Ita/1390/2009 Of The Commissioner Of Income Tax, Tvpm v. Punalur Paper Mills, Kollam

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1423 of 2009 AGAINST THE ORDER IN ITA.467/COCH/2005 OF I.T.A.TRIBUNAL, COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON, SENIOR COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT/ASSESSEE: PUNALUR PAPER MILLS LTD.,KOLKATA. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1378 of 2009 AGAINST THE ORDER IN ITA 227/COCH/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS LTD.,KOLKOTA. BY ADVS.SRI.E.K.NANDAKUMAR (SR.)SRI.K.JOHN MATHAISRI.P.BENNY THOMASSRI.P.GOPINATH (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.No.1423 of 2009 & IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1384 of 2009 AGAINST THE ORDER IN ITA 226/COCH/2005 OF I.T.A.TRIBUNAL, COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS LTD., 13, NELLIE SENGUPTA SARANI, KOLKATA-700087. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1389 of 2009 AGAINST THE ORDER IN ITA 305/COCH/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME-TAX, TVM.THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS, KOLLAM BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.No.1423 of 2009 & IN THE HIGH COURT OF KERALA AT ERNAKULAM ITA.No.1389 of 2009 AGAINST THE ORDER IN ITA 305/COCH/2006 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME-TAX, TVM.THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS, KOLLAM BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.No.1423 of 2009 & IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1390 of 2009 AGAINST THE ORDER IN ITA 22/COCH/2003 of I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS LTD., KOLLAM. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1389/2009, ITA.1415/2009, ITA.1418/2009, ITA.1422/2009, ITA.No.1423 of 2009 & - 6 - IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1415 of 2009 AGAINST THE ORDER IN ITA.269/COCH/2003 OF I.T.A.TRIBUNAL, COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS LTD.,KOLLAM. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1418/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1389/2009, ITA.1390/2009, ITA.1418/2009, ITA.1422/2009, ITA.No.1423 of 2009 & - 7 - IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1418 of 2009 AGAINST THE ORDER IN ITA 225/COCH/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS,KOLKOTA. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1422/2009, ITA.No.1423 of 2009 & IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1422 of 2009 AGAINST THE ORDER IN ITA 228/COCH/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 PUNALUR PAPER MILLS,KOLKOTA. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1422/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1422/2009, ITA.No.1423 of 2009 & IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE ASHOK MENON THURSDAY, THE 07TH DAY OF FEBRUARY 2019 / 18TH MAGHA, 1940 ITA.No.1422 of 2009 AGAINST THE ORDER IN ITA 228/COCH/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, COCHIN DATED 29-08-2008 APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT: PUNALUR PAPER MILLS,KOLKOTA. BY ADV. SRI.E.K.NANDAKUMAR (SR.) OTHER PRESENT: ADV.SRI JOSEPH MARKOS [SR.], AMICUS CURIAE. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.02.2019, ALONG WITH ITA.1378/2009, ITA.1384/2009, ITA.1389/2009, ITA.1390/2009, ITA.1415/2009, ITA.1418/2009, ITA.1423/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No.1423 of 2009 & JUDGMENT [ ITA 1423/2009, ITA.1378/2009, ITA.1384/2009,ITA.1389/2009, ITA.1390/2009, ITA.1415/2009,ITA.1418/2009, ITA.1422/2009 ] Vinod Chandran,J. The appeals, arising from a common order of theTribunal, raise common and different questions in thevarious assessment years (for brevity A.Ys). We, hence,would go by the issues raised in the various appeals. 2. For the years 1985-1986 and 1996-1997 to2000-2001, a total of six A.Ys, one of the questions raisedis on the rent arrears of earlier years, received by theassessee in the subsequent years. On facts, suffice it torecord that the assessee was the owner of a multi-storeyedbuilding, by name 'Lindsay Towers' in Kolkata, which waspurchased in 1971. On the assessee seeking enhancement ofrent from the tenants, the tenants refused and the matterwas referred to an Arbitrator, which was settled muchlater. The rent so fixed by the Arbitrator along withinterest as awarded, for many previous years, was receivedby the assessee from the various tenants in a farsubsequent year. The Assessing Officer [for brevity “AO”]for certain years initiated proceedings under Section 147for re-assessment. In the A.Y. 2000-01, the AO brought to tax the entire arrears, other than that for the relevantprevious year, as 'income from other sources', ie: in theyear of its receipt and also made protective assessmentsfor the A.Ys in which they actually fell due. 3. First we refer to I.T.A.No.1422 of 2009relating to the A.Y.2000-2001. The arrears of rent receivedof Rs.6,11,18,381/- in the relevant previous year was forhousing the offices of the Provident Fund Commissioner,Kolkata. The assessee offered Rs.25,39,971/- as the arrearsdue between April to August, 1999, ie: the arrears of rentapplicable to the relevant previous year. The assesseeclaimed that income-tax was not leviable on the balanceamounts; since it did not comprise the rent arrearsaccruing or arising in the previous year to the assessmentyear. The arrears with respect to an year other than therelevant previous year could not be taxed under the IncomeTax Act, 1961 (for brevity “the Act”] was the compellingargument. It was specifically contended that though Section25B would enable such taxation of income received fromhouse property relatable to a prior year in the year of itsreceipt, the said provision is prospective; with effectfrom 01.04.2002 alone. It cannot be applied for the earlieryears. 4. The Assessing Authority found that since theincome is not exempted from taxation and is not chargeableto tax under the specific heads of items A to E of Section14, it shall be chargeable under the head 'income fromother sources' (item F). Reliance was placed on CITv.G.R.Karthikeyan[(1993) 201 ITR 866 (SC)] for theproposition that tax incidence arises either on accrual orreceipt. The assessee's contention that the receipt of therent arrears in the previous year relevant to theassessment year would not change the character or nature ofthe income was negatived. If it cannot be assessed as'income from house property' for reason of the same beingnot rent accruing, arising or receivable for the relevantprevious year, then it has to be assessed as 'income fromother sources'. The rent arrears relating to the assessmentyears 1996-1997 to 1999-2000 was also included as aprotective measure in the total income of the assessee inthe respective assessment years. The first appellateauthority followed the order in first appeal for the year1985-1986 which relied on Section 25B, which wasintroduced later; but found it to be clarificatory andupheld the assessment made. The Tribunal relied on twodecisions of the Calcutta High Court in Hamilton & Co. (P) Ltd.v. CIT [(1992)194 ITR 391 (Cal)] and Hope (India)Ltd.v. CIT [(1999)238 ITR 740 (Cal)] to find that therecould be no assessment made in the previous year in whichthe arrears of rent was received, since it related to aprior year. Section 25B was held to be not clarificatory. 5. Sri.P.K.R.Menon, learned Senior Counsel,Government of India (Taxes) would seek to sustain the orderof the AO. assessing it as 'income from other sources'.Alternatively, it is argued that merely because the rentarrears was received in a subsequent year, it would notchange the character of the income and it could be assessedas income from house property itself. There is norestriction insofar as assessing the income from houseproperty in the year in which it accrues or arises and thereceipt in a subsequent year would also enable suchassessment in that year when the amounts are received,since the charge is on the income from house property whichis the annual value of the property as seen from Section 22and determined as per Section 23. Section 25B, according tothe learned Senior Counsel, is clarificatory in nature ashas been held by the High Court of Delhi in B.M.Gupta andSonsv. Asst. CIT[(2008) 299 ITR 410 (Delhi)] and CITv.R.J. Wood P.Ltd. [(2011) 334 ITR 358 (Delhi)]. The facts in R.J. Wood P.Ltd. are also identical and despite noticingthe decisions of the Calcutta High Court, found Section 25Bto be applicable holding it to be clarificatory. 6. The learned Counsel for the assessee would relyon P.G.&W. Sawoo (P) Ltd.v.Assistant CIT[(2017) 13 SCC284]. According to him, the issues stand settled by thedecision of the Supreme Court and there could be nore-opening of assessments carried out of the earlier yearsrelating to which rent arrears were received in asubsequent year, even if it is within the limitationperiod. It is contended that as the provision existed inthe relevant years, the annual value of the property iseither the sum which can be reasonably expected to beobtained from the letting of the property or the annualrent received or receivable by the owner which is in excessof rent reasonably expected. At that point of time,Explanation I also existed, which defines “annual rent”,which means either the actual rent received or receivableby the owner in respect of such year. Hence, the charge isspecific to the year in which the rent is received orreceivable and it cannot be brought to tax in a subsequentyear. Section 25B, it is asserted, is not clarificatory innature, the same having been specifically stated to be with ITA.No.1423 of 2009 & effect from 01.04.2002. ITA.No.1423 of 2009 & effect from 01.04.2002. 7. The following questions of law arise in theyear 2000-01; in which alone the Tribunal, if at all couldyear 2000-01; in which alone the Tribunal, if at all could have imported the finding of Section 25B, beingclarificatory. We say this because in the other years theproceedings were under Section 147, for assessing the rent,after increase, in the A.Ys, relevant to the previous yearsin which it actually accrued: (i) Whether the rent accruing in a prior year, notreceived in that year, could be assessed in asubsequent year when it is received; as 'incomefrom house property' or otherwise as 'income fromother sources' as found by the AO?received in that year, could be assessed in asubsequent year when it is received; as 'incomefrom house property' or otherwise as 'income fromother sources' as found by the AO? (ii) Whether the Tribunal was correct in holding Section25B to be clarificatory? 25B to be clarificatory? 8. We extract Section 23(1)(a) and (b) and Explanation I: “23(1) For the purposes of section 22, theannual value of any property shall be deemed to be - (a) the sum for which the property might reasonablybe expected to let from year to year; orbe expected to let from year to year; or (b) where the property is let and the annualrent received or receivable by the owner inrespect thereof is in excess of the sumreferred to in clause (a), the amount sorent received or receivable by the owner inrespect thereof is in excess of the sumreferred to in clause (a), the amount so received or receivable; xxxxxxxxx Explanation 1.- For the purposes of this sub-section, “annual rent” means - (a) in a case where the property is let throughoutthe previous year, the actual rent received orreceivable by the owner in respect of suchyear; andthe previous year, the actual rent received orreceivable by the owner in respect of suchyear; and (b) in any other case, the amount which bears thesame proportion to the amount of the actualrent received or receivable by the owner forthe period for which the property is let, asthe period of twelve months bears to suchperiod”.same proportion to the amount of the actualrent received or receivable by the owner forthe period for which the property is let, asthe period of twelve months bears to suchperiod”. 9. Section 22 provides that the annual value of the property is the measure on which the charge has beencreated for 'income from house property'. By Section 23,annual value of a property is deemed to be the reasonablerent expected to be received from year to year, or wherethe property is let, the annual rent received orreceivable; if in excess of the reasonable rent expected,then the amount so received. The annual rent defined inExplanation I, in the case of a property let through outthe previous year “is the actual rent received orreceivable by the owner in respect of such year” (sic).Hence, when a property is let, the annual rent received or 9. Section 22 provides that the annual value of the property is the measure on which the charge has beencreated for 'income from house property'. By Section 23,annual value of a property is deemed to be the reasonablerent expected to be received from year to year, or wherethe property is let, the annual rent received orreceivable; if in excess of the reasonable rent expected,then the amount so received. The annual rent defined inExplanation I, in the case of a property let through outthe previous year “is the actual rent received orreceivable by the owner in respect of such year” (sic).Hence, when a property is let, the annual rent received or receivable by the owner in respect of such previous yearalone can be brought to tax as income from house property.This is the restriction, insofar as taxing rent as 'incomefrom house property', as provided in Section 22; whenreceived in any subsequent year to the previous yearrelevant to an assessment year. It is then received asarrears for a prior year not relatable to the relevantprevious year and there is no charge on such income fromhouse property. The four elements of taxation, as has beenspecified in Govind Saran Ganga Saran v. Commissioner ofSales Tax[1985 (Supp) SCC 205],are (i) the taxable eventattracting the levy, (ii) the person on whom the levy isimposed, (iii) the rate at which the tax is imposed and(iv) the measure or value to which the rate will beapplied. The annual value of property which is defined asthe annual rent received or receivable by the owner inrespect of a previous year is the measure on which the taxis levied. Its character does not change if the receipt isin a subsequent year; but then in that assessment year, itcannot be charged since it will not be rent accruing orreceived for that previous year in which the property islet ie: not 'income from house property' for the relevantprevious year. Section 25B definitely provides for the ITA.No.1423 of 2009 &connected cases arrears also to be taxed; but the provision was notavailable in the relevant A.Y. 10. We now refer to the decisions of the DelhiHigh Court as relied on by Sri.P.K.R.Menon. B.M.Gupta andSonswas a case in which the lessor and lessee entered intoa compromise settlement in a suit filed by the assesseeincreasing the rent retrospectively from April 1, 1994. Theassessee received a sum of more than Rs.38 lakhs during thefinancial year 1999-2000 on account of the arrears of rentfor the period 01.01.1994 to 31.03.1999. The appellantcontended that this amount was in fact damages and mesneprofits. The terms of the compromise in the suit wasspecifically noticed to negative the said plea. TheDivision Bench held that, by virtue of the compromisebetween the parties, the assessee not only acquired theright to additional income but also received the arrears ofrent during the financial year 1999-2000, attracting theprovisions of Section 5(1)(a) of the Act. 11. R.J.Wood P.Ltd.is in identical circumstances of a letting out made by the assessee to five tenants. Adispute arose as to who is to bear maintenance charges,upon which the tenants filed a suit before the Small CausesCourt for fixation of standard rent. The Court by an 11. R.J.Wood P.Ltd.is in identical circumstances of a letting out made by the assessee to five tenants. Adispute arose as to who is to bear maintenance charges,upon which the tenants filed a suit before the Small CausesCourt for fixation of standard rent. The Court by an interim order fixed a rent on a lump sum basis; lesser thanthat agreed upon between the parties. The assessee paid themaintenance charges during the period of the pendency ofthe suit and claimed it as expenditure. The AO disallowedthe claim finding that the agreement created the liabilityfor maintenance on the tenants. The suit came to be finallydecided, in which the contractual rate was affirmed. Theincome tax returns filed for the years 1996-1997 to1999-2000 showed only the standard rent received by theappellant as fixed by the Court as an interim measure.After the order of the Small Causes Court, the AO issuednotice under Section 148 in respect of the A.Ys 1996-1997to 1999-2000 including the annual rental, at thecontractual rent for the said assessment years. The arrearsbeing related to those years, the assessee filed its returnfor the year 2000-2001, in which relevant previous year theassessee received the rent arrears. The AO accepted theposition that this would not be taxable for the prioryears. The Delhi High Court noticed the decisions of theCalcutta High Court, but eventually found the positionhaving changed by introduction of Section 25B;, which washeld to be clarificatory. Finding that Section 25B of theAct enables assessment of the rent in the year in which it was received, though related to the previous years, it washeld that the same cannot be assessed in the previousyears. However, since the AO had not assessed the amountsin the year 2000-2001, there were no directions issued. 12. The learned Senior Counsel for the Revenue hasspecifically relied on B.M.Gupta and Sons and R.J. WoodP.Ltd., which found Section 25B to be clarificatory. We,with all the respect at our command, cannot agree with thesaid finding as entered into by two Division Benches of theDelhi High Court. We also notice that the specificstatement relied on by the learned Senior Counsel, GOI(Taxes) that “the insertion of Section 25B of the Act bythe Finance Act, 2000 is more clarificatory innature”(sic), from B.M.Gupta and Sons was the argumentadvanced by the Counsel for the Department before Court.B.M.Gupta and Sonspermitted arrears of rent in that caseto be brought to tax since it attracts the provision ofSection 5(1)(a) of the Act. R.J. Wood P.Ltd. followedB.M.Gupta and Sonsto find that the provision isclarificatory in nature without any reasoning thereof. 13. We are persuaded to accept the proposition aslaid down by the Calcutta High Court in Hamilton & Co. (P)Ltd.and Hope (India) Ltd. In Hamilton and Co. Pvt. Ltd., the learned Judges framed the question as to whether thearrears of rent relating to another previous year istaxable as income from house property of the later year inwhich the arrears were received. It was held: “If the arrears of rent of past years are not partof the annual rent of the year of account in whichsuch arrears are received, then the only rationalinference should be that the annual rent or annualrents of the past year or years to which theypertain can be brought to charge only in theassessment years relevant to such past years ofaccount. The receipt of arrears of rent cannot, byany stretch of imagination, be said to have shedtheir character as rent from property and to haveceased to be liable to tax as income from houseproperty. The simple case is that the rent of a pastyear increased retrospectively shall be the annualrent of such past year or years but not the annualrent of the year in which it is received consequentupon subsequent increase”. 14. In this context, we also notice the followingfrom Departmental Circular No.494 dated 9[th] August 2000: 14. In this context, we also notice the followingfrom Departmental Circular No.494 dated 9[th] August 2000: “Introduction.- Section 25B [enacting specialprovision for arrears of rent received] has newlybeen inserted (w.e.f. 1.4.2001) by the finance Act,2000. The scope and effect of such insertion ofsection 25B by the Finance Act, 2000, have beenelaborated in the following portion of the departmental circular No.794, dated 9[th] August, 2000,as under:- '21. Taxation of arrears of rent in the year ofreceipt.- 21.1 The scheme of taxing the income fromhouse property under the Income-tax Act involves theconcept of “annual value”. Annual value has beendeemed to be the sum for which the property mightreasonably be expected to be let from year to year orannual rent received or receivable in excess ofannual value. Arrears of rent received subsequentlymay or may not fall within the ambit of annual value.Doubts have also been expressed that it may bedifficult to include arrears of rent in the relevantyears as these were not receivable during thoseyears. Difficulties in taxing such income as incomefrom other sources also came to notice on account ofa possible view that such income retains thecharacter of income from house property. 21.2 With a view to set all such doubts at restand to clarify the matter, the Finance Act, 2000,inserts a new section 25B in the Income-tax Act toprovide that where any arrears of rent, other thatwhat has already been taxed under section 23, arereceived in a subsequent year, the same will bedeemed to be the income from property and charged totax in the year of receipt whether the property isowned by the assessee in the year of receipt or not.A deduction of a sum equal to one-fourth of suchamount of rent shall be given towards repairs andcollection of rent. 21.3 This amendment will take effect from 1[st]April, 2001, and will, accordingly, apply in relationto the assessment year 2001-2002 and subsequent years[Section 13]'.” The introduction of Section 25B is stated to beclarificatory, but not in the sense of it being applicablealways in the prior years; but only in the context of itbeing introduced to set all doubts at rest. It also isexpressly stated that it applies to assessment year 2001-2002 and subsequent years. 15. We also have to notice the amendments broughtto Section 23. Section 23 as we extracted hereinabove alongwith the Explanation was available in the Statute book from1993 till 01.04.2002 when it was amended by the FinanceAct, 2001. In the present case, we are only concerned withthe financial years prior to 01.04.2000, the last of theassessment years under consideration being 2000-2001. Theassessment of the arrears of rent arise last in theassessment year 2000-2001, the previous year relevant towhich, ends on 31.03.2000. Section 23 as amended by theFinance Act,2001, again spoke of determination of annualvalue and deemed it to be the actual rent received orreceivable by the owner in respect thereof, in excess of 15. We also have to notice the amendments broughtto Section 23. Section 23 as we extracted hereinabove alongwith the Explanation was available in the Statute book from1993 till 01.04.2002 when it was amended by the FinanceAct, 2001. In the present case, we are only concerned withthe financial years prior to 01.04.2000, the last of theassessment years under consideration being 2000-2001. Theassessment of the arrears of rent arise last in theassessment year 2000-2001, the previous year relevant towhich, ends on 31.03.2000. Section 23 as amended by theFinance Act,2001, again spoke of determination of annualvalue and deemed it to be the actual rent received orreceivable by the owner in respect thereof, in excess of the sum, which is reasonably expected to be received whenit is let from year to year. Before the said amendment toSection 23, Section 25B was brought in as a specialprovision for arrears of rent received subsequently, byFinance Act, 2000 with effect from 01.04.2001. Hence, whenSection 25B was first brought into the Statute, Section 23existed as it did from 1993 onwards, with the annual valuedeemed to be the annual rent and the definition of “annualrent” found in Explanation I to be the rent accruing forthat previous year when the property was let. Section 25Bsought to remove the prohibition, insofar as the arrears ofrent received in a subsequent year not being charged underSection 22 for reason of the measure of 'annual value' asdefined by 'annual rent' not enabling the assessment of anyrent, which is not received or receivable for the previousyear relevant to the assessment year. Section 25B is adeeming provision, enabling arrears of rent received from aproperty to be deemed an income chargeable as 'income fromhouse property' and accordingly charged to income tax asthe income of that previous year in which such arrears isreceived.16. A substantial change in the levy was broughtin by introducing Section 25B, which was also specifically made effective from 01.04.2001 alone. Hence, we cannot findSection 25B to be clarificatory and to that extent, wedefer from the findings in B.M.Gupta and Sons and R.J. WoodP.Ltd. We also find that the provision under Section 23,asexisting for the subject years; deems the 'annual value' tobe the 'annual rent'. The definition of 'annual rent'evident from Explanation I restricts the levy of income taxto actual rent received or receivable by the owner inrespect of the previous year relevant to an assessment yearin which the property was let; which alone can be 'incomefrom house property'.17. Now, we examine the orders of the lowerauthorities. We find that the question under Section 25Barose only for the year 2000-2001. For all the other years,the respective assessments of the said years were reopenedunder Section 147 by a notice issued under Section 148. Thefurther question insofar as the assessment year 2000-2001is as to whether there can be a protective assessment forthe particular years for which the arrears of rent relate.We are afraid that such a protective assessment is notpermitted by the Statute and resort can only be to Section147, though the time for reopening had underwent changesover the years. The learned Counsel for the assessee however objects to the re-assessment under Section 147;which we will deal with later, in the other subject years.As far as 2000-01 is concerned there is no re-assessmentand the AO has assessed the arrears of rent as 'income fromother sources' and also carried out protective assessmentfor the relevant assessment years to which the arrears ofrent were relatable. In first appeal Section 25B wasapplied to tax the arrears of prior years received in therelevant previous year. We do not agree with the findingof the AO that even if it cannot be taxed under Sections 22and 23 as 'income from house property', the same can betaxed as 'income from other sources'. The rent receivedbeing 'income from house property', does not change itscharacter, merely for the reason that it has been receivedin a far later subsequent year to the financial year inwhich it actually accrued and was payable. But 'income fromhouse property' cannot be assessed in any year other thanthe assessment year; in which previous year the propertywas let and the rent received or receivable for thatprevious year's letting. We also do not agree with theorder of the CIT (Appeals) and the Tribunal that Section25B is clarificatory; which ground has been taken tosustain the assessment in the assessment year 2000-01. 18. Admittedly the rent arrears received in2000-01 also related to the various prior years. However,there was no attempt to reopen the assessments of theearlier years by the AO; at least, those in which thelimitation period had not expired. Hence for theassessment year 2000-01 reopening of assessment underSection 147 does not arise. All the same, we make it clearthat there could be no protective assessment for theearlier years as made by the AO. Hence, for the year2000-2001, we uphold the order of the Tribunal insofar assetting aside the assessment made on the arrears of rentreceived in the relevant previous year, which was not theannual rent received or receivable for that previous year'sletting of the property. We answer both the questionsframed as (i) & (ii) in favour of the assessee and againstthe revenue.19. Then we come to the other appeals where theissue of re-assessment arise. The Tribunal considered theappeals together and in the chronological order of theyears for which they were filed. The Tribunal has firstconsidered the year 1985-86 and dilated upon the argumentsof both the assessee and the Revenue regarding theclarificatory nature of Section 25B. We find Section 25B was raised and considered first before the Commissioner (Appeals), in all the relevant assessment years. TheTribunal too considered it for the year 1985-1986 andfollowed the reasoning in all the subsequent years. Thecontention with respect to the maintainability of re-assessment under Section 147 was merely brushed asidewithout considering the issue. We would have normallyremanded the matter for consideration before the Tribunal,but for the fact that the appeals have been pending herefor the last one decade and the assessments are withrespect to years two decades prior. We do not find anyfactual adjudication necessary insofar as the re-assessmentproceedings and the question is only of limitation. True,that is a mixed question of law and facts; which factsrelate to the various dates in which proceedings wereinitiated; more than evident from the records. Hence weproceed to consider the same. The question of law raised isframed as follows: (iii) Whether the proceedings initiated under Section147 was proper, so as to assess the arrears ofrent received as 'income from house property' inthe previous years of the relevant assessmentyears, in which the property was let and the rentaccrued; and whether it was within the period oflimitation as provided under Section 149?147 was proper, so as to assess the arrears ofrent received as 'income from house property' inthe previous years of the relevant assessmentyears, in which the property was let and the rentaccrued; and whether it was within the period oflimitation as provided under Section 149? 20. On the law applicable to reassessment we haveto look at Sections 147, 148 and 149 as it existed in therelevant years. Section 149, speaking of time limit fornotice under Section 148, to proceed under Section 147; forthe assessment years 1985-1986, 1996-1997, 1997-1998,1998-1999 and 1999-2000, remained more or less same. If theescaped assessment was in excess of Rs.1 lakh, it was 10years for the year 1985-86, 1996-97 1997-98 and six yearsinsofar as 1998-99 and 1999-2000. The assessee also had acontention before the Tribunal that the arrears of rentreceived were in the nature of damages and mesne profits ascontented by the assessee in B.M Gupta and Sons, which wasrightly negatived by the Delhi High Court. There theassessee received the rent by virtue of an agreemententered into in compromise of a suit. The Division Bench ofthe Delhi High Court specifically looked into the order ofthe Civil Court and found that the plea of damages andmesne profits is unfounded. In the present case also,admittedly, the assessee purchased a property in whichthere were tenants. On expiry of the lease period, theassessee claimed enhancement to which the tenants did notaccede. The assessee approached the Arbitrator and the arrears of rent obtained by the assessee is by virtue ofthe award on arbitration. Hence the claim of damages andmesne profits cannot be sustained. The amounts receivedfrom the tenants were with respect to the rent of therelevant previous years, as enhanced by the award onarbitration. 21. Section 147 proceedings were initiated by anotice under Section 148 in all the above years. We findthat for the A.Ys 1985-86 and 1996-97 the notices underSection 148 were issued respectively on 03.07.1995 and25.08.1998. For the A.Y 1997-98, the return filed inresponse to the notice under Section 148 was dated09.12.1998. The notice for those A.Ys hence, are within theperiod of limitation of ten years. Again for the year1998-99, 1999-2000 and 2000-2001 the notices under Section148 was issued on 11.02.2003 for all the years, within thesix year period provided under Section 149 as amended andapplicable for the subject years. We make it clear thatwith respect to the year 2000-2001 it only led to theassessment of arrears of rent received or receivable forthat particular year. We uphold the order of re-assessmentfor the year 1985-1986, 1996-1997, 1997-1998, 1998-1999,1999-2000 as also of 2000-2001; wherein the rent relatable to those years were alone assessed as income from houseproperty. to those years were alone assessed as income from houseproperty. 22. The learned Counsel for the assessee has acontention based on P.G.& W.Sawoo P.Ltd. It is argued thatthe right to receive the arrears of rent crystallized onlyby the award, far subsequent to the relevant assessmentyears. It is pointed out that the Hon'ble Supreme Court inthe afore-cited decision was considering the charge toincome tax on the arrears of rent with effect from01.09.1987 which accrued only by virtue of an enhancementmade in the year 1994. The Hon'ble Supreme Court held thatthe rent should accrue or arise at any point of time duringthe previous year. In the present case also, there was noaccrual in the previous year nor was there a reasonableexpectation of an enhancement being granted and hence theright to receive the rent as arrears for the previousyears, accrued and arose only in the year in which theaward was passed which takes it out of the charge ofSection 22 and 23 as available in the relevant assessmentyears. We cannot countenance the argument especiallynoticing the fact that the assessee had taken legalproceedings for enhancement of rent and was following themercantile system of accounting. Admittedly on the expiry of lease period, after the assessee acquired the property,the assessee sought for enhancement. There was no claim foreviction of tenants who were continuing in the premisespaying rent as per the earlier agreement. The tenantshaving not acceded to the request of an enhancement, theassessee had taken legal proceedings which culminated in anarbitration and the arbitration concluded with theenhancement sought by the assessee being allowed whichresulted in the receipts of arrears in a far later yearrelatable to various prior years. It cannot be said thatthe assessee did not have a reasonable expectation ofenhancement. The assessee following the mercantile systemalso should have returned the rent claimed by them beforethe arbitrator as accruing in the respective previous yearsof the assessment year when the matter was pendingarbitration. The argument holds no merit and is rejected.The question raised as (iii) is answered in favour of therevenue and against the assessee.23. For the assessment years 1996-1997, 1999-2000and 2000-2001 the question arises as to: (iv) whether there could be a claim of deduction ofMunicipal tax, for which cheque was issued tothe local authority prior to the end of theprevious year relevant to the assessment year;Municipal tax, for which cheque was issued tothe local authority prior to the end of theprevious year relevant to the assessment year; but, however, the Bank statements showrealization only on the commencement of the nextassessment year. 24. The Tribunal has remanded the matter for freshconsideration in the years 1996-1997 and 1999-2000. For theyear 2002-2003, it was specifically found that the chequewas tendered on 30.03.2002, which was cleared on08.04.2002. The Tribunal relying on the decision of theHon'ble Supreme Court in CITv. Ogale Glass Works Ltd.[25ITR 529], held that when a cheque is not dishonoured butencashed, the payment relates back to the date of tenderingof cheque. The date of payment would be the date ofdelivery of the cheque. We do not find any reason to causeinterference to the order of the Tribunal. We, hence,answer question no: (iv) in favour of the assessee andagainst the Revenue. For the year 2002-2003, the Tribunalhas looked at the dates and allowed the deduction. For theother two years, the AO would verify the dates and considerit in accordance with the cited judgment of the Hon'bleSupreme Court.25. Another question arising in the year 1997-98is as to whether the Tribunal was right in law in holdingthat the assessee must be given credit for the tax deducted at source, on the arrears of rent received. We do not seeany question of law arising on that aspect, since it goeswithout saying that any deduction made and paid over to theGovernment of India by the tenant as TDS should be givencredit to the assessee to the extent, the assessee producesevidence for such deduction by production of propercertificates issued by the deductor. The learned SeniorCounsel for Government of India (Taxes) raised a contentionthat the amounts claimed are very high and it is notprobable that the TDS would be to that extent. We find thatthe Tribunal has only held that the assessee must be givencredit of the tax deducted at source. In suchcircumstances, it is for the AO to verify and give creditto the amounts deducted at source and deposited, evidencedby valid certificates issued by the deductor. The AO wouldconsider the issue and pass appropriate orders. 26. The revenue has a further contention that iftax deducted at source is from an amount, for which noincome tax has been charged; being arrears of rent, thesame cannot be given credit to. We cannot countenance suchan argument, since if the deduction has been erroneouslymade from the amounts which cannot be categorized asincome, necessarily the assessee is entitled to refund of ITA.No.1423 of 2009 & such amounts. The assessee only claims credit insofar asthe amounts credited to be set off on the tax payable inthat particular year and the balance refunded. 27. Another question arising in the years 1998-1999,2000-2001 and 2001-2002 is as to: (v) Whether the Tribunal was correct in havingpermitted the assessee to claim vacancy allowanceas provided in