ORDER
G.K. Israni, Judicial Member
1. These three appeals by the assessee are directed against the consolidated order of the learned CIT(A) dated 12-4-1988 in relation to the assessment years 1981-82, 1982-83 and 1983-84.
2. The solitary and common issue raised in these appeals seeks the setting aside of the revised assessment orders passed under Section 147(b) of the IT Act and restoration of the original assessment orders.
3. The assessee-company was the owner of a building known as ‘Sapt Building’ at Bombay. A portion of this building was requisitioned for occupation by the Government of India, Director General of Supplies and Disposals under the Defence of India Act and the Rules made thereunder and the compensation was fixed at Rs. 3,618 per month. This compensation was offered by the assessee as income from house property and was assessed in its hands as such in all the earlier assessment years as well as in the three assessment years under consideration in these appeals. The original assessment orders for the three years in question were also made on that basis. In the year 1952 the Central Legislature passed the Requisitioning and Acquisition of Immovable Property Act 1952. Sections 25 and 26 of that Act contained special provisions and provided that any immovable property requisitioned under the Defence of India Act and the Rule made there under, which had not been released from such requisition, shall be deemed to have been requisitioned by the Competent Authority under the provisions of the New Act (hereinafter referred to as ‘the 1952 Act’). The assessee’s property thus uninterruptedly continued in the occupation of the Central Government. The Estate Manager of the Government of India, by his letter dated 2-3-1983, informed the assessee that the compensation for the aforesaid building had been enhanced from Rs. 3,618 to Rs. 19,269 per month effect from 7-3-1975. The arrears amounting to Rs. 14,68,172 for the period from 7-3-1975 to 31-12-1982 were also remitted by the Government of India to the assessee on 31-3-1983. On these facts, the ITO, who had completed the original assessments for the three years taking the rental income from this property only at Rs. 3,618 per month, came to the conclusion that the income had escaped assessment because of the revision made by the Government of India. On the basis of information received in the form of the letter from the Estate Manager, Government of India, the ITO reopened the assessments under Section 147(b) and completed the same for all the three assessment years under appeal taking the income from property at the new enhanced rental of Rs. 19,269 per month. The assessee challenged the reassessment orders in the first appeal. It was contended by the assessee before the learned CIT ( A) that the ITO was not justified in reopening the assessments and in recomputing the income from property by taking the enhanced rent as the basis. It was submitted there that the assessee-company was followig mercantile system of accounting and, therefore, the income had accrued only on 2-3-1983 when the communication was received from the Government of India regarding the enhancement of rent. Such income could not be related back to the earlier years in which it did not accrue. The ITO did not have any power to assess such income in those earlier three assessment years. Reliance in this connection was placed upon the decision of the Supreme Court in the case of CIT v. Gajapathi Naidu [1964] 53 ITR 114. It was urged before the learned CIT(A) that unless there was a right vested in the assessee to receive the above sum, it could not be taken into account even under the mercantile system of accounting. These pleas, however, did not find favour with the learned CIT(A), who held that where the property is let out and the annual rent received or receivable is in excess of the sum referred to in Clause (a) of Section 23(1) then the amount so received or receivable should be taken as the annual value. In the case in hand it was the enhanced rent which was receivable by the assessee-company. In computing the income from house property it is well settled that the method of accounting followed by an assessee is not relevant. It is only the annual value which has to be taken into account for such determination of the income. The rent received or receivable is only a measure for determining such annual value. So the rent receivable in this case could not be equated with the rent accrued. By virtue of the retrospective operation of the order issued by the Government of India, it had to be held that the assessee was entitled to receive such enhanced rent in those three previous years relevant to the assessment years. The argument that such enhanced rent did not accrue to the assessee in those previous years could not, therefore, be accepted. The learned CIT(A) thus held that the ITO was justified in coming to his conclusion that there was escapement of income. He was, therefore, justified in reopening the assessments and recomputing the income from house property on the basis of the enhanced rent. It is that finding and the direction passed in consequence thereof, which has been made the subject matter of the present appeals.
4. The arguments of the learned counsel for the assessee-appellant and the learned Departmental Representative were heard.
5. In the course of his arguments, the learned counsel, Shri S.E. Dastur, raised a number of points. One such point was to the effect that the property requisitioned by the Government of India under the Defence of India Act and the Rules made thereunder or the 1952 Act was not a property ‘let out’ within the meaning of Clause (b) of Sub-section (1) of Section 23 of the IT Act and the ‘compensation’ paid therefor was not ‘rent’ within the meaning of that clause. Since the property was neither let out nor any rent was received or was receivable for the same, any income arising out of the use of such property was not income from house property so as to be exigible to tax under the said Clause (b). Support on this point was sought from the decision of the Tribunal in the cases of Banwarilal & Sons Ltd. v. ITO [1983] 5 ITD 312 (Delhi) and B. Jamasji Mistry (P.) Ltd. v. Third ITO [1985] 12 ITD 546 (Bom.). In this connection, the learned counsel further submitted that the amount of Rs. 14,68,172 representing the arrears of enhanced compensation was not rent within the meaning of Clause (b) of Sub-section (1) of Section 23 and was only a ‘bounty’ which was given by the Government of India in its discretion.
6. We have given our careful thought to the above arguments of the learned counsel, but do not find much force in them. So far as the ‘bounty’ character of the receipt is concerned the submission is liable to be dismissed summarily. The payment of arrears of compensation as a result of the revision thereof was made under the provisions of law contained in Sub-section (2A) and Sub-section (2B) of Section 8 of the 1952 Act. The enhanced compensation was thus payable under the provisions of the Act of the Central Legislature and was thus not a payment awarded by the Government in exercise of its administrative or executive powers so as to partake the character of a ‘bounty’. As regards the aforesaid two decisions of the Tribunal, the decision in Banwarilal & Sons Ltd.’s case (supra) is not of any help to the assessee in the present case. That case before the Tribunal related to the assessment years 1961-62 to 1965-66 long before the insertion of Clause (b) in Sub-section (1) of Section 23 of the IT Act. As regards the decision in B. Jamasji Mistry (P.)Ltd.’s case (supra) here again we find that it does not offer any material support to the assessee’s contention in the instant case. That case before the Tribunal was one of licence and not of lease. It was in that context that the Tribunal held that the expression ‘let’ occurring in Section 23(1) could not be interpreted in a manner so as to include a case of licence also. In the present case before us, we have first to ascertain as to what is the relationship established by the act of requisitioning done by the Government of India under the provisions of the 1952 Act. For this purpose it will be pertinent to refer to some provisions of that Act. One such provision is found in Clause (a) of Sub-section (2) of Section 8 of that Act, which reads as under:
2. The amount of compensation payable for the requisitioning of any property shall, subject to the provisions of Sub-sections (2A) and (2B), consist of –
(2a) a recurring payment, in respect of the period of requisition, of a sum equal to the rent which would have been payable for the use and occupation of the property, if it had been taken on lease for that period.
7. Now, although in the various provisions of the Act, the word ‘compensation’ has been used, yet the scheme underlying the Act and the use of the words lease’ and ‘rent’ clearly indicate that the relationship sought to be created by the act of requisitioning was in the nature of ‘lease’ and the payment for the use and occupation of the immovable property was in the nature of ‘rent’. It would, therefore, be not unreasonable to hold that the property requisitioned and occupied by the Central Government was ‘let out’ to that Government and that the payment made by that Government was ‘rent’ within the meaning of Section 23 of the IT Act.
8. For all the assessment years prior to the three assessment years presently under appeal, the assessee was unhesitatingly and unquestionably offering the rental income from the property as income from house property. During those years no dispute was raised with regard to the character of that income as income from house property. It is only when the arrears of compensation, as a result of the revision, were received in a lumpsum running into millions of rupees that a dispute had been raised with regard to the character of the income. Now, as already stated, the rate of compensation has been revised under the operation of law. On the requisitioning of a property, the original determination of compensation is made under Sub-section (1)of Section 8 of the 1952 Act. Under the provisions of that Sub-section, compensation is fixed by an agreement between the landlord and the Government of India and where no such agreement can be reached, the Central Government appoints an arbitrator, who makes an award determining the amount of compensation, which appears to him to be just and it is in pursuance of that award that the compensation is determined. Any revision of such compensation is made under Sub-section (2A) or Sub-section (2B) of that section in the same manner and in accordance with the same principles as are set out in Sub-section (1) read with clause(a) of Sub-section (2). Obviously, therefore, the revised compensation determined either under Sub-section (2A) or under Sub-section (2B) will partake the same character as the one determined under Sub-section (1) of the same section. Since the original compensation of Rs. 3,618 was being offered and assessed as income from house property all along the earlier years, the same treatment for the purposes of assessment is warranted for the enhanced compensation for the three years in question. We are therefore, firmly of the view that the component of the enhanced compensation deserves the same treatment for the purposes of assessment as the treatment given to the original component for the earlier years.
9. The next issue raised by the learned counsel for the appellant was to the effect that the enhanced compensation received in the year 1983 could not be related to back to the earlier years of assessment. According to the learned counsel, since the payment was discretionary, it did not accrue in the earlier three years or the assessment years prior thereto. The assessee was maintaining the mercantile system of accounting. It had not known that the rent will be revised with retrospective effect. The enhanced compensation, therefore, could not have been credited in the accounts of the assessee on accrual basis and could not have been included in its total income for these years. Support on this point was sought from the decisions in the cases of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 (SC); A. Gajapathi Naidu’s case (supra) and CIT v. Nadiad Electric Supply Co. Ltd. [1971] 80 ITR 650 (Bom.). We have considered this aspect of the matter, but do not find any position favourable to the assessee on this count. The cases dealt with in the aforesaid three decisions are clearly distinguishable from the present case in as much as in those cases the payments were ordered or made as a result of exercise of discretionary power. In the present case, the enhanced compensation was payable and receivable by the operation of the provisions of law. During the course of his arguments, the learned counsel for the assessee stated that the assessee had neither sought revision of compensation nor was aware of any move on the part of the Government of India to revise that compensation and the act of the Government of India in revising the rate of compensation was suomotu and was a ‘surprise’ act insofar as the assessee-beneficiary is concerned. Here we find that much significance cannot be attached to such statement. As already stated, Section 8 of the 1952 Act lays down the machanism for the determination and or revision of the compensation payable for the requisitioned/acquired property. Primarily the amount of such compensation is fixed by the agreement between the parties and where no such agreement can be reached it is to be determined in accordance with the award resulting from the arbitration proceedings in which the landlord also participates. We, therefore, do not feel persuaded to accept the statement that the action of the Central Government in revising upwards the compensation for the requisitioned property was a act of which the assessed was unaware. The knowledge of the law and the effect thereof can safely be imputed to the assessee-landlord. It was thus not incorrect on the part of the ITO to relate back the rental income received in the year 1983 to the immediately preceding three years and assess it on accrual basis.
10. On the question of determination of annual value, the learned counsel also referred to the decision of the Delhi High Court in the case of CIT v. H. P. Sharma [ 1980] 122 ITR 675 and that of the Supreme Court in the case of Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435. Here again we find that both those cases pertain to the assessment years prior to the 1975 amendment of Section 23, where under Clause (b) was inserted in Sub-section (1). As has already been stated, the provision of Sub-section (2) of Section 8 of the 1952 Act lays down in Clause (a) thereof that the amount of compensation payable for requisitioning shall consist of a recurring payment in respect of the period of requisition of a sum equal to the rent which would have been payable for the use and occupation of the property if it had been taken on lease for that period. The scheme underlying this provision is the same as the one under Clause (a) of Sub-section (1) of Section 23 of the IT Act. The compensation fixed under the 1952 Act is thus the amount for which the property may reasonably be expected to be let from year to year. Such compensation thus falls both under Clause (a) and Clause (b) of Sub-section (1) of Section 23 for the determination of the annual value of the property.
11. The next argument of the learned counsel, Shri Dastur, related to the lack of jurisdiction on the part of the ITO to initiate proceedings under Section 147(6) of the IT Act. The learned counsel, in this connection, referred to the Note No. 16 of the Notes annexed to and forming part of the accounts of the assessee-company for the year ended 31-12-1982. That Note reads as under:
16. In March 1983,theGovernment of India decided in their discretion, to increase on an ad hoc basis the compensation paid by them in respect of the portion of the company’s building occupied by them, such increase being effective from 7th March 1975. Accordingly, an amount of Rs. 14,68,172 representing the additional compensation as above up to 31st December, 1982, was received in March. 1983 from the Estate Manager, Government of India, which amount will be accounted for in the company’s accounts for the year ending 31st December, 1983.
(emphasis provided)
12. On the basis of the above Note, the learned counsel contended that the ITO had in his possession the information relating to the receipt of the arrears of Rs. 14,68,172representingtheadditionalcompensation before the completion of the assessment proceedings for the three years in question. According to the learned counsel, the three assessments under Section 143(3) were completed after the receipt of the letter of the Government of India and the amount of the arrears. Since this information was already available to the ITO and no further information was received subsequent to the completion of the original assessment proceedings under Section 143(3), the ITO was not competent to initiate action under Section 147(b)of the IT Act. On this point, the learned counsel sought support from the decisions in the cases of Bankipur Club Ltd. v. CIT [1971] 82ITR 831 (SC); Sassoon Spg. & Wvg. Co. Ltd. v. CIT [1982] 137 ITR 427/8 Taxman 100(Bom.); CIT v. Bai Savitagouri [1975] 100 ITR 680 (Bom.) Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC) and Addl. CIT v. Seth Hemant Bhagubhai Trust [1983] 140 ITR 471 (Bom.). As against this, it was submitted by the learned Departmental Representative that the information available in the form of the aforesaid Note was abstract, indefinite and incomplete. A definite, complete and concrete information came in the possession of the ITO only during the assessment proceedings for the assessment year 1984-85. It was only such information which could enable the ITO to initiate action under Section 147(b). Therefore, the jurisdiction of the ITO to initiate reassessment proceedings cannot validly be challenged. We have carefully considered the facts and circumstances of the case and the arguments advanced on behalf of the parties and are of the view that the learned CIT(A) committed no error when he held that the ITO was justified in initiating reassessment proceedings in this case. There is sufficient force in the argument of the learned Departmental Representative that the information available in the form of Note No. 16, reproduced above, was not only vague but also incomplete and in some respects not true. In this connection, we consider it necessary to refer to the use of the underlined words ‘discretion’ and ‘on ad hoc basis’ in the above Note. The payment of enhanced compensation was neither the result of a discretionary exercise of power by the Government nor was on an ad hoc basis. Further more, there was undertaking in that Note by the assessee that the amount will be accounted for in the company’s accounts for the year ending 31-12-1983. Since the amount was received only in March 1983 there was no justification for appending a Note of this type in the accounts of the assessee for the year ending 31-12-1982. The assessee has not filed before us its acounts for the year ended 31-12-1983 so as to show that the receipt of the additional compensation was duly accounted for during the year ending 31-12-1983. In these circumstances, we find ourselves in agreement with the learned Departmental Representative that the ITO received the definite, complete and concrete information only subsequent to the completion of the original assessments under Section 143(3) and he was, therefore, fully justified in initiating proceedings under Section 147(b) of the IT Act. In any case, even the possession of the information contained in Note 16 could possibly be alleged only in relation to the assessment year 1983-84 and not in relation to the earlier two years. Regarding those two years no such information was in the possession of the ITO during the course of the original assessment proceedings. No material has been produced before us to show that such information was made available to the ITO during the original assessment proceedings for those two years.
13. As a result of the above discussion, we hold that the assessee-appellant has failed to make out any case for our interference in the impugned order of the learned CIT(A). These appeals thus fail and are hereby dismissed.