Calcutta H.C : Whether, on the facts and in the circumstances of the case, and on an interpretation of the documents in respect of rent at 2/3rd of the house property at 18, Rabindra Sarani, Calcutta, for the asst. yr. 1984-85 and s. 23(1) of the IT Act, 1961, the Tribunal was justified in law in directing the AO 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 ?

High Court Of Calcutta

Hope (India) Ltd. vs. CIT

Section 23(1)

Asst. Year 1984-85

S.B. Sinha & D.P. Sircar, JJ.

IT Ref. No. 206 of 1993

7th April, 1999

Counsel Appeared

N.K. Poddar with D. Mitra, for the Petitioner : J.C. Saha & P.K. Bhowmick, for the Respondent

JUDGMENT

S.B. Sinha, J. :

This reference under s. 256(1) of the IT Act has been made by the Tribunal, Bench-C, Calcutta, in respect of the following question :

“Whether, on the facts and in the circumstances of the case, and on an interpretation of the documents in respect of rent at 2/3rd of the house property at 18, Rabindra Sarani, Calcutta, for the asst. yr. 1984-85 and s. 23(1) of the IT Act, 1961, the Tribunal was justified in law in directing the AO 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 ?”

2. The assessment year involved in this reference in 1984-85. The fact leading to the said reference is as follows : The assessee maintains its books of account by adopting mercantile system of accounting. A sum of Rs. 49,85,648 was shown towards rent received by it from the tenants of the house property known as ‘Poddar Court’ situated at18, Rabindra Sarani, Calcutta. The assessee is the owner of 2/3rd share in the said property. The final determination of annual valuation of the Calcutta Municipal Corporation was under revision. The AO upon invoking the provision of s. 23(1) of the IT Act, took the view that the annual value of the property shall be deemed to be the sum for which the property right reasonably be expected to let from year to year. However, the AO was of the view that fair market annual value of the property being much higher than the actual rent received which was not fair and reasonable in comparison to rent receivable in the locality for other premises similarly situated. He took the view that the assessee could reasonably expect to receive a higher rent than actually received. The AO further stated that in some cases the assessee received rent at the rate of Rs. 8.50 per sq. ft. per month and as per its own admission in Suit No. C-794 of 1987 filed in this Court, wherein rent at the rate of Rs.8.46 per sq. ft. was claimed as a fair and reasonable rent. Allegedly, one tenant, Overseas Communication Services have been paying rent at the rate of Rs. 8.00 per sq. ft. per month w.e.f. 1982 and the Post & Telegraph Department occupies some space situated in the same locality was paying the rent at the rate of Rs. 9.00 per sq. ft. w.e.f. 1982. The AO, therefore, computed the fair rent to be at Rs. 8.50 per sq. ft. and the fair market value thereof was assessed at Rs. 4,38,62,652 out of which the 2/3rd share of the assessee was determined at Rs. 2,92,41,768. To the said amount, a sum of Rs. 16,307 was added as rent for car parking and godown. The CIT(A) however, assessed the annual value of the property at Rs. 49,35,648 including rent for car parking and godown in the basement. Upto the asst. yr. 1983-84 assessment was made on the basis of actual rent but the said authority found that the tenants have been occupying the premises for more than 15 years and the provision of the West Bengal Premises Tenancy Act being applicable and any upward revision of rent would not be permissible except with the mutual agreement between the parties. Efforts, however, have been made by the landlord and the Government Departments who occupied a portion of the premises for enhancement of rent. The CIT(A), therefore, directed the AO to recompute the income from the house property. The Department preferred an appeal thereagainst. The Tribunal held : “On careful consideration of the facts of the case, we find that the order of the CIT(A) cannot be upheld. The assessment made in respect of earlier years, cannot be taken as the basis in the present assessment year as there is no res judicata in the income-tax proceedings. Each assessment year is independent of the other. Further, the annual letting value as assessed by the Calcutta Corporation was much lower than the actual rent received or receivable cannot be accepted as the basis to accept the actual rent received by the assessee in view of the fact that certain Central Government Department who occupied portion of the assessee’s house propertyhad only agreed to pay, substantial higher rent from September, 1982. The argument that the tenants had been occupying the premises for more than 15 years and under the provision of the West Bengal. Premises Act, any upward revision of the rent was not permissible except with the mutual agreement between the parties also cannot be fully accepted in view of the fact that the major tenants i.e., the Central Government Department had duly agreed to pay the enhanced rent as stated above. The contention that the assessee made a claim was not legally enforceable right and it was merely an inchoate right is also not fully acceptable for the reasons stated above i.e., the enhanced rent agreed to be paid by the tenants, namely Central Government Departments. It may be that there are many tenants and only a few tenants agreed to pay enhanced rent but the fact remains that substantial increase in the rent was agreed to by the IT Departments, Central Excise and Accountant General Office with effect from September, 1982, at various rates. From the letters of the above Departments, copies of which were filed at pp. 35 to 37 of the paper-book it is clearly shown that although the enhanced rent were agreed to be paid in September, 1986, March, 1987 and April,1987, the enhancement of rent were effective from 1st Sept., 1982 and 27th Sept., 1982. The Accountant General, West Bengal as per letter dt. 2nd Sept., 1986, had agreed to pay enhanced rent at Rs. 8.46 per sq. ft. w.e.f. 1st Sept., 1982. The arrears of the rent from 1st Sept., 1982, to 31st Aug., 1985, was also paid on 16th Oct., 1985, amounting to Rs. 1,37,43,243. The IT Department as per letter dt. 1st April, 1987, had sanctioned the enhanced rent at the rate of Rs. 3.51 per sq. ft. per month from 1st Sept., 1982 to 31st Dec., 1983, and at the rate of Rs. 5.57 per sq. ft. from 1st Jan., 1984, onwards as recommended by the Hiring Committee (C.P.W.D.). From the above, it is clear that the enhanced rent by the above three Departments particularly covered the previous year relevant to the present assessment year under consideration i.e., 1984-85. It has, therefore, to be held that income from the aforesaid house property has to be assessed on actual rent received by the assessee. It may be also pointed out that the actual sum for which a property is being let may be taken into consideration as a piece of evidence in arriving at a reasonable rent, but it is not decisive or conclusive as there can be many factors effecting the fixation of the rent. To this proposition, reliance may be placed on the decision of the Calcutta High Court in the case of Babulal Rajgarhia, In Re (1936) 4 ITR 148 (Cal) : TC 55R.508. It may also be stated that the total consideration paid by a tenant may not necessarily be the annual value in the year of account. To this proposition, reliance may be placed on the decision of the Hon’ble Calcutta High Court in the case of Krishan Lal Sil 6 ITC 293/297-ILR 60 Cal/357. It has also been held in the following cases that the annual municipal valuation may be taken as prima facie correct but it is not conclusive.” The Tribunal below referred to the decisions in Jamunadas Prabhudas vs. CIT (1951) 20 ITR 160 (Bom) : TC 55R.597, CIT vs. R. Dalmia (1987) 163 ITR 517 (Del) : TC 40R.448, CIT vs. R. Dalmia (1987) 62 CTR (Del) 195 : (1987) 163 ITR 519 (Del) : TC 40R.449, CIT vs. R. Dalmia (1987) 163 ITR 524 (Del) : TC 40R.448 and CIT vs. Alagappan, Etc. (1987) 61 CTR (Mad) 301 : (1987) 164 ITR 690 (Mad) : TC 40R.450 as also the decision of this Court in Hamilton & Co. (P) Ltd. vs. CIT (1992) 104 CTR (Cal) 95 : (1992) 194 ITR 391 (Cal) : TC40R.516 and held that the claim of the assessee that the arrear rent received in the subsequent year was offered for taxation and in view of the said fact there was no justification not to accept the income from house property as shown by the assessee. The ITO, therefore, was directed to recompute the income from house property on the basis of the enhanced rent sanctioned and agreed to be paid by the various tenants and to determine the income in accordance with law. 3. Mr. N.K. Poddar, the learned counsel appearing on behalf of the petitioner, inter alia, submitted that enhancement of rent on a subsequent date with retrospective effect cannot be assessed for the year from which they had been determined. According to the learned counsel, the decision of this Court in Hamilton & Co. (P) Ltd. (supra) had wrongly been relied upon by the learned Tribunal inasmuch as the question involved in this reference did not strictly arise therein. Mr. Poddar would urge that keeping in view the amendments made in the provisions of s. 23 of the IT Act, income which did not accrue or had been received or receivable in terms of the contract entered into by and between the landlord and the tenants cannot be said to be an income accrued in the particular year by reason of agreement entered into by and between the parties for the purpose of enhancement of rent with retrospective effect. In support of his aforementioned submission reliance had been placed on CIT vs. Prabhabati Bhansali (1982) 29 CTR (Cal) 15 : (1983) 141 ITR 419 (Cal) : TC 40R.442, Madgul Udyog vs. CIT (1990) 184 ITR 484 (Cal) : TC 40R.339, E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) : TC 39R.313, CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (SC) : TC 39R.629, CIT vs. Hindustan Housing & Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1987) 161 ITR 524 (SC) : TC 39R.624, P. Mariappa Gounder vs. CIT (1998) 149 CTR (SC) 322 : (1998) 232 ITR 2 (SC), Ondal Investments Co. Ltd. vs. CIT (1976) 116 ITR 143 (Cal) : TC 39R.628, CIT vs. Simplex Concreate Piles (I) (P) Ltd. (1989) 79 CTR (Cal) 71 : (1989) 179 ITR 8 (Cal) : TC 39R.971, Amarnath Khandelwal vs. CIT (1980) 17 CTR (Del) 243 : (1980) 126 ITR 322 (Del) : TC 39R.645, CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC) : TC 39R.904, CIT vs. Chanchani Bros. (Contractors) (P) Ltd. (1986) 53 CTR (Pat) 84 : (1987) 161 ITR 418 (Pat) : TC 39R.943, CIT vs. Burlap Commercial (P) Ltd. (1988) 173 ITR 522 (Cal) and CIT vs. Nadiad Electric Supply Co. Ltd. (1971) 80 ITR 650 (Bom) : TC 39R.893.

4. Mr. Saha, the learned counsel appearing on behalf of the Revenue, on the other hand, supported the findings of the Tribunal. The learned counsel submits that the decision of a Division Bench of this Court in Hamilton (supra) is binding on this Bench which had been relied upon by the Tribunal below for the purpose of arriving at a finding that the enhanced rent received with retrospective effect must be held to be an income received or receivable in the assessment year in question.

5. The questions involved in this reference is interesting ones. From the statement of facts of the case as referred to hereinbefore, it is evident that the AO as also the Tribunal had proceeded on the basis that rent at an enhanced amount with retrospective would render income assessable for the assessment year in question. For the purpose of appreciating the point at issue, it is relevant to note the provision of ss. 2, 5, 14, 22 as they stood as also sub-s. (1) of s. 23 as amended in the year 1984. Sec. 17(1)(sic) of the Act reads thus : “Any rent actually received by the assessee in the financial year in respect of house property consisting of any building or lands appurtenant thereto of which the assessee to that financial year or any other financial year, shall be chargeable to tax under the head‘Income from house property” (sic)

6. As indicated hereinbefore the Tribunal below has relied upon, for arriving at aforementioned finding on the Division Bench decision of this Court in Hamilton (P) Ltd. (supra). In that case the question raised was in the following terms : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the additional extra rent attributable to proceeding years of account which could not be taxed under s. 22 of the Act should, instead, be taxed under the head ‘Income from other sources’?” 7. It is now a well settled principle of law that a decision is an authority for what it decides and not what can logically be deduced therefrom. The main question which was required to be determined in the aforementioned case was as to whether any additional or extra rent attributable to preceding years would be entitled to tax under head “Income from other sources.” The questions which have been raised in the instant case had, therefore, not been raised in the case at all. The learned Judges, however, upon considering the provision of ss. 22 and 23 of the IT Act held : “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. This portion squarely fits in with the scheme of taxation of “Income from house property”, s. 22 says that the measure of income from house property is its annual value. The annual value is to be determined in accordance with the provisions of s. 23. Sub-s. (1) of s. 23, by virtue of the amendment w.e.f. the asst. yr. 1976-77, has two limbs, cl. (a) and cl. (b). Clause (a) says that the annual value is the sum for which the property might reasonably, be expected to be let from year to year; cl. (b) covers a case where the property is let and the annual rent is in excess of the sum for which the property might reasonably, be expected to be let from year to year. To our mind, this cl. (b), a later insertion by the Taxation Laws (Amendment) Act, 1975, is meant to cover a case where the rent for a year actually received by the owner is in excess of the lawful rent which is known as fair rent or standard rent under the various rent control legislations. It does not cover a case where a person receives in a year of account rent for a period larger than the year of account.” Upon taking into consideration the Explanation appended to s. 23(1) as inserted by reason of Taxation Laws (Amendment) Act, 1975, as also upon consideration of the circulars issued by the Board, it was further held : “But the legal position is that such arrears of rent are the annual rent or part of annual rent of the year or years to which the arrears relate by virtue of the definition of the annual rent in Expln. 1 below s. 23 and not really the income of the year of receipt under the head ‘Income from other sources’.” There cannot by any doubt that certain observations had been made in the said decision but such observations, in our considered opinion, must be understood to have been rendered in the fact situation of that case. Those observations were not required to be made keeping in view the questions raised in the said reference and, thus, the same even does not partake to the character of obiter dictum. 8. With a view to consider the question involved in this reference it is profitable to note the meaning of the word receivable’ as defined in Black’s Law Dictionary, 6th Edn. 1268 and Stroud’s Judicial Dictionary, 4th Edn. 2280, which are : “Black’s Law Dictionary—That which is due and owing a person or company (e.g. account receivable). In book-keeping the name of an account which reflects a debt due.” “Stroud’s Judicial Dictionary.— (1) I myself should have held that the words ‘receivable’ and ‘payable’ were the same thing, and that both were equivalent to ‘vested’, but I am happy to find that the judgment of the M.R. in Haverd vs. James 29 L.J. Ch. 822 expresses exactly the same conclusion” (per Malins V-C, West vs. Miller, L.R. 6 Eq. 59). See further Watson Eq. (2nd Ed.) 1228. (2) ‘Receivable’ may be construed ‘received’ (Wms. Exs. (12th Ed.), 689, citing Re Dodgaon, I Drew 440). In that case there was a gift over if any member of CLASS died ‘before receiving’ his share; held, that the phrase meant ‘before being entitled to receive’. (3) Under s. 5 of the IT Act, 1918 (c. 40): see IRC vs. Packinham, 96 LJKB 882, affirmed (1928) AC 252; Leigh vs. IRC 43 TLR 528″.

9. The apex Court in E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (supra), had the occasion to consider the meaning of the words, ‘accrue’, ‘arises’, and ‘is received’, in the context of the definition of income. The apex Court held : “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 word clearly implies the idea 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. ‘Accrues’, ‘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 tink of no expression which makes its meaning plainer than the word ‘receiving’ 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 these 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 vs. Brooks (this part of the decision [sic—not having been affected by the reversal of the decision] by the House of Lords) 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. 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’. The observations of Lord Justice Fry quoted above by Mukherji, J. were made in Colquhoun vs. Brooks, while construing the provisions of 16 and 17 Victoria Chapter 34, s. 2, Schedule ‘D’. The words to be construed there were ‘profits or gains, arising or accruing’ and it was observed by Lord Justice Fry at p. 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 persons 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 been accrued in the kingdom. I think, therefore, that the words ‘arising or accruing’ are general words descriptive of a right to receive profits.’ To the same effect are the observations of Satyanarayana Rao, J., in CIT vs. Anamallais Timber Trust Ltd., and Mukherjea, J. in CIT vs. Ahmedbhai Umarbhai & Co., where the said passage from the judgment of Mukherji, J., in Rogers Pyatt Shellac & Co. vs. Secretary of State for India 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 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 praesenti, solvendum in futuro; See W.S. Try Ltd. vs. Johnson (Inspector of Taxes), and Webb vs. Stenton & Ors. Garnishees. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

The word ‘earned’ even though it does not appear in s. 4 of the Act has been very often used in the course of the judgments by learned Judges both in the High Court as well as the Supreme Court. [Vide CIT vs. Ahmedbhai Umarbhai & Co. (1950) 18 ITR 472 (SC) : TC 39R.463 and CIT vs. K.R.M.T.T. Thiagaraja Chetty & Co. (1953) 24 ITR 525 (SC) : TC 39R.494]. It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation vs. Kirk. 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 and 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.” Unfortunately the decision of the apex Court in Sassoon (supra) had not been considered in Hamilton (supra) nor probably in the fact of the said case was required to be considered.

10. In CIT vs. Gajapathy Naidu (supra), while following Sassoon (supra) it was held: “For that purpose the correct item may be taken into consideration in the matter of assessment. But strictly speaking even in those cases there is no reopening of the accounts of the assessee, but a reassessment is made or the mistake is corrected on the basis of the actual income accrued or received by the assessee. We do not see any relevancy of the question of reopening of accounts in considering the question when an assessee acquired a right to receive an amount.”

It was further observed : “There, during the accounting period 1st April,1945, to 31st March 1946, the assessee entered into a contract with, and supplied fruits and bullock carts to, the military authorities at two different places at rates fixed by the agreement. The assessee incurred a loss and he submitted a petition for review under the terms of the agreement. On 6th Nov., 1947, the military authorities sanctioned the payment of an additional sum which was paid to the assessee on 17th and 24th Feb., 1948. The IT Department sought to include this additional sum in the assessment for the accounting year 1945-46. The High Court held that until the order of review the only right that the assessee had was to claim the money payable at the rates laid down in the agreement itself and that the additional amount became payable to the assessee not by virtue of any right conferred by the agreement, but because of the order passed in review directing the payment of the amount and thus creating a right to this amount in favour of the assessee.” Yet again, in CIT vs. Hindustan Housing & Land Development Trust Ltd. (supra), 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 for 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.

In the instant case, as indicated hereinbefore, the Government Departments agreed to enhance rent with retrospective effect from 1982, and, thus, the parties were not ad idem in their mind as regard 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 of Government in 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 s. 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 s. 5 of the IT 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 retrspective effect, in our considered view, does not come within the purview of any of the provision of s. 5 aforementioned. In P. Mariappa Gounder vs. CIT (supra), the apex Court while considering a claim of mesne profit held that determination of the said claim could be ascertained only from the date of order of the trial and not earlier. In Ondal Investments Co. Ltd. vs. CIT (supra) the apex Court clearly found that a defence against an anticipated demand for refund was not a minimum royalty, such claim of the assessee having contractual basis or foundation.

In CIT vs. Simplex Concrete Piles (I) (P) Ltd. (supra), Sengupta, J., who has passed the judgment in Hamilton (supra) himself, when a question as regards authority to withhold an amount by way of retention money arose, held that the assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. The learned Judge while arriving at the said decision relied upon Seth Pushalal Mansingka (P) Ltd. vs. CIT (1967) 66 ITR 159 (SC) : TC 39R.501 for the purpose of considering the definition of words ‘accrue’ and ‘arise’ in the context of the word ‘receive’.

In Amarnath Khandelwal vs. CIT (supra) where a question as to whether a bill for commission became payable, it was held that the income accrued only when it was accepted.

In CIT vs. Ashokbhai Chimanbhai (supra) a similar finding had been arrived at in a case involving division of partnership assets by way of partition upon following Sassoon (supra).

The Patna High Court had also taken similar view in CIT vs. Chanchani Brothers (Contractors) (P) Ltd. (supra) in a case where the assessee which used to maintain its books of accounts on mercantile system claimed certain amount in relation to extra work. It was found that the amount received later on could not be added to the assessee’s income for the assessment year for which such claim had been made.

19. In CIT vs. Burlap Commercial (P) Ltd. (supra), a Division Bench of this Court while considering as to whether the amount of damages which had later on assessed could be held to be an income during the assessment year in which the same had been made and keeping in view the fact that the contract was void ab initio held : “In the mercantile system of accounting, the amount in question could be included on the credit side as income only if it had accrued, either in fact or in law. Mere effort on the part of the assessee-company to realise the amount by sending the bill or filing a suit for its recovery, will not, in law, make it an income which has accrued in the year in question. If the effort succeeded, then it could be said that the amount the assessee has actually received would be liable to be treated as its income during the year in which it was received. In such a case, the receipt would not be on the basis of any right vesting in the assessee-company under the contract, but on the basis of it actual receipt, it would be liable to be brought to tax in the year the money was actually received. Since the right to this amount did not arise or accrue at all, it could not be held that merely because the assessee followed the mercantile system of accounting, the income accrued in the year in which the breach of contract took place.”

20. In CIT vs. Nadiad Electric Supply Co. Ltd. (supra), the Bombay High Court in a case where bills were sent for excess amount and entries for such amounts made in accounts but less amount was legally due that the assessee was under no obligation to credit in its books of accounts even though they were maintained on the mercantile system, any amount for the electricity supplied by it to the municipality calculated at any rate other than the rate of 19 paise per unit and the only amount which could be brought to tax in this connection was the amount calculated at the rate of 19 paise per unit. It was further observed that sending the bills amounted merely to making a claim for the amounts mentioned in the bill; and the mere sending of bills did not create a legal enforceable right in the assessee-company, nor a corresponding legal enforceable obligation on the municipality. The decisions referred to hereinbefore, thus, in clear terms lay down the law that although a system of accountancy adopted by the assessee may be a relevant factor, but even in a mercantile system of accounting as income would be assessed in respect of such amount which the assessee had a right to receive and/or became accrued. A mere claim of a mere demand without anything else is not income within the meaning of s. 5 of the IT Act. A practical approach in the matter must also be taken. An assessment of income cannot be reopened after a lapse of many year. While determining such question, it must be borne in mind that a claim may fructify only after a lapse of many years because of pendency thereof in a Court of law and/or prolonged negotiation between the parties. A tenant is not bound to pay at an enhanced amount only because the landlord claims the same.

The rent, in view of the provision of the Transfer of Property Act as also the Rent Control Act must be held to mean such amount payable by a tenant in favour of a landlord which has been agreed upon or which has been determined as fair rent by the Rent Controller. Even in a case of assessment of fair rent, the same may be assessed with retrospective effect. Such fair rent may be determined by the Rent Controller after a long lapse of years and, thus, in such circumstances, income having not accrued only in this year when the amount was received or became receivable. Some amount of certainty, thus, in our opinion should come into being. The answer to the questions thus, should be rendered in negative.

For the reasons aforementioned we answer the question referred to by the learned Tribunal before us for our opinion in the negative i.e., in favour of the assessee and against the Revenue. There will be no order as to costs.

D.P. Sircar, J. :

I agree.

[Citation : 238 ITR 740]

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