1. RULING S.RANGANATHAN, J. (CHAIRMAN).---Shri Jagtar Singh Purewal (hereinafter referred to as "the applicant") filed this application under section 245-Q(1) of the Act on March 7, 1994. The application was very sketchy. The applicant had simply stated against column 8 of the application form as follows: "The applicant derives rental income. During the period between April 1, 1992, and March 31, 1993, the petitioner received arrears of rent. Whether the arrears of rent received thus will be subject to tax under section 23 of the Income-tax Act."
2. The application was defective in several respects and ultimately a proper application duly signed by the applicant was filed only on November 10, 1994.
3. The fuller facts have been elicited from counsel for the applicant who appeared before the authority at the time of hearing. They may now be stated. The applicant is residing and carrying on business at Glasgow. He has been assessed as non- resident under the Income-tax Act for the assessment years 1988-89 to 1994-95, his main source of income being one-sixth share in a house property at Jalandhar. It is understood that six persons have purchased this building and each owns a one-sixth share therein.
4. The building at Jalandhar was let out to the Madras Rubber Factory Limited ("MRF", for short) in 1978 on a rental of 52 paisa per square foot. At that time, the building consisted only of a ground floor of an area of 6,803 square feet. Subsequently, a first floor was also put up comprising an area of 3,707 square feet. This was also let out to the above company at the rate of Rs.1.67 per square foot. It appears that the original agreement of lease between the owners and the Madras Rubber Factory Limited expired on July 31, 1983, so far as the ground floor was concerned and on March 31, 1988, so far as the first floor was concerned. The owners were asking the company to increase the rent and it appears that prolonged discussions took place between the parties. Eventually, it is said, Madras Rubber Factory Limited agreed on March 26, 1992, to raise the rent of the ground floor to Rs.1.25 per square foot for the period August 1, 1983 to July 31, 1988 and Rs.1.50 per square foot for the period August 1, 1988 to March 31, 1992. It was also agreed that the rent for the first floor would stand revised to Rs.2 per square foot for the period April 1, 1988 to March 31, 1992. In pursuance of this decision, the owners received a sum of Rs.6,30,498 on July 6, 1992, the one-sixth share therein of Shri Jagtar Singh Purewal being Rs.1,05,083. A sum of Rs.40,452 was, however, deducted from the above amount as "tax deducted at source".
5. For the assessm ent year 1993-94, the applicant filed a return of income. He showed therein Rs.29,756 as his share of the rental income from the property based on the rents payable and paid for the period April 1, 1992 to March 31, 1993. The amount of Rs.1,05,083 was also shown as income with a remark: "Arrears of rent received from tenant exempt under section 22". The tax on Rs.1,34,839 came to Rs.24,711 but as Rs.40,452 had been deducted at source, the applicant claimed a refund of tax paid in excess. This return has been processed under section 143(1) of the Income Tax Act, 1961, for the assessm ent year 1993-94 and the refund claimed by the applicant granted to him.
6. The question, therefore, on which the authority's ruling is required is as to whether the applicant is liable to income-tax on the sum of Rs.1,05,083 received by him on July 6, 1992, towards arrears of rent for the period up to March 31, 1992, in the assessment year 1993-94.
7. It is clear that the answer has to be in the negative. The applicant, a non-resident, is assessable in respect of his property income in India. The income is to be processed in accordance with the provisions contained in sections 22 to 27 of the Act. Section 22 provides that the income from house property to its owner should be computed on the basis of they annual value of the property which, under section 23 as it originally stood, meant the rent for which, the property could reasonably be let from year to year. Conceptually it was a notional income that was assessed which was not necessarily the amount which the property actually fetched by way of rent. However, section 23 has been amended with effect from April 1, 1976, and it now provides; "23.---(1) For the purposes of section 22, the annual value of any property shall be deemed to be-- - (a)the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable;".
8. Explanation 1 to section 23(1) also provides that "annual rent" means, in a case where the property is let throughout the previous year, the actual rent received or receivable by the owner in respect of such year. It is, therefore, clear that the income from property computed under section 23 cannot exceed the actual rent derived in respect of the property for the previous year in question. In the present case, the applicant has returned and been assessed on the increased rent received by him for the financial year 1992-93. This is no longer in issue. The matter in dispute is only in regard to the sum received by him by way of arrears of rent for the period up to March 31, 1992. The Act clearly does not provide for the assessment of the excess received in respect of earlier years as income from house property for the assessment year 1993-94. That the excess amount received by the assessee is not taxable under section 23 as the income from the house property is clear from the language of section 23 itself. The decision of the Calcutta High Court in Hamilton & Co. (Pvt.)
9. Ltd. v. CIT (1992) 194 ITR 391 is also directly in point.
10. This might naturally raise the question whether the arrears of rent received by the applicant can be treated as other income arising to him. The applicant's counsel does not deny that the amount is of the nature of income and has been received during the "previous year". However, it is clear that it cannot be assessed as "income from other sources" in view of the principle laid down by the Supreme Court of India in the case of Nalinikant Ambalal Mody v. S.A.L. Naryan Row, CIT (1966) 61 ITR 428 applying to the Indian Act, the principle of the decision of the House of Lords in Salisbury House Estate Ltd. v. Fry (1930) 15 TC 266 (HL). This is too well-established a proposition to need discussion in detail.
11. On behalf of the Commissioner of Income-tax, it is submitted that though the amounts of arrears were received only in July, 1992, the applicant had acquired the right to the arrears on March 26, 1992. It is, therefore, submitted that the question whether the arrears are assessable to tax or not could arise only for the assessm ent year 1992-93 and not the assessment year 1993-94 in respect of which the application has been filed. It is, therefore, urged that the authority should decline to answer the question. This contention, apart from being purely technical, is without merit because under section 23, after amendment, the income from house property can be assessed on accrual or receipt basis. Hence, if the arrears are assessable at all as income under section 23, they could be brought to tax in the year of receipt, namely, the financial year 1992-93 relevant to the assessm ent year 1993-94. This objection, therefore, cannot be sustained.
12. A question might arise as to whether the assessee's act of filing the return including the amount of arrears in his return will preclude him from approaching the authority for a ruling. It is clear it does not. In the first place, there is no pending dispute between the applicant and the Income-tax Department because the return has been processed under section 145(1) and the refund as prayed for by the applicant has been granted. Secondly, even in the return the assessee raised no dispute regarding the assessability of the amount. On the other hand, he voluntarily showed it and paid tax thereon claiming refund of only the balance. There is, therefore, no ground to reject the application on any of the grounds mentioned in section 245-R(2).
13. A further question might arise as to how the ruling of this authority is to be given effect to by the department. The authority is not called upon to express any opinion on this question. It is for the applicant to take appropriate action to invite the department to give necessary relief consequent on the authority's ruling.
14. For the reasons discussed above, the authority makes the following RULING The applicant is not liable to income-tax on the sum of Rs.1,05,083, being his share of the arrears of rent in respect of the Jalandhar house property, for the assessment year 1993-94.