Commissioner Of Income Tax, Chandigarh-Ii v. M/S Punjab State Civil Supplies Corporation Ltd., Chandigarh

ITA No. 451 of 2008 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 451 of 2008 Date of Decision: 19.10.2015 Commissioner of Income Tax, Chandigarh-II ....Appellant. Versus M/s Punjab State Civil Supplies Corporation Ltd., Chandigarh ...Respondent. CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. Mr. J.S. Jaidka, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 29.11.2007 (Annexure A-3) passed by the Income TaxAppellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 561/CHANDI/2007, for theassessment year 2004-05. The appeal was admitted by this Court videorder dated 15.12.2008 for considering the question of law proposed inpara 5 of the appeal which is to the following effect:- Whether on the facts and circumstances of the caseand in law, the Hon'ble ITAT was correct in notappreciating that Section 25AA is applicable inrespect of only that rent which was unrealisable dueto the circumstances of Rule 4 read with explanation to Section 23(1) of the I.T. Act, 1961? 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return of income on 25.10.2004 for the assessment year 2004-05declaring loss of ` 120,53,19,245/-. The said return was processed on2.3.2005. Thereafter, revised return was filed on 24.1.2005 at the sameincome in which refund claim of TDS at ` 31,66,027/- was made asagainst claim of ` 28,80,291/- in the original return. The return wasprocessed on 30.3.2006 and notice under Section 143(2) of the Act wasissued on 27.8.2006. Thereafter, notice under Section 142(1) along withquestionnaire was issued on 3.10.2006. The assessee had not declaredthe income of rent of the building at Mohali amounting to ` 10 lacs. Theassessment was framed by the Assessing Officer vide order dated31.10.2006 (Annexure A-1) by making addition of ` 7,00,000/- afterallowing deduction at the rate of 30% under Section 24(a) of the Act.Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. TheCIT(A) vide order dated 12.3.2007 (Annexure A-2) dismissed the appealof the assessee. Still dissatisfied, the assessee filed an appeal beforethe Tribunal who vide order dated 29.11.2007 (Annexure A-3) allowedthe appeal and set aside the order of the CIT(A) and directed theAssessing Officer to delete the impugned addition of ` 7,00,000/- madeon account of income from house property. Hence, the present appeal. 3.Learned counsel for the revenue-appellant submitted thatthe Tribunal was in error as the unrealized rent was to confirm to therequirements as laid down under Rule 4 of the Income Tax Rules, 1962(for brevity “the Rules”) which have been made in pursuance to ITA No. 451 of 2008-3- Explanation to Section 23 of the Act. In support of his contention,learned counsel has relied upon the judgments in D.C. Anand and sonsv. Commissioner of Income Tax, New Delhi (1981) 131 ITR 77 (Del)and D.M. Vakil v. Commissioner of Income Tax (1946) 14 ITR 298 (Bom). 4.On the other hand, learned counsel for the assesseesupported the order passed by the Tribunal. 5.After hearing learned counsel for the parties, we do not find any merit in the appeal. 6.The solitary question that arises in this appeal is whetherthe rent of building at Mohali amounting to ` 10 lacs was receivable bythe assessee in this year or not?the rent of building at Mohali amounting to ` 10 lacs was receivable bythe assessee in this year or not? ITA No. 451 of 2008-3- Explanation to Section 23 of the Act. In support of his contention,learned counsel has relied upon the judgments in D.C. Anand and sonsv. Commissioner of Income Tax, New Delhi (1981) 131 ITR 77 (Del)and D.M. Vakil v. Commissioner of Income Tax (1946) 14 ITR 298 (Bom). 4.On the other hand, learned counsel for the assesseesupported the order passed by the Tribunal. 5.After hearing learned counsel for the parties, we do not find any merit in the appeal. 6.The solitary question that arises in this appeal is whetherthe rent of building at Mohali amounting to ` 10 lacs was receivable bythe assessee in this year or not?the rent of building at Mohali amounting to ` 10 lacs was receivable bythe assessee in this year or not? 7.It would be expedient to refer to Explanation to Section 23 ofthe Act, which reads thus:-the Act, which reads thus:- “23. Annual value how determined.- (1) For thepurposes of Section 22, the annual value of anyproperty shall be deemed to be-purposes of Section 22, the annual value of anyproperty shall be deemed to be- (a)the sum for which the property mightreasonably be expected to let from year to year; or reasonably be expected to let from year to year; or (b)Where the property or any of the property is letand the actual rent received or receivable by theowner in respect thereof is in excess of the sumreferred to in clause (a), amount so received orreceivable; or (c)Where the property or any part of the propertyis let and was vacant during the whole or any part ofis 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 inrespect thereof is less than the sum referred to inclause (a), the amount so received or receivable:Provided that the taxes levied by any local authority inrespect of the property shall be deducted (irrespectiveof the previous year in which the liability to pay suchtaxes was incurred by the owner according to themethod of accounting regularly employed by him) indetermining the annual value of the property of thatprevious year in which such taxes are actually paid byhim. Explanation – For the purposes of clause (b) or clause(c) of this sub-section, the amount of actual rentreceived or receivable by the owner shall not include,subject to such rules as may be made in this behalf,the amount of rent which the owner cannot realise. 8.As per the aforesaid Explanation, the amount of rent whichthe owner cannot realize is not to be included in clause (b) or clause (c)of sub-section (1) of Section 23 of the Act for determining the amount ofactual rent received or receivable by the owner. 9.The Tribunal relying upon Section 25AA of the Act had heldthat the unrealized rent could not be taxed in the year in question butwould fall for taxation in the year it is so realized even if the assesseemay not be owner of the property in that previous year. We do not findany infirmity in the approach of the Tribunal as according to Section25AA of the Act as well, the unrealized rent cannot be taken to be taxable in the hands of the assessee under the head “income fromhouse property” when it is not realizable. 10.Learned counsel for the revenue had referred to Rule 4 ofthe Rules. From a perusal of the orders passed by the AssessingOfficer, the CIT(A) and the Tribunal, we notice that no aid was taken bythe Assessing Officer either in his order or before the CIT(A) or theTribunal from the said rule. However, no argument was raised based onRule 4 of the Rules and, therefore, no reference was made by theTribunal to Rule 4 of the Rules. Moreover, the revenue could not refer toany material on record to show that the assessee was ever confronted toestablish the requirements of Rule 4 of the Rules to claim benefit ofunrealized rent. Accordingly, the substantial question of law claimed onthat basis does not arise. 10.Learned counsel for the revenue had referred to Rule 4 ofthe Rules. From a perusal of the orders passed by the AssessingOfficer, the CIT(A) and the Tribunal, we notice that no aid was taken bythe Assessing Officer either in his order or before the CIT(A) or theTribunal from the said rule. However, no argument was raised based onRule 4 of the Rules and, therefore, no reference was made by theTribunal to Rule 4 of the Rules. Moreover, the revenue could not refer toany material on record to show that the assessee was ever confronted toestablish the requirements of Rule 4 of the Rules to claim benefit ofunrealized rent. Accordingly, the substantial question of law claimed onthat basis does not arise. 11.Adverting to the judgments in D.C. Anand and sons andD.M. Vakil's cases (supra) relied upon by the learned counsel for theappellant-revenue, it may be noticed that the principle of law enunciatedtherein, is well recognized, however, in view of the findings noticedhereinbefore, no benefit can be derived by the revenue from theaforesaid pronouncements. 12.In view of the above, there is no merit in the instant appealand the same is hereby dismissed. (AJAY KUMAR MITTAL)JUDGE October 19, 2015 gbs (RAMENDRA JAIN) JUDGE