1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR (1) INCOME TAX APPEAL No. 94 of 2005 C I T JODHPUR V/S M/S DOWAGER MAHARANI RESIDENTIAL ACCOMMO (2) INCOME TAX APPEAL No. 100 of 2005 C I T JODHPUR V/S M/S DOWAGER MAHARANI RESIDENTIAL (3) INCOME TAX APPEAL No. 1 of 2006 C I T JODHPUR V/S M/S DOWAGER MAHARANI RESIDENTIAL ACCOMMO (4) INCOME TAX APPEAL No. 26 of 2006 C I T JODHPUR V/S M/S DOWAGER MAHARANI (5) INCOME TAX APPEAL No. 84 of 2006 C I T JODHPUR V/S M/S DOWAGER MOHARANI (6) INCOME TAX APPEAL No. 119 of 2007 C.I.T. V/S M/S D.M.R.A.W.A.TRUST (7) INCOME TAX APPEAL No. 99 of 2005 C I T JODHPUR V/S M/S DOWAGER MAHARANI RESIDENTIAL ACCOMMO (8) INCOME TAX APPEAL No. 101 of 2005 C I T JODHPUR V/S M/S DOWAGER MAHARANI RESIDENTIAL ACCOMMO (9) INCOME TAX APPEAL No. 131 of 2005 2 C I T JODHPUR V/S M/S DOWAGER MAHARANI RISIDENTIAL ACCOMMO (10) INCOME TAX APPEAL No. 85 of 2006 C I T JODHPUR V/S M/S DOWAGER MAHARANI (11) INCOME TAX APPEAL No. 45 of 2007 C I T JODHPUR V/S M/S DOWAGER MAHARANI Mr. KK BISSA, for the appellant / petitioner Mr. RAMIT MEHTA, for the respondent Date of Judgment : 6.5.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. REPORTABLE JUDGMENT BY THE COURT : (PER HON'BLE GUPTA,J.) These 11 appeals arise in almost identical circumstances, rather except Appeal No. 119, all ten appeals arise in exactly identical circumstances. Appeal Nos. 94, 99, 100, 101, 131 of 2005, and Appeal No. 1/2006 arise out of the common order of the learned ITAT dt. 10.8.2004, allowing the appeals of the assessee for the assessment years 1986-87 to 1991- 92, setting aside the impugned orders of the Assessing Officer, and the Commissioner, and directed the Assessing Officer to compute the income from the house property, on the basis of the actual rent receipt, 3 obviously to compute it in the year it was received. Then, Appeal Nos. 26, 84, 85 of 2006 and 45/2007 arise out of the common judgment of the learned ITAT dt. 5.5.2005, for the assessment years 1992-93, 1993-94, 1994-95, and 1996-97 partly allowing the appeals, and holding, that the receipt of arrears of rent, and enhanced rent, are taxable only in the relevant period when it is received, and thus setting aside the order of the learned Commissioner, and directed the Assessing Officer to compute the income from the house property on the basis of actual rent receipt, and thus allowed the respective grounds of appeal. Then, Appeal No. 119 arises out of the order of the learned Tribunal dt. 16.6.2006, relating to assessment year 1998-99, partly allowing the appeal, and so far as the controversy involved in the present appeal is concerned, deciding in para-5, holding, that right to enhancement of the rent came into existence only on 2.7.1998, though it was applicable for five years w.e.f. 28.3.1996, and that, it was only vide letter dt. 2.7.1998, that the assessee acquired the right over the enhanced rent. Thus, prior to this letter, the right to receive the enhanced rent had not crystallized, and since the letter dt. 2.7.1998, pertains to financial year 1998-99, relevant to the assessment year 1999-2000, and therefore, it was held, that the enhancement in rent @ Rs. 1 lakh per month would become the subject matter of taxation in the assessment year 1999-2000, and cannot be added to the assessee's income in this year (1998-99). Thus, the impugned orders of the Commissioner were reversed, and 4 it was held, that the taxable event would arise in the next year i.e. Assessment year 1999-2000, and not in the year 1998-99. We may observe here, that there was one more matter of this very assessee, relating to the assessment year 1995-96, which was decided by the learned Tribunal vide judgment dt. 27.5.2003, and a look at the impugned judgment, in the present two bunch of appeals, does show, that that judgment has substantially been made the basis of passing of the impugned orders, and we are informed, that against that judgment, an appeal was filed by the Revenue, but that appeal was dismissed as time barred; However making it clear, that the dismissal of the appeal will not affect the merits of the question, while the other appeals are being considered. Learned counsel for the Revenue has ofcourse, made available for our perusal a reliable photo stat copy of the judgment of the learned Tribunal dt. 27.5.2003, relating to assessment year 1995-96, which holds that the receipt of arrears of rent, and enhanced rent, are taxable, only in the relevant period when it is either received, became receivable, or became due. It was further held, that the case of the assessee is justified, and the receipt is not taxable in the assessment year under consideration (1995-96). The present eleven appeals were admitted vide different, orders passed on different dates. However, the question framed in the ten appeals, being Appeals 5 No. 94, 99, 100, 101, 131 of 2005, and Appeal No. 1, 26, 84, 85 of 2006 and Appeal No. 45/2007 are identical being under:- “(1) Whether in the facts and circumstances of the case annual value of the property in question had been assessed to tax as income from house property under Section 22 under Part C of Chapter 4 of the Income Tax Act, 1961 and subsequent increase in the actual rent with retrospective effect could result in re-assessment of the annual value of the property by recourse to Section 147/148 of the Income Tax Act, 1961? (2)If so, whether recourse to section 147/148 as on the date noticed were issued for the assessment were within the limitation for initiating proceedings under those provisions. While Appeal No. 119 was admitted on 16.8.2007, by framing following substantial question of law:- “Whether on the facts and circumstances of the case as well as in the law, the learned Income Tax Appellate Tribunal was justified in holding that the receipt of arrears of rent and enhanced rent are taxable only in the relevant period when it is either received, became receivable, or became due and further holding that receipt is not taxable in the assessment year under consideration ignoring the AO's findings in this regard that the rent receivable for the year under consideration was @ 60,000/- per month and shall be considered for calculating annual Letting Value of the property under consideration?” The necessary facts, in very brief are, that the assessee is a private trust. The assessee submitted return of the income declaring the total income in the relevant year, computing the income from 6 house property, on the basis of the rent actually received in that relevant year. The assessments were finalised. However, subsequently notices were issued to the assessee under Section 148, in response whereto the returns of income were filed. Then again notices were issued under Section 143(2), in response whereto the authorised representative appeared, and submitted written reply. The reopening was sought on the basis, that in the assessment year 1995-96, the assessee received a sum of Rs. 26,26,000/-, for arrears of rent for the period 1.11.85 to 31.3.94, as there was upward revision of rent from Rs. 9000/- per month to Rs. 35000/- per month vide order dated 6.7.94. It may be observed that premises were let out by the assessee to the Income Tax Department itself. Likewise, the rent was subsequently further revised from Rs. 35000/- to Rs. 60000/- per month w.e.f. 8.1.1991 to 29.2.96, and then to Rs. 1,60,000/- per month for the subsequent period. Different orders were passed on different dates, respectively revising the rate of rent upwardly. The Department proceeded on the basis, that with revision of rent with retrospective effect, in view of the provisions of Section 23(1)(b), the rent did become receivable in the relevant financial year, with effect from the date from which it was enhanced, and therefore, it was liable to be taxed at the annual letting value of the property, and that having not been so assessed, it amounts to escapement of income, and therefore, notices under Section 148 were issued, for exercising powers under Section 147. 7 The assessee contested the notices, contending them to be without jurisdiction, and interalia submitted, that the fact that the assessee trust received some arrears of rent for the earlier period, does not change the annual letting value of the property, and it has been correctly computed following the provisions of law. It was contended that the arrears of rent were neither determined nor accrued, nor received by the assessee Trust, during the previous year relevant to the assessment year, and hence was not stated to be taxable in that assessment year, and thus proceedings under Section 147 were prayed to be dropped. Learned Assessing Officer relied upon the provisions of Section 23 as, substituted by amendment, which came into effect since 1.4.1976, and according to that provision, when the actual annual rent “received” or “receivable” is in excess of such estimated rent, the actual received or receivable annual rent, shall be taken as the annual value. Then, it was considered, that in the case in hand, though the actual rent was received, or became receivable during the subsequent period, but then, the annual letting value of the property would be the actual rent received, including arrears of rent if any, and that, it is only a matter of coincidence that the actual rent which was to be received by the assessee for the property could not be determined earlier, but when the same has been determined by the concerned authorities, 8 and has been allowed to the assessee, there is no question of not including that part of annual rent, which has not so far been considered for taxation in the concerned assessment year. It was also found, that the receipt of arrears by the assessee in the subsequent financial year, does not change the character of receipt, and it retains the character of revenue receipt, and it is very well covered within the inclusive definition of “income”. The assessing officer relied upon the judgment of Calcutta High Court, in M/s. Hemilton & Co. Pvt. Ltd. Vs. CIT, 194 ITR-391, and quoted the conclusions arrived at therein, wherein the Calcutta High court had held that arrears of rent of the period prior to the account period cannot be taxed under the head income from other sources in the year of receipt. But the legal position is that such arrears of rent are the annual rent or part of the annual rent for years to which the arrears relate by virtue of the definition of 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. Accordingly the assessment orders had been made by taxing the amount of arrear received in the year to which it related. Identical orders, rather stereo type orders were passed by the assessing officer in all ten appeals i.e. excluding Appeal No. 119. The assessee then filed appeals before the learned Commissioner, and the learned Commissioner found, that the assessing officer was justified in 9 initiating proceedings under Section 148 for all the assessment years, because of the appellant’s income chargeable to tax had escaped assessment. Then relying upon the judgment of Calcutta High Court in Hamilton & Co.'s case, the learned Commissioner did not find any error in the action of the assessing officer, in computing the actual letting value of the property, on the basis of the revised rent. Then, the learned Commissioner also considered the aspect of interest, and directed the assessing officer not to charge interest under Section 217, while in the appeals relating to assessment year 1991-92, 1992-93, 1993-94, 1994-95, and 1996-97 to re-compute the chargeable interest under Section 234B, for the assessment years 1991-92 to 1994-95. Against these orders the assessee filed futher appeal, wherein the learned I.T.A.T. had passed the orders, as recapitulated above. The facts relating to Appeal No. 119 are, that it is not a case of reopening, rather the assessee filed return for the assessment year 1998-99 on 16.11.1998. The case was selected for scrutiny, and notice under Section 143(2) was issued on 30.9.1999, then notice along with questionnaire was issued on 14.11.2000, and in response thereto the authorised representative appeared. In this case the property stood let out to the Income Tax Department during the relevant period at a monthly rent of Rs. 60,000/-, and the rent was enhanced vide order dt. 2.7.1998, to Rs. 10 1,60,000/- w.e.f 28.3.1996, and the assessing officer, relying upon the provisions of Section 23, and treating the enhanced rent to be rent receivable for the purposes of annual letting value, found, that rent would be chargeable to tax in the year to which it relates, and thus made the assessment at the enhanced rate. In appeal of the assessee the learned Commissioner, relying upon the previous judgments, negatived the appeal, and in further appeal of the assessee, the learned I.T.A.T. had passed the order, as recapitulated above. Thus, two questions arise in these appeals, as framed in the ten appeals, and the question as framed in the Appeal No. 119, also does arise, which is partly covered by the Question no.1 framed in other ten appeals, except that in this case recourse was not taken to provisions of Section 147 and 148 of the Income Tax Act. Thus, we are required to decide two aspects of the matter, being, as to whether in the circumstances noticed above, i.e. where the rent is subsequently upwardly revised with retrospective effect, and consequently the assessee receives the arrears, whether such arrears are to be taxed in the relevant assessment year, relating to the previous year to which the amount relates, or as directed by the Tribunal it can be taxed, or rather is required to be taxed, only in the year in which it is received ? and the second question that is required to be decided 11 is, as to whether on that basis i.e. on the basis of subsequent retrospective upward revision of rent, and consequently assessee receiving arrears of rent, confers any jurisdiction on the assessing officer, or the authorities, to initiate any action under Section 147, 148, much less with flowing consequences, enumerated in Section 234B, and even Section 271(1) (c), as has been ordered by the learned Assessing Officer. Before proceeding further, we may notice that the provisions of Section 23 have undergone amendments in the year 1976, 1979, 1987, and 1993. However, the relevant provision with, which we are concerned, being Section 23(1)(a) & (b) have not undergone any material change, except substitution of certain figures, and therefore, we may gainfully quote the provisions of Section 23, as they are, which read as under :- “23.(1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable: Provided that the taxes levied by any local 12 authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation- For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amountof rent which the owner cannot realise. (2)Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3)The provisions of sub-section (2) shall not apply if- (a) the house or part of the house is actually let during the whole or any part of the previous year; or (b) any other benefit therefrom is derived by the owner. (4)Where the property referred to in sub- secition (2) consists of more than one house- (a) the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf; (b) the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub- section (1) as if such house or houses had been let.” We have quoted the provisions of Section 23, only because under Section 22 for computing the income chargeable to Income Tax Act, under the head “Income from house property”, the “annual value of the property” is the deciding factor, and Section 23 only provides as to how the value is to be determined, 13 therefore, we have quoted the provisions of Section 23. We may at this place also gainfully quote the provisions of Section 147 and 148 of the Act which read as under:- “147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; 14 (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but- (i)income chargeable to tax has been underassessed; or (ii)such income has been assessed at too low a rate; or (iii)such income has been made the subject of excessive relief under this Act; or (iv)excessive loss or depreciation allowance or any other allowance under this Act has been computed.” “148. (1) Before making the assessment, reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case- 15 (a)where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b)subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation.-For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.” Then, we may also refer to the provisions of Section 234B Explanation 2, which provides, that where in relation to an assessment year, an assessment is made for the first time under Section 147, or Section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Likewise, we may only recapitulate, that Section 271 (1)(c) provides for levy of penalty, where the assessee has concealed the particulars of his income, or furnished inaccurate particulars of his income. Arguing the appeal it was submitted by the learned counsel for the Revenue, relying upon the judgment in Hamilton & Co.’s case, and on the judgment of