ORDER
Riyaz S. Padvekar, Judicial Member
1. The assessee has filed this appeal challenging the order of the Commissioner (Appeals)-III,Trivandrum dated 30-8-2004 for the assessment year 1996-97.
2. The assessee has taken the following effective grounds:
2. The learned Commissioner (Appeals) erred in holding that the arrears of rent amounting to Rs. 2,60,000 relating to the period 1992 to 1995 received during the previous year relevant to the assessment year 1996-97 constituted income from other sources, if not income from property.
3.The learned Commissioner ought to have seen that the Jt. Commissioner of Income-tax while making the assessment had treated the arrears ofrent as income from house property giving the statutory deductions. TheCommissioner (Appeals) had no justification to treat theincome from property as income from other sources.
4.The learned Commissioner (Appeals) as well as theassessing officer ought to have seen that being arrears of rent, this is notassessable under property or as income from other sources. The income being in the nature of property income, the appellant does not get the benefit of the statutory deductions like municipal tax, allowance for repairs, etc., when treated as income from other sources. The Income Tax Act clearly exempts arrears of rent as income from property but the Act does not stipulate that the arrears should be assessed under income from other sources. The learned Commissioner (Appeals) erred in holding that the arrears of rent has to be assessed as income from other sources.
3. The only issue which arises for our consideration in these appeals is whether the arrears of rent received by the assessee is taxable in the year of receipt.
4. We have heard the parties. In the previous year relevant to the assessment year, the assessee received the arrears of rent amounting to Rs. 2,60,000 pertaining to the earlier year, but he did not offer the same for taxation. The contention of the assessee was that the amount of the C arrears of rent received relating to the earlier year are not taxable and Section 25B to tax such arrears came into effect from assessment year 2001-02. The learned CA for the assessee relied on the following precedents:
(i) Hamilton & Co. (P.) Ltd v. CIT .
(ii) Jagtar Singh Purewal, In re (1995) 213 ITR 512 (AAR).
(iii) CIT v. Ms. Sadhna Chadha .
5. Per contra, the learned departmental Representative supported the orders of authorities below.
6. We have heard the parties. The short controversy is regarding the assessability of the arrears of rent received by the assessee in the previous year relevant to the assessment year 1996-97. The argument of the learned Chartered Accountant for the assessee is that Section 25B of the Act is brought on the statute book with effect from the assessment year tj 2001 -02 and it has no retrospective effect to bring to tax the arrears prior to the introduction of the said section as it is not retrospective in operation. We find substance in the argument of the learned Chartered Accountant. Section 25B which was brought on the statute book reads as under:
25B. Where the assessee
(a) is the owner of any property consisting of any buildings or lands appurtenant thereto which has been let to a tenant; and
(b) has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting a sum equal to thirty per cent of such amount, shall be deemed to be the income chargeable under the head “Income from house property” and accordingly charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property in that year or not.
The above section is applicable from the assessment year 2001-02 and the said section cannot be said to be clarificatory or declaratory in nature.
7. In the case of Hamilton & Co. (P.) Ltd. (supra), the Hon’ble Calcutta High Court has held as under:
In this connection, it may be mentioned that the Explanation below Section 23(1) was inserted by the Taxation Laws (Amendment) Act, 1976, with effect from the assessment year 1976-77 simultaneously with the amendment of Sub-section (1). The Tribunal is correct to the extent that the arrears of rent of a past year are not assessable as actual rent from the house property in the year in which it is received. The Tribunal, however, gave the receipt the complexion of income from other sources so as not to let it escape taxation in the year of receipt.
This leads us in the logical train on to the question whether the arrears p of rent received in respect of tenancy of a house property lose their character as income from house property as the Tribunal’s order postulates. The answer would be in the negative. Rent, whether current or in arrears, is the yield of the house property and the source of the income being the letting of a house property by the owner, the rent shall continue to have its character as “income from house property.
8. In the case of Ms. Sadhna Chadha (supra), the Hon’ble Delhi High Court has held as under:
Clause (a) of the sub-section lays down that the annual value is the sum for which the property may reasonably be expected to be let from year to year. Clause (b) takes care of the situation where the annual rent of the property let out is in excess of the sum for which it may reasonably be expected to be let from year to year. Obviously, Clause (b) covers a case where the rent for the year, actually received by the owner of the property, is in excess of the fair rent, like some fancy rent, which a tenant may pay to the owner by way of an extra consideration for some special reason. It only provides that the actual “annual rent” which is received or receivable by the owner, even though it may be in excess of the fair market rent, has to be taken as the annual value of the property. This is so because of what is clearly stipulated in Explanation, rent is actual rent received or receivable in respect of the previous year. Clause (b) which is more explicit, clearly refers to the period of 12 months, which leaves no scope for doubt that the annual rent has to be the rent for 12 months. Therefore, a bare reading of Section 23(1) with Explanation 1 appended thereto, makes; it clear that any rent not relating to the relevant previous year cannot form part of the “annual rent” for the previous year, for determining the annual value of the property for the purposes of Section 22 of the Act. A similar view has been expressed by the Calcutta High Court in Hamilton’s case (1992) 194 ITR 391, with which we are in respectful agreement.
9. We are, therefore, of the opinion that arrears of rent received by the assessee which relates to the earlier years and received by the assessee during the previous year relevant to the assessment year 1996-97 cannot be brought to tax. We also do not agree with the observations of the learned CIT (Appeals) that if it is not chargeable to tax under the head “Income from house property” then it must fall under the residuary head of “Income from other sources”, as in the case of Hamilton & Co. (P.) Ltd. (supra), the Hon’ble Calcutta High Court has held that the rent whether current or in arrears shall continue to have its character as “Income from house property”. Hence, the same cannot be taxed under the head as “Income from other sources”. We, therefore, direct the assessing officer to delete the amount of Rs. 2,60,000 being the arrears of rent which relates to period prior to the previous year.
10. In the result, the assessee’s appeal is allowed.