COMMISSIONER OF INCOME TAX V vs. R.J.WOOD P.LTD.

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+ % ! IN THE I{IG,I:[ CO{]RT OF D trlfA Nos .26A, 261', 262, Th.e,Com missioner of trncorne-Tax-V VERSUS R.J. Wood Pvt. Ltd. CORAM: 1. One common issue arises in these app However, even in that appeal shadow of ear these appeals except ITA No.3 6312007 ati these appeals relate to different assessment factual premise in which the issue has alise 7 1-72,Nevu' Markers Chamber-IV, Nariman f ITA Nos.260 /2007 etc. AT NEW DELINI and 363D047 Date qf Decision: 25.01.201I ..Appeltrant Ms. Rashrni Chopra .. ndent . Nay Vohra with Ms.I(avita papers may be allowed except in ITA No.363/2007. er appeals falls. Moreover, all out of same judgment, though The assessee is the owner of oint. lYlumbai. He had let out ItrON'Btr,E MR. JIISTICE A.K. SI I{ON'ELE MR.. JUSTNCE M.I-,. ME 1. Whether Reporters of Locai to see the Judgment? 2. To be referred to the Reporter or 3. Whether the Judgment should reported in the Digest? A.K. SIKR.I. J. (Oral) i.e., assessment years 1996- 97 to Lggg-2000 (ITA No.363/2007 pertai to assessment year 2000-01). ALV), which is to be arrived at The issue relates to,the Annual Letting Value under Section 23 of the Income-Tax Act ( inafter referred to as the 'Act'). The issue has arisen in the same factual casting its reflection on ail these years. This would become amply cl ar when we take stock of the Page L of L1

@ assessee from those tenants was specified. e tenancies became oPerative with effect frirm October, 1992. Rent was, 0greed upon. However, dispute arose about thus, contractual rent mutuallY vment of said rent. The. said premises are in a multi-storied buiiding and intenance charges are PaYable by the occupier to the agency/builder mai the building. 'fhe tenants claimed that the rent payable by them to assessee included maintenance charges and therefore, it was the obligati of the assessee to paY the maintenance charges., The assessee, on the ' to pay the rnaintenance charges exclusive of hand" wanted these tenants dispute, the tenants filed a suit in Small Caus Courl for' f,txation' of standard sed'an interim order tn 1994 rent. In that case, the Small Causes Court fixing the rent at Rs.30,000/- per month, w h was less than the contractual rent agreed upon between the parties in the rent agreement. Since the rent was fixed on lump sum basis at Rs.30,000/ per month, the assessee had to claimed as deduction. The pay the tnaintenance charges, which Assessing Offi.cer disallowed the claim on e ground that as per the lease these premises in the. relevant assessment :agreements were entered into in this behalf w agreeinent these rhaintenance charges were CIT(A), however, allowed this claim which by the Tribunal as well. 1994. The suit was finally decided in N contractual rent as agreed upon between ITA Nos.260/2OO7 etc. vears to five tenants. Lease erein rent to be received bY the tractual rent. Because of this be borne by the t6nants. 'Ihc iew of the CI I(A) was affirrned 2. In so far as the rentals are concerned, t e assessee kept on receiving the interirn rent of Rs.3010001- per month fixed the Small Causes Court frorn ember, 1999 as per which, the assessee and the tenants was Page 2 of LL

6L' fixed as the standard rent by the Court. Si assessee got the rent at lesser rate than the aforesaid decision of the Small Causes (cortesponding to assessment year 2000-200 'of rent for earlier pbriods as well. 3. In the income-tax return filed for the 2000, the assessee had shown th'e ALV as basis of Rs.30,000/- per month which was during the pendency of the sr-rit tractuai rate because of the in the financial year 1999-2000 ) the assessee receivecl arreai's ssessment year 1996-97, 1999- Section 23 of the Act on the ived by it under the interim orders of the Cour1. On that basis, as ents were comPleted and assessfitent orders were passed for these asses ent years. After the orders of the Small Cause$ Cour1, the Assessing Officer 4. issued. notice under Section 148 of the Actlin respect of these assessment years thereby seeking to reopen the assess on the ground that the ALV was wrongly fixed at a'lessqr rate as the rent lpayable was higher, which was, in fact, received by the assessee and theref the ALV should have been fixed at the contractual rent. The additions lon this basis were made by the Assessing Officer after re-assessment relatinq to assessment yeals 1996-97 to year 2000-2001. Irt this retum, the asse'ssee pisclosed receiving of arrcars of rent and appended a note stating that this am unt was not taxable in this year. In the asp€ssment ordel passed, and did rnot tax the said receipt ITA Nos.260/2007 etc. g Office accepted this position arrears of rent albeit on the J the Assessi pertaining Page 3 of LL

@ ground thpt in respect of this receipt notice u years had already been issued. Corning assessment year 1996-97 to 1999-2000, the the A,ssessing Officei by filing appeal which re-assessment was set aside. The Tribunal the order of the CIT(A). According to contractual rent was higher, because of the in Court"passed undel Section 11(5) of the Act, the assessee was forced to accept lesser terit provision of appeal and thus, the assessee h rent., Therefore, this became the rent recei Section 23 of the Act and was rightly made th passing the original assessment orders. concumed with the view taken by the CIT(A) payable to the assessee pursuant to the final that the arrears of rent rel 1996-97 to 1999-2000 are income of the assessee and Section 148 for the relevant to the re-assesstnent qua essee cllallenged the order of allowed by CIT(A) and the impugned order has confirmed e Tribunal, even when the im order of the Srnall Causes ich was a speciai enactment, fixed thereby. There was no no option but to receive that able as per the provisions of basis of fixing the ALV while ile doing so, the Tribunal t arrears of rent had become : passed by the court in the accounting year relevant to the assessment y '2000-01, which could not be taxed in the assessment year 1996-97 to 1 -2000. In respect of these assessmenr years, therefore, the cluestion of l{w that arises fol consideration I and on which appeals are admitted is as under:f " Whether the ITAT was orrect in law in holding 6. ting to assessment year ot to be included in the hus. not taxable?" We have finally heard the arguments o this question of law'also and therefore, proceed to answer the same as well. Page 4 of 11 ITA Nos.260 /2007 etc. I

@ 7. Before we take note of the Rev.enue, we would like to take note : ns of learned counsel for the judgments, some of which are t. This rent was received at a year 198I-82. 'fhe Assessing rent for . prior years in the the head "Income fi'otn other le under Sections 22 and 23 tn lonul pro.eeded on the implicit t.' p roped in by the provisions of [rot filed any cross-objections on I i's of rent relating to past years i part of actual rent for su.qh later submi of cer refehed to by the Tribunal in the imirugned ,the learned counsel for the Revenue has ven rder,'because of the reason that red to argue that those cases are distinguishable and would not apply to the t case. to is the judgment of Calcutta High Court in Harruilton & Co. Pvt. Ltd. v- T, 194 ITR 391 (Cal.). That was a case where the assessee/landlord agreement between the assessee and the later date but with'retrospective effect. receiving rent on the basis of a result. the assd'ssec received 8. The first case which needs to be refet arrears of rent for prior years in the accounti Officer taxed the said receipt of arreals accounting year in which it was received sources", as arears of rent was not chargea ,1 a the year of receipt. The question was as to w l ;, Courl specifically spelled out that the Trib premise that the arrears of rent could not b Sections 22 and23 andthe Revenue had also this particular issue as to whether the arrea received in a later vear of account could be ther this receipt could be taxed under the head "Income from other The Couft answered the question in the negative. Though that was ot the issue before it, the High lw4^' #flglts year in terms of Explanation I beliw Section 23 o'f the Act,i which defines annual rent. ' However, the Court was of the opinion thal this of thc question falling for particular issue was an inherent aspectl .l I ITA Nos.260/2007 etc. Page 5 of 1.L

determination and therefore, addressed the as well. It is for this reason that this judgrnent of the Calcutta High urt becomes relevant for our The Courtlanswered the aforesaid pect as under:- 6r' purposes. 9. This judgtnent was Ltd. v. CIT. 238 ITR L t'The question is whether to'another previous Year i house property of the they were received. If years are not part of the account in which such a only rational inference rent of such past Year or rent of the year in,which upon subsequent increase. followed by the anears of rent relating taxable as income fiom previous year in which arrears of rent of past rent of the year of ars are received, then the d be that the annual years but not the annuai it is received consequent e High Courl in f{ope (India) the same question fell 'for Hamilton and Co. Pvt. Ltd. rent or annual rents of' past year or years to which they pertain can be ught to charge only in the assessment years rel ant to such past years of account. The receipt of of rent camot, by any stretch, of imaginati be said to have shed . their character as rent fr .'ceased to be liabie to te m property and to have property. The simple ca as income from house is that the rent of a past elv shall be the annual vear increased retro 740 (Cal.). consideration directly. After quoting (supra), the Court put a stamp of approval onlthe position of law stated vi0-a- 'l vis Sections 22 and 23 of the Act.' We may floint out here thal as per Section 23(1)(b), the rent received or receivable, *hli.h"u.r is higher, would be the I basis of calculating the ALV. The entire displute relates to the meaning which is to be attributed to the word "receivabll", as according to the leamed I counsel for the Revenue, the contractual renlr, which was higher of the two, was leceivable and therefore, that should be tfeated as ALV. In llope (Inctia) tl i i I I ITA Nos.260 /2007 etc. Page 6 of LL

I,td. (supra) qlanner:- ITA Nos.250/2007 etc. same conclusion' (per M Lr.6 Eq. 59): See further atson Eq. (2"o Ed.) 1228. be construed as 'received' , citing Re Dodgson, I Drew. a gift over if any tnelnber of a the Court considered the matt and answeled in the following "With a yiew to c ider the question involved in t[is reference it is profi word "receivable" as de le to note the meaning of the ed in Blaclc's Law Dictionary, sixth edition, 1,268 and Stround's'Judicial DictionarY, fourth edition, 2280, whi ate: "Black's Law. Di -That which is due and owrng a person or comp y (e.g., acbount receivable). In book keeping the name o due. an account which reflects a debt Stroud's Judicial ictionary.-(1) 'I rnyself should have held that the words ' receivable" and "payable" were the same thing, and that but I am happy to find th were equivalent to "vested", at the judgment of the M.R. in Hayward v. James (29 L. . Ch. 822) expresses exactlY the ins V.C., West v. Miller [1986.1 (2) 'Receivable' (Wms.'Exs. (12th ed.), 6 440). In that case there class died 'before recei ng' his share ; held, that that phrase meant 'before bei entitled to receive' Under seOti of the Income-tax Act, 1918 (3) (c. 40) : affirmed 528;', see ,IRC v. P , 96 LJKB 882 (CA), (i928) AC 2s2 (HL); Leigh v. IRC, 43 TLR The apex court in U9541 26 ITR 27, had meaning of the words D. Sassoon and Co. Ltd. v. CIT the occasion to consider the "accrue", "arises", and "is received" in the context the definition of income. The apex court held (page 50) "Now what is income?lThe term is nowhere defined in the Act ... In the of a statutory definition we must take its dictionary meaning - 'that *iti"h comes in as periodical produce of one's work, business; lands investments (considered in reference to its amoun{ and commonly expressed tn terms of money) '; afrnual or periodical receipts accruing 'to a persotr or corporatibn' (Oxford Dictionary). The wor{ clearly irnplies the ideal of receipt, actual or constriuctive. The policy of the Act is to make the amounlt taxable when it is paid or received either actually or constructively. 'Accrue', Page 7 of 1L

f @, 'arises' and 'is receiv ' are thred distinct tenns. So far as receiving of .in is concemed there can be no difficulty; it vevs a clear and definite rneaning, and I can ink of no expression which makes its meaning pla than the word 'receiving' ' and 'arise' also are not itself. The words ' defined in the Act. The ordinary dictionary have got to be taken as the meanings of these wo meanings affaching synonymous with 'ari them. 'Accruing' is ng' in the sense of springing ult. The three expressions is received' having been used peaking 'accrues' should not as a natural growth or 'accrues','arises' and in the section, strictly be taken as synonym distinct sense of grow increase or as an aca Word 'arises' means or presents itself. The growth or accumulatio or accumulation with receivable. It is diffi has been throughout perhaps the two words or ideas very similar, this that one is more a applied to particuiar pointed out by Fty., [i888] 21 QBD s2, s having been affected by the House of Lords the words are used in with 'arises' but in the up by way of addition or ion or advantage; while the es into existence or notice er connotes the idea of a and the latter of the growth tangible shape so as to be It to sav that this distinction intained in the Act and to denote the same idea d the difference only lies in ropriate than the other when It is clear, however, as .J., in Colquhoun v. Brooks fthis part of the decision not the reversal of the decision [1889] 14 AC 4931 that both adistinction to the word 'receive' and indi a right to receive. T'hey represent a state antet to the point of time when the income becomes receivable and connote a character of the in inchoate." which is more or less 10. Aftel taking note of many other ju{ernents touching upon various issues, the Court answered the question for$ulated by it (which is squarely tl1e question $ the instant case as well) in the fiollowing manner: i "In the instant casef as indicated hereinbefore, the Goverrunent Departrnpnts agreed to enhance the rent with retrospective eff$ct fiom 1982, and thus, the parlies were not ad idem !n their mind as regards the actual quantum of rent Raflable to the assessee by its ITA Nbs.260 /2007 etc. Page 8 of 11

tenants .ffid, thus, the actual amount was not ascertainable. Fair , keeping in view the determined, actual rent to be paid by the tenants. Although the said provisi have no application in case the Government is paid on the basis of the tenant the rent has to be eement entered into by the parties. A claim made by landlord for enhancement said to be an amount of rent cannot, thus, receivable within the m ing of section 23(I) of the Act. A claim or a dem d by itself does not coffie irrovisions of the West B has to be determined within the purview of the receivable" and keeping An agreement ent parlies in terms whereof considered view, does not . of ayy of the prov aforementioned." I Prernises Tenancy Act, till such fair rent is into between the quantum of rent is me within the purview ons of section 5 ord "incotne received or n view the provisions of section 5 of the Income- Act there cannot be any doubt whatsoever such i come either received or deemed to be received. or arose or is deemed to accrue or arise to him o accrues or arises in India India during the previous or accrues or arises outsi year. determined with retros ive effect, in our 11, At this juncture, we would also like to fer to an order passed by the Authority for Advance Rulings (AAR) i Jugtar Commissioner of Income-Ttx, fohndhar I also a case where al:rears of rent were receive{ in subsequent years and AAR ruled that these were neither assessable undef Section 23 nor assessable as income fiom other sources. The AAR had foillowed the judgment of Calcutta .t High Court in Humilton & Co. Fvt. Ltd. (supra) while corring to this conclusion. In fact,.there may not be any necepsity to even take note of these I judgments as amendment made in the Incorneftax Act by Finance Bill 2000 with the insertion of Sectio n 258 of the Act ulould ciinch the issue. Section I 1(D r.o^J. ^- rr-lo*. 213 Singh Purewsl v. ITR 512. That was 25B reads as under:- ITA Nos.260/2007 etc. Page 9 of LL

( @ unt, by way rent from such propertY, n tax for any previous Year, t charged the amount so received, a deducting a sum equal to thirty per cent of such ount. shall be deemed to be the income chargeabl under the head 'Incotne 'accordingly charged to of that previous year in . whether the assessee is from house property' a which such rent is receiv the owner of that proPertY that year or not." *?SB.Special,provision qeceived.-Where the assi (u) is the owner of anY consisting of any buildings or lands a t thereto which has been let to a tenant; and (b) has received anY income-tax as the incorn of arrears or rent ofarrears of to income- J 1.4.200I. However in ts.M. as these assessfiIent yeats are that the arrears of rent received 12. No dou'bt, it has come into effect fi'o .Gupta and Sons (HUF) v..A.ssistant ioner of Income-Tox,299 ITR 410 (Del.), this Court has made it clear that said provision is clarificatorY in nature. In that case, the question whiclr for consideration is posed in tfre following terms:- i, n, c'Whether the arreafs of rent relating to the I 13. It is held in that case that Section ZjB of the Act only clarifies the .: , - posrtron tnat 1r any arrears of rent are receivfA i" subsequent year, the same earlier year(s) could b{ brought to tax as income from house ploperly lof the previous yeaf in which these are actuallV received?." 'l lrvgrLrvrr !rre! ^^ -- f -- --- - L J t.\ will be taxed in the year of receipt. Onc{ we proceed on this basis, the I obvious conclusion would be that the allreals of . rent received in the I assessment year 2000-01 would not relate to [ne previous years and are to be taxed in that year. For this reason, as far concerned, the Tribunal was right in holdihg ITA Nos.26012007 eIc. Page L0 of L1

@ in the assessment year 2000-01 could not be r.e., 1996-97'to 1999-2000. The question of spread over the previotts Years, w, thus, fiamed is answered in favour of the assessee and against the Re 14. In view of the aforpsaid and having to the provisions of Section 258 of the Act. the amount received as s of rent could be taxed at the hands of the assessee in the assessment Assessing Officer chose not to include the 2000-01. Horvever, the assessee in the said assessment year- Ther in this year this question has not even fallen for consideration. Had the is e been alive for this assesstnent year, we could have given the directions the amount received should be any such issue, we cannot pass exigible to tax in this year. In the absence o any directions. 15.' In so far as other issue, which arises i these appeals is concerned, that relates to the maintenance and other paid by the assessee while computing the ALV of the property. Sin assessee, it was rightly held to be deductibl the ALV. On this aspect we are of the opini These appeals are accordingly dismissed. id arrears'in the income of the this amount was.paid by the' from the rent while computing n that no question of law arises. rl ,. (;h- WAY (kffi JIJDGE ./-2 :O'----(44'' (M.L. IVIEIIT'A) JIJDGE JANUAR.Y 25,ZOTI TdP. Page 1L of 11 ITA Nos.260 /2O07 etc.