Timber Trust Ltd. : [1950]18ITR333(Mad) , and Mukherjea,)., in CIT v. Ahmedbhai Umarbhai and Co. : [1950]18ITR472(SC) , where this passage from the judgment of Mukherji J., in Rogers Pyatt Shellac Co. v. Secretary of State : AIR1925Cal34 is approved and adopted. It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenri, solvendum in futuro ; See W. S. Try Ltd. v. Johnson [1946] 1 All ER 532 (CA) and Webb v. Stentom, Gamishees 11 QB 518. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he had acquired a right to receive the income or that income has accrued to him.
9. The word 'earned' even though it does not appear in Section 4 of the Act has been very often used in the course of the judgments by learned judges both the High Courts as well as the Supreme Court. (Vide CIT v. Ahmedbhai Umarbhai and Co. : [1950]18ITR472(SC) and CITv. K. R. M. T. T. Thiagaraja Chetty and Co. : [1953]24ITR525(SC) . It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk [1900] AC 588. The concept, however, cannot be divorced from that of income accruing to the assessee. If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment 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.
10. In Hamilton's case : [1992]194ITR391(Cal) it appears that the said decision of the apex court was not considered. Following the decision in E. D. Sassoon's case : [1954]26ITR27(SC) , in CIT v. A. Gajapathy Naidu : [1964]53ITR114(SC) , the hon'ble Supreme Court held that there is no relevancy of the question of reopening of accounts in considering the question when an assessee acquired a right to receive an amount. In CIT v. Hindustan Housing and Land Development Trust Ltd. reported in : [1986]161ITR524(SC) , the apex court made a clear distinction between the cases where the right to receive payment is in dispute and it is not a question of quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles.
11. In the decision of Hope (India) Ltd. : [1999]238ITR740(Cal) the hon'ble Division Bench after considering the said decision held as follows (page 751):
In the instant case, as indicated hereinbefore, the Government Departments agreed to enhance the rent with retrospective effect from 1982, and, thus, the parties were not ad idem in their mind as regards the actual quantum of rent payable to the assessee by its tenants and, thus, the actual amount was not ascertainable. Fair rent, keeping in view the provisions of the West Bengal Premises Tenancy Act, has to be determined and till such fair rent is determined, actual rent has to be paid by the tenants. Although the said provisions have no application in case the Government is the tenant the rent has to be paid on the basis of the agreement entered into by the parties. A claim made by a landlord for enhancement of rent cannot, thus, be said to be an amount receivable within the meaning of Section 23(1) of the Act. A claim or a demand by itself does not come within the purview of the word 'income received or receivable' and keeping in view the provision of Section 5 of the Income-tax Act there cannot be any doubt whatsoever such income either received or deemed to be received, accrued or arose or is deemed to accrue or arise to him or accrues or arises in India or accrues or arises outside India during the previous year.
An agreement entered into between the parties in terms whereof the quantum of rent is determined with retrospective effect, in our considered view, does not come within the purview of any of the provisions of Section 5 aforementioned.
12. It is true that a system of accountancy followed by the assessee may be a relevant factor, but even in a mercantile system of accounting income would be assessed in respect of such amount which the assessee had a right to receive and/or became accrued. A mere claim or a mere demand cannot be treated as an income within the meaning of Section 5 of the Income-tax Act. It is also a fact that an assessment of income cannot be reopened after lapse of many years. It also cannot be taken into account that the amount payable by a tenant in favour of the landlord which has been agreed upon or which has been determined as fair rent by the Rent Controller. In a case of assessment of fair rent the same may be assessed with retrospective effect, but it cannot be treated to be an income for the assessment year for which the rent was received and assessed by the authority. Therefore, the amount so received, subsequently,, held that it cannot be treated as income within the meaning of Section 5 of the Income-tax Act for the said assessment year.
13. The facts of this case that the appellant company, i.e., P. G. & W. Sawoo Pvt. Ltd. filed its return of income for the assessment year 1989-90 showing the amount of rent being the income from house property, which was received and/or receivable in terms of the agreement with the Government of India. The said agreement was in force during the relevant period. The return was filed on November 22, 1989. Subsequent thereto, the Government of India on March 29, 1994, decided to enhance the rent in respect of the property situated at 4, Brabourne Road, Calcutta from Rs. 4 per sq. ft. per month to Rs. 8.11 paise per sq. ft. per month with effect from September 1,1987. In view of such decision taken by the Government for the assessment year 1989-90 to enhance the rent of the premises in question with retrospective effect from September 1,1987, a purported notice under Section 147 of the Income-tax Act, 1961 (hereinafter referred to as 'the said Act') was issued on May 18,1994 i.e. after the expiry of four years from the end of the relevant assessment year (1989-90). The appellant/assessee had challenged the jurisdiction of the Assessing Officer to issue the said notice under Section 147 of the said Act, inter alia, on the ground that the enhancement of rent having been made with retrospective effect from September 1, 1987. The enhanced rent for the assessment year 1989-90 was neither received nor receivable in terms of the agreement prevalent at the time when the return was filed on November 22,1989 for the said assessment year 1989-90. The said enhanced rent cannot be taken as the income of the assessee for the said relevant assessment year and, therefore, there cannot be any question of escapement of income of the assessee for the said year and, hence, the assessing authority cannot have any reason to believe that any income of the assessee for representing the enhanced rent for the assessment year 1989-90 has escaped assessment.
14. Dr. Debi Pal, Learned senior advocate appearing on behalf of the appellant, submitted that in the case of Hope (India) Ltd. reported in : [1999]238ITR740(Cal) , the Division Bench of the Calcutta High Court considered the question as to whether arrears of rent as a result of the enhancement of rent subsequent to an agreement with retrospective effect, the enhanced rent can be treated to be the income liable to tax for the past years in respect of which the enhancement has been allowed with retrospective effect. In the said case the question before the Division Bench was as follows (page 743):
Whether, on the facts and in the circumstances of the case, and an interpretation of the documents in respect of rent at 2/3rds of the house property at 18, Rabindra Sarani, Calcutta, for the assessment year 1984-85 and Section 23(1) of the Income-tax Act, 1961, the Tribunal was justified in law in directing the Assessing Officer to recompute the income from the aforesaid house property on the basis of enhanced rent sanctioned and agreed after the close of the previous year to be paid by the various tenants and to determine the income under the head 'Income from house property'?
15. In that case the Division Bench of the Calcutta High Court held that a claim made by a landlord for enhancement of rent cannot be said to be an amount receivable within the meaning of Section 23(1) of the Act. A mere claim or a mere demand without anything else does not come within the purview of the word 'income received or receivable'. An agreement entered into between the parties in terms whereof the quantum of rent is determined with retrospective effect, does not come within the purview of any of the provisions of Section 5 of the Act [see pages 751-752]. In that case it is relevant to note that the assessee having made a claim for the enhancement of the rent but ultimately the decision was taken much later to allow the enhancement of rent with effect from the earlier year, i.e., 1982. Therefore, the question was whether the decision to increase the rent with retrospective effect, can be assessable to tax under Section 23(1) of the Act being the 'income from house property'. In the facts of the above case the Division Bench observed at page 751, last para that the Government Departments agreed to enhance the rent with retrospective effect from 1982 and the parties were not ad idem in their mind as regards the actual quantum of rent payable to the assessee by its tenants and thus the actual amount was not ascertainable. A claim made by a landlord for enhancement of rent cannot be said to be an amount receivable within the meaning of Section 23(1) of the Act. A claim or a demand by itself does not come within the purview of the word 'income received or receivable' and keeping in view the provision of Section 5 of the Act there cannot be any doubt whatsoever that such claim cannot either be income received or deemed to be received, accrued or arose or is deemed to accrue or arise to him during the previous year. The Division Bench thus observed at page 752 of the report that an agreement entered into between the parties in terms whereof the quantum of rent is determined with retrospective effect does not come within the purview of any of the provisions of Section 5 of the Act.
16. Dr. Pal further contended that the Division Bench considered the earlier decision of the Division Bench of the Calcutta High Court in the case of Hamilton's case reported in : [1992]194ITR391(Cal) . The High Court referred to the question in Hamilton's case : [1992]194ITR391(Cal) . The question in the Hamilton's case : [1992]194ITR391(Cal) was as follows (page 392):
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'.
17. The Division Bench in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) points out that the question which has been raised in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) was not at all the question in the case of Hamilton : [1992]194ITR391(Cal) . It will appear that in Hamilton's case : [1992]194ITR391(Cal) it was assumed that the additional or extra rent which could not be taxed under Section 22 of the Act should, instead, be taxed under the head 'Income from other sources'. In other words, it was assumed that the additional or extra rent consequent upon a subsequent enhancement of the rent could not be assessed under the head 'Income from house property' but whether such additional rent was taxed as income from other sources. But in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) the question directly was whether the enhanced rent consequent upon the subsequent agreement with retrospective effect is liable to be assessed as income from house property. Therefore, the question which was directed in issue in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) was not at all the question which was before the Division Bench in Hamilton's case : [1992]194ITR391(Cal) . In Hope (India) Ltd.'s case : [1999]238ITR740(Cal) the Division Bench considered the scope of the expression 'income received or receivable' on the basis of the principle of accrual and referred to the well known decision of the Supreme Court in the case of E. D. Sassoon Ltd. v. CIT reported in : [1954]26ITR27(SC) and quoted extensively from the said judgment. The Division Bench in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) specifically pointed out at page 750 that the decision of the Supreme Court in Sassoon's case had not been considered in the earlier Division Bench in Hamilton's case : [1992]194ITR391(Cal) . The Division Bench also pointed out that probably in the facts of the said case it was not required to be considered. In Hamilton's case : [1992]194ITR391(Cal) as it was evident from the very question itself that the enhanced rent could not be assessed under the head 'Income from house property', therefore, the scope of the expression 'received or receivable' appearing in Section 23 was not required to be considered by the earlier Division Bench in Hamilton's case : [1992]194ITR391(Cal) . But the said question directly was in issue before the Division Bench in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) where the Division Bench pointed out the scope of the expression 'income received or receivable' on the basis of the well known decision of the Supreme Court in the case of E. D. Sassoon Ltd. v. CIT reported in : [1954]26ITR27(SC) following the judgment delivered by the Calcutta High Court in the case of Rogers Pyatt Shellac Co. v. Secretary of State reported in : AIR1925Cal34 . It is submitted that the E. D. Sassoon's case : [1954]26ITR27(SC) is a landmark decision on the question as to when income can be said to be accrue or arise which is equated with the concept of income receivable. In E. D. Sassoon Ltd. v. CIT : [1954]26ITR27(SC) the Supreme Court quotes with the approval the decision of the Special Bench of the Calcutta High Court in Rogers Pyatt Shellac Co. v. Secretary of State reported in : AIR1925Cal34 observed that the word 'accrue' and 'arise' also are not defined in the Act. The Supreme Court thereafter held that the two words 'accrue' and 'arise' are used in contradiction to the word 'receive' and indicate a right to receive. They represent a state anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate. The Supreme Court, therefore, at page 51 of the judgment held that the income may accrue or arise to an assessee, if the assessee acquires a right to receive the income during the previous year, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic concept is that he must have acquired a right to receive the income. Keeping in view the aforesaid principle the Division Bench in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) pointed out that during the accounting year 1982-83 the assessee did not acquire any right to receive the enhanced rent which was agreed upon subsequently with retrospective effect.
18. The same principle will equally apply in the present case where the enhanced rent decided by the Government of India in the year 1994 could not be said to be receivable by the assessee in the assessment year 1989-90 and, therefore, the said enhanced rent could not be taken as the income of the assessee for the assessment year 1989-90 and, hence, there cannot be any escapement of income regarding the enhanced rent for the assessment year 1989-90 and the Assessing Officer, therefore, had no jurisdiction to reopen the proceeding under Section 147 of the Act.
19. Dr. Pal further pointed out that it is relevant to note that the principle decided in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) has been accepted by Parliament when Parliament introduced Section 25B by the Finance Act of 2000 with effect from April 1, 2001, relevant to the assessment year 2000-01. As a result of the introduction of Section 25B with effect from April 1, 2001 relevant for the assessment year 2001-02, where the assessee is the owner of any property has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting [a sum equal to thirty per cent of such amount], shall be deemed to be the income chargeable under the head 'Income from house property' and accordingly charged to income-tax as the income of that previous year in which such rent is received. Memorandum explaining the provisions in the Finance Bill of 2000 has been set out in [2000] 242 ITR33. The Memorandum sets out the object for which the said new Section 25B was introduced which are as follows:
The scheme of taxing the income from house property under the Income-tax Act involves the concept of 'annual value'. Annual value has been deemed to be the sum for which the property might reasonably be expected to let from year to year or annual rent received or receivable in excess of annual value. Therefore, arrears of rent received subsequently do not fall within the ambit of annual value or annual rent. There is difficulty in taking such income as income from other sources as they retain the character of income from house property. It is also difficult to include arrears of rent in the relevant years as they were not receivable during those years.
Therefore, it is proposed to insert a new Section 25B in the Income-tax Act to provide that if any arrears or 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 one-fourth of such amount of rent shall be allowed towards repairs and collection or rent.
The proposed amendment will take effect from April 1, 2001 and will accordintly apply in relation to assessment year 2001-02 and subsequent years.
20. Dr. Pal further contended that the Memorandum also pointed our that before the introduction of Section 25B the arrears of income form house property could not be taxed under the head 'Income from house property' nor could it be taxed under the head 'Income form other sources'. To obviate such difficulty the said Section 25B was introduced. However, the Memorandum also pointed out that the proposed amendment will be operative from April 1, 2001 and will accordingly apply for the assessment year 2001-02 onwards.
21. He further contended that the prospective operation of Section 25B is as follows:
Section 25B, therefore, could not be made applicable to rope in arrears of rent for the assessment year 1989-90 in the present case. It is also made clear that Parliament while introducing Section 25B has specifically laid down that the said section will be applicable with effect from April 1, 2001. It is also submitted that even in the course of hearing the learned Counsel for the Revenue has made it clear that the said new Section 25B would be applicable prospectively and would not apply in the assessment year 1989-90. The said statement of law as pointed out by the learned Counsel for the Revenue is in consonance with the law laid down by the Supreme Court in CIT v. Patel Brothers and Co. Ltd. : [1995]215ITR165(SC) and Virtual Soft Systems Ltd. v. CIT : [2007]289ITR83(SC) .
22. He further contended that Hope (India) Ltd.'s case : [1999]238ITR740(Cal) was decided on April 7, 1999 and the Revenue had not preferred any appeal against the said judgment before the Supreme Court. In other words, the Revenue has accepted the decision of the Division Bench in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) and has introduced a new Section 25B accordingly. It is now well settled by a catena of decisions of the Supreme Court that if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted in the case of one assessee then it is not open to the Revenue to challenge its correctness in the case of other assessee without any just cause [see Berger Paints India Ltd. v. CIT : [2004]266ITR99(SC) ]. The said decision refers to earlier decisions of the Supreme Court reported in Union of India v. Kaumudini Narayan Dalai : [2001]249ITR219(SC) , CIT v. Narendra Doshi : [2002]254ITR606(SC) and CIT v. Shivsagar Estate : [2002]257ITR59(SC) .
23. He further submitted that the notice issued under 147 of the Act is clearly without jurisdiction. Section 147 of the Act can apply only in a case when the assessing authority has reason to believe that there has been any escapement of income. If the enhanced rent cannot be treated as the income of the assessment year 1989-90, the question of escapement of income does not arise at all and the condition precedent for the assumption of jurisdiction under Section 147 of the Act does not exist and the writ court can always quash such a notice. The Supreme Court in a catena of cases had quashed the notice under Section 147 when the assessing authority had no jurisdiction to issue the said notice as the condition precedent for the assumption of jurisdiction did not exist and was not satisfied.
24. He further contended that if the assessing authority has no jurisdiction to reopen the proceeding as the enhanced rent could not be treated as the income for the assessment year 1989-90. The notice and subsequent assessment also have been quashed and he relied upon the case reported in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) . Therefore, Dr. Pal submitted that since the notice issued under Section 147 of the said Act was not satisfied, the assessment pursuant to the said notice was issued, quashed by the order.
25. On the contrary, Mr. D.K. Shome, Learned senior advocate appearing on behalf of the respondent in the matter, submitted that the challenge in this mandamus appeal is to a notice under Section 148 dated May 18, 1994. The tenant unilaterally increased the rent with effect from September 1, 1987 and which was accepted by the landlord.
26. Mr. Shome further submitted that by a letter dated April 18, 1994, the appellant suggested settlement of tax liability and agreed to revision of assessment for the assessment years 1990-91, 1991-92 and 1992-93, but contended that the assessment year 1989-90 had become time barred, but would pay interest for subsequent years to compensate the loss.
27. Mr. Shome further submitted that by a letter dated May 19, 1994, the appellant requested for issuance of notices under Section 148 for completion of reassessment within May, 1994. Accordingly, notice under Section 148 was issued on May 18, 1994.
28. Mr. Shome further submitted that by an interim order dated June 23, 1994 the hon'ble first court directed continuance of the reassessment proceeding, but no communication or enforcement of the final order without leave of the court.
29. Mr. Shome further submitted that by its letter dated May 18, 1994, the appellant in anticipation of reassessment deposited Rs. 51,37,676 before April 30, 1994, in self-assessment challan to cover a substantial portion of additional liability. The appellant recorded that steps have been taken to reopen the assessment from the assessment year 1989-90. The assessee, however, prayed for waiver of interest and approached various authorities including the Central Board of Direct Taxes (papers are annexed to the paper book at page 84).
30. Mr. Shome further submitted that the assessment was completed under Section 143(1) by accepting the assessee's return and intimation was duly sent to the assessee. No scrutiny assessment was done. Subsequently, the recorded reasons for reopening were duly served upon the appellant/asses-see which would be evident from the document appearing at page 105 of the paper book. It is also recorded in the interim order passed by the appeal court dated September 22, 1994, recording the submission on behalf of the appellant that it had 'deposited estimate amount of tax on the differential income for the relevant year' and the hon'ble Division Bench by its judgment observed that 'since there is a direct conflict of judgment between Division Benches, it is not proper for this court to accept one and reject the other'. It was further contended on behalf of the appellant that 'there was no inconsistency in the view taken by the subsequent Division Bench presided over by Justice S.B. Sinha.
31. Mr. Shome further pointed out that the sole question of law in Hamilton's case : [1992]194ITR391(Cal) is as follows:
Whether, on the facts and 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' ?
32. Mr. Shome further pointed out that the sole question of law in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) is as follows:
Whether, on the facts and in the circumstances of the case, and an interpretation of the documents in respect of rent at 2/3rds of the house property at 18, Rabindra Sarani, Calcutta, for the assessment year 1984-85 and Section 23(1) of the Income-tax Act, 1961, the Tribunal was justified in law in directing the Assessing Officer to recompute the income from the aforesaid house property on the basis of enhanced rent sanctioned and agreed after the close of the previous year to be paid by the various tenants and to determine the income under the head 'Income from house property'?
33. In answering the question of law, Hamilton's case : [1992]194ITR391(Cal) laid down the ratio as follows:
The simple case is that the rent of the 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 (page 395). It is further laid down at page 397 that 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 owner, the rent shall continue to have its character as income from house property.
34. In answering the question of law, Hope (India) Ltd.'s case : [1999]238ITR740(Cal) laid down the ratio as follows (page 751):
A claim made by a landlord for enhancement of rent cannot, thus, be said to be an amount receivable within the meaning of Section 23(1) of the Act. A claim or a demand by itself does not come within the purview of the words 'income received or receivable'.
35. Hope (India) Ltd.'s case : [1999]238ITR740(Cal) considered Hamilton's case at page 747 and observed that the question raised in the Hope (India) Ltd.'s case : [1999]238ITR740(Cal) had not been raised in Hamilton's case : [1992]194ITR391(Cal) at all. It was further observed at page 748 that observations in Hamilton's case : [1992]194ITR391(Cal) must be understood to have been rendered in the fact situation of that case.
36. Hope (India) Ltd.'s case : [1999]238ITR740(Cal) emphasized the meaning of the word 'receivable' as referred to various law dictionaries and the Supreme Court dictum reported in : [1954]26ITR27(SC) . In that context Hope India held that a claim or a demand by itself cannot be construed as income receivable.
37. According to Mr. Shome, two reference cases and the present mandamus appeal are not identical. The facts in this situation of these two cases are identical. The issues involved are different whereas Hamilton's case : [1992]194ITR391(Cal) laid down that retrospective increase of rent cannot be brought under income from other sources (Section 14). Hope (India) Ltd.'s case : [1999]238ITR740(Cal) laid down that a mere demand or claim cannot amount to income receivable within the meaning of Section 5 of the Act. In the instant case the validity of the 148 notice is in question. The said notice is assailed on the sole ground that the retrospective increase of rent cannot amount to escapement of income.
38. It is submitted that the present reference is strictly not necessary in view of the fact the questions of law sought to be answered in Hamilton's case : [1992]194ITR391(Cal) were different and that each case must be understood and limited to the facts of that case as observed by S.B. Sinha J. in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) itself.
39. Mr. Shome further contended that Chapter II deals with basis of charge. Section 4 is the charging section, whereas Section 5 is the computation provision. Section 5 refers to 'received, deemed to be received, accrues, arises or deemed to accrue or arise'. The deeming provisions are built into Section 2(45) read with Section 5. Section 22 refers to 'annual value of property' whereas Section 22 is the charging provision, Section 23 is the computation provision which deals with determination of annual value. Section 23(1)(a) refers a notional concept of rent as it states that the sum for which the property might reasonably be expected to let from year to year. Section 23(1)(b) refers to actual rent received or receivable by the owner in excess of the sum referred to in Clause (a). Clauses (a), (b) and (c) are disjunctive. In other words, actual rent received or receivable comes into play only if it is in excess of the notional rent stipulated in Clause (a).
40. He further submitted that the retrospective enhancement of rent comes within Section 23(1)(a) in determining the annual value within the meaning of Section 22 of the Act. It is submitted that Sections 22 and 23 read together is a complete code in Chapter IV of the Act.
41. He further submitted that just as deeming provision is built into Section 5 for computing total income, deemed escapement of income is built into Section 147 (vide Explanation 2 to Section 147). The impugned notice was issued after due compliance with all the statutory requirements. The reasons were recorded under Section 148(2) as income chargeable to tax which has escaped assessment exceeds Rs. 1,00,000 for 1989-90, the notice is not time barred under Section 149(1)(b).
42. He further submitted that there is no conflict between Hamilton's case : [1992]194ITR391(Cal) and Hope (India) Ltd.'s case : [1999]238ITR740(Cal) as rightly submitted by the appellant and recorded in the order of reference. The ratio of the said two cases is to be read and understood in the context of the questions of law formulated and answered in the said two cases.
43. He further submitted that the impugned notice under Section 148 is neither time barred nor invalid. It was issued in pursuance of the assessee's own request. The assessee voluntarily submitted its return of income in response to the impugned notice under Section 148 and paid the tax for the additional rent on self-assessment along with the said return. The interest charged in the reassessment order was ultimately waived by the Commissioner of Income-tax. The factum of payment of tax is also reflected at page 165 in the paper book. Section 25B expressly made prospective with effect from April 1, 2001 and has, therefore, no application to the assessment year 1989-90. In the Memorandum explaining introduction of Section 25B : [2000]242ITR144(Ker) the ratio of Hamilton's case [1992] 194 ICR 391 (Cal) and Hope (India) Ltd.'s case : [1999]238ITR740(Cal) was recognized. Such increase of rent retains the character of income from house property and suggested taxing the said income in the year of receipt.
44. This matter was referred before the Special Bench by the hon'ble Division Bench on the ground that there is a direct conflict of judgment between the two Division Benches and, accordingly, the hon'ble Division Bench thought it fit and referred the matter before the Larger Bench so that the principle of the subject can be laid down.
45. It is also to be noted that Dr. Pal at that point of time tried to distinguish the said judgment in the Hamilton's case : [1992]194ITR391(Cal) with the judgment of Hope (India) Ltd.'s case : [1999]238ITR740(Cal) and submitted that there is no inconsistency in the view taken by the subsequent Division Bench in the Hope (India) Ltd.'s case : [1999]238ITR740(Cal) and in this subsequent decision the hon'ble Division Bench duly considered the judgment delivered in the Hamilton's case : [1992]194ITR391(Cal) and, according to Dr. Pal, the judgment in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) holds the field.
46. We have also heard the learned Counsel for the parties extensively and after going through the said decisions of the hon'ble High Court and after taking into consideration the facts of this matter, it appears to us that in Hamilton's case : [1992]194ITR391(Cal) the court laid down the ratio that the rent of the past year increased retrospectively shall be the annual rent of the said past year or years but cannot be said to be the annual rent of the year in which the said amount was received. It was also held that the said amount which was received by the landlord subsequently being the enhanced rent is nothing to yield of the house property and the character of such receipt being the rent shall continue to be an income from the house property whereas in the Hope (India) Ltd.'s case : [1999]238ITR740(Cal) it has been laid down that a claim made by a landlord for enhancement of rent cannot be said to be an amount within the meaning of Section 23(1) of the Act. Since a claim or a demand by itself does not come within the purview of the words 'income received or receivable'. It would be also evident from the said judgment in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) the hon'ble Division Bench duly considered the Hamilton's case : [1992]194ITR391(Cal) and observed that the question raised in the Hope (India) Ltd.'s case : [1999]238ITR740(Cal) had not been raised in that Hamilton's case : [1992]194ITR391(Cal) at all. Therefore, it must be understood that the facts of both the cases were not identical and in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) the Division Bench specifically dealt with the meaning of the word 'receivable' in the light of the decision of the hon'ble Supreme Court reported in E. D. Sassoon Ltd. v. CIT : [1954]26ITR27(SC) and held that a claim or a demand by itself cannot be construed as income receivable.
47. Therefore, in our considered opinion, there cannot have any conflict in the said two decisions of the hon'ble Division Bench. Since, in our opinion, the Hamilton's case : [1992]194ITR391(Cal) it was laid down that the retrospective increase of rent cannot be brought under income from other source (see Section 14 of the Act) whereas in the Hope (India) Ltd.'s case : [1999]238ITR740(Cal) there was laid down that a mere demand or claim cannot amount to income receivable within the meaning of Section 5 of the Act and, furthermore, we do agree with Dr. Pal as it would be evident from the order of reference that Dr. Pal tried to distinguish the judgment in the Hamilton's case : [1992]194ITR391(Cal) with the judgment of Hope (India) Ltd.'s case : [1999]238ITR740(Cal) and submitted that there was no inconsistency in the view taken by the hon'ble Division Bench and further in Hope (India) Ltd.'s case : [1999]238ITR740(Cal) the hon'ble Division Bench also considered the judgment delivered in Hamilton's case : [1992]194ITR391(Cal) and he further contended before the hon'ble Division Bench that the amendments which had been brought about in Section 25B was expressly made prospective with effect from April 1, 2001.
48 Therefore, we answer the reference as follows:
49. We do not find that there is any conflict in those two judgments.
50. Before we part, we do find that the moot question in this matter that the notice issued under Section 147 of the said Act whether issued by the Department is without jurisdiction and further the said question would only apply in a case where the assessing authority has reason to believe that there has been any escapement of income.
51. According to Dr. Pal, the enhanced rent cannot be treated as income of the assessment year 1989-90. Therefore, the question of escapement of income does not arise at all and the condition precedent for the assumption of jurisdiction under Section 147 of the Act does not exist and, therefore, it is the duty of the writ court to quash the notice which was issued by the authority since the assessing authority has no jurisdiction to issue the said notice.
52. It appears from the fact that the assessment year in question is 1989-90, return was filed in respect of that year on November 22,1989 and an intimation was issued to the appellant under Section 143(1)(a) of the Act on February 20,1990. The fact reveals that the appellant by a letter dated April 18, 1994 suggested settlement of tax liability and agreed to revision of assessment for the assessment years 1990-91, 1991-92 and 1992-93 and contended that the assessment year 1989-90 had become time barred, but would pay interest for subsequent years to compensate the loss. By a letter dated May 19, 1994 the appellant itself requested for issuance of notices under Section 148 for completion of reassessment within May, 1994 (being notice under Section 148) on the basis of such letter was issued on May 18, 1994. It further appears that on April 18, 1994 the appellant in anticipation of reassessment duly deposited Rs. 51,37,676 before April 30, 1994 in self-assessment challan to cover a substantial portion of additional liability. The appellant also informed that steps have been taken to reopen the assessment from the assessment year 1989-90 and prayed for waiver of interest and also approached various authorities.
53. It would be evident from the said letter dated May 9, 1994 that the assessee addressed to the Commissioner of Income-tax, West Bengal-VI as follows:
In view of the mistakes in computation of our liability we are withdrawing our application dated April 18, 1994, addressed to your honour and our application dated April 25, 1994, addressed to the learned Chief Commissioner, Calcutta III on the same subject and both the application may kindly be treated as cancelled.
The assessee has prepared fresh returns for the assessment years 1990-91 to 1992-93 which can be filed immediately on receipt of notices under Section 147/148 of the Income-tax Act for those years.
The assessee will be grateful if the Assessing Officer is directed to issue the notices under Section 148 immediately and also to complete the reassessment, within the month of May 1994 so as to reduce the burden to interest.
As a revised return has been filed for the assessment year 1993-94 and self assessment tax with interest under Sections 234B and 234C of the Income-tax Act has been deposited both for the assessment years 1993-94 and 1994-95, the assessee will not incur any further liability on account of interest for those two years.
54. It further appears that the assessment was completed under Section 143(1) of the Act by accepting the assessee's return and intimation was duly sent to the assessee. Thereafter the Assistant Commissioner of Income-tax after recording the reasons issued the notice under Section 147 of the said Act. The reasons which were stated are as follows:
Reasons recorded for initiating proceeding under Section 147. The assessee company in deriving its income mainly from house property. The major portion of its - building at 4, Brabourne Road, Calcutta in occupied by Government of India through estate manager. The Government has enhanced rent from Rs. 4 per sq. ft. to Rs. 8 per sq. ft. with retrospective effect from September 1, 1987, on March 19, 1994 as per the assessee's letter dated April 25, 1994, placed on record. This has resulted in escapement of income for assessment year 1989-90 to the tune of Rs. 33,46,000 issue notice under Section 148 read with Section 147(a) immediately for the assessment year 1989-90.
55. It appears that Explanation 2, Section 149(1)(b) of the Act provides that in determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provision of Explanation 2 to Section 147 shall apply. It appears under Explanation 2 to Section 147 three classes of cases have been mentioned where it would be deemed that income chargeable to tax which has escaped. The first class of cases which is against Clause (a) of Explanation 2 is in applicable as it relates to a situation where no return of income has been furnished. The second class of cases which has been mentioned against Clause (b) of Explanation 2 relates to a situation where a return of income has been furnished, but no assessment has been made. In such a case it is only when the assessee understates his income that there would be a question of escapement of income. The last class of cases is mentioned against Clause (c) of Explanation 2 which deals with a situation where assessment has been made but income chargeable to tax has been underassessed or income has been assessed at too low a rate or such income has been made. The subject of excessive relief under the Act or excessive loss of depreciation allowance or any other allowance under the Act has been computed. According to the appellant, no assessment had been made in respect of the assessment year in question in the case of the appellants. It was also submitted by Dr. Pal that there was no scope for understatement of income because the income which the authorities were claiming had escaped assessment and which was caused by virtue of enhancement of rent in the year 1994 with effect from 1987. It appears that in this matter the assessment has been made. The assessee did not dispute the fact that the case of the assessee would come within the four corners of Clause (c) of the said section. The question is whether an intimation under Section 143(1)(a) of the Act can be an assessment within the meaning of Explanation 2(c) to Section 147 of the Act. It is also clear from Explanation 2(c) to Section 147 of the Act which does not speak of an assessment order but merely of assessment. Therefore, there cannot be any reason for limiting the word 'assessment' used in Clause (c) of Explanation 2 to Section 147 of the Act.
56. It further appears that the hon'ble first court held as follows:
Indeed, when Section 143(1)(a) was introduced by the Direct Tax Laws (Amendment) Bill, 1987, it was made clear that the section had been introduced to provide for a new scheme of 'assessment' wherein requirement of passing an assessment order in all cases where returns are filed is dispensed with, and that is what an intimation under Section 143(1) of the Act is, namely, an assessment. That being the case, Explanation 2(c) to Section 147 of the Act is applicable and it cannot, therefore, be said that the impugned notice under Section 148 of the Act is vitiated on the ground as claimed by the petitioners.
57. Therefore, in our considered opinion, the hon'ble first court correctly held that on the given facts the impugned notice under Section 148 of the Act cannot be said to be vitiated. Since, in our considered opinion, the appellant has failed to make out a case that the said notice is without jurisdiction and, hence, we uphold the decision of the hon'ble first court and, accordingly, the appeal is also dismissed.
58. I agree.