Calcutta High CourtFor The vs Commissioner Of on 26 September, 2008Author:Biswanath SomadderBench:Surinder Singh Nijjar,Biswanath SomadderIN THE HIGH COURT AT CALCUTTA
                          CIVIL APPELLATE JURISDICTION
                                  ORIGINAL SIDE



P R E S E N T: -

The Hon'ble Chief Justice Surinder Singh Nijjar
                And
The Hon'ble Mr. Justice Pinaki Chandra Ghose
                And
The Hon'ble Mr. Justice Biswanath Somadder




                               A.P.O No. 587 of 1994
                               W.P No. 1690 of 1994

                      P. G. & SAWOO P. LTD. & ANOTHER
                                      v e r s u s

    THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(4),
                   CALCUTTA AND OTHERS



For the Appellant :   Dr. D. Pal, Sr. Adv,
                      Mr. A. Majumder, Adv.,
                      Mr. Subrata Das, Adv.,
                      Mrs. N. Pal Banerjea, Adv.


For the Respondent : Mr. D. K. Shome, Sr. Adv,Mr. P. K. Bhowmick, Adv.Heard on : 13-02-2008.Judgement on : 26th September, 2008.PINAKI CHANDRA GHOSE, J. : A reference has been made by the Hon'ble

Division Bench on the question that whether there is a direct conflict of decisions delivered

by the Hon'ble Division Bench in the decision ofHope India Ltd. Vs. Commissioner of

Income Tax(239 ITR 740) and in the decision ofHamilton & Co. Pvt. Ltd. Vs.

Commissioner of Income Tax(194 ITR 391). The reference has been made to resolve the

conflict between the said two decisions of the Hon'ble Division Bench. The matter has

been referred before the Larger Bench to resolve the conflict in respect of the said two

decisions.The question relates to whether additional or extra rent attributable to preceding

years of account which could not be taxed under Section 22 of the Act should be taxed

under the head "income from other sources". The said question was decided by the

Hon'ble Division Bench in the case ofHamilton & Co. Pvt. Ltd.(Supra) when Their

Lordships observed :"The question is whether the arrears of rent relating to another previous year
      are taxable as income from house property of the later previous year in which they
      were received. If the arrears of rent of past years are not part of the annual rent of
      the year of account in which such arrears are received, then the only rational
      interference should be that the annual rent or annual rents of the past year or years
      to which they pertain can be brought to charges only in the assessment years
      relevant to such past years of account. The receipt of the arrears of rent cannot, by
       any stretch of imagination, can be said to have shed their character as rent from
      property and to have ceased to be liable to tax as income from house property.
      The simple case is that the rent of a past year increased retrospectively shall be the
      annual rent of the year in which it is received consequent upon subsequent
      increase."Therefore, the Hon'ble Division Bench inthe said decisionofHamilton & Co. Pvt.

Ltd.(Supra) held that the receipt of arrears of rent cannot, by any stretch of imagination,

can be said to have shed their character as rent from property and to have ceased to be

liable to tax as income from house property. The simple case is that the rent of a past

year increased retrospectively shall be the annual rent of the year in which it is received

consequent upon subsequent increase.But in the case ofHope India Ltd.(Supra) the Hon'ble Division Bench considered

the judgment and held that the questions which have been raised inHope India Ltd.(Supra) had not been raised in the case ofHamilton & Co. Pvt. Ltd.(Supra).In the decision of Hope India Ltd. the Hon'ble Division Bench relied on a decision inE. D. Sassoon Ltd. & Ors. Vs. Commissioner of Income-Tax, Bombay City, reported in

[1954] 26 ITR 27 where the Apex Court considered the meaning of the words "accrue",

"arises" and "is received", in the context of the definition of income. Inthe said decisionthe Hon'ble Supreme Court held at page 50 :"Now what is income ? The term is nowhere defined in the Act. .... In the
      absence of a statutory definition we must take its ordinary dictionary meaning--
 'that which comes in as the periodical produce of one's work, business, lands or
investments (considered in reference to its amount and commonly expressed in
terms of money); annual or periodical receipts accruing to a person or corporation'
(Oxford Dictionary).    The work clearly implies the ideal of receipt, actual or
constructive. The policy of the Act is to make the amount taxable when it is paid or
received either actually or constructively. 'Accrue', 'arises' and ' is received' are
three distinct terms. So far as receiving of income is concerned there can be no
difficulty; it conveys a clear and definite meaning, and I can think of no expression
which makes its meaning plainer than the word 'receiving' itself.          The words
'accrue' and 'arise' also are not defined in the Act.        The ordinary dictionary
meanings of these words have got to be taken as the meanings attaching to them.
'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth
or result. The three expressions 'accrues', 'arises' and 'is received' having been
used in the section, strictly speaking 'accrues' should not be taken as synonymous
with 'arises' but in the distinct sense of growing up by way of addition or increase or
as an accession or advantage; while the word 'arises' means comes into existence
or notice or presents itself.     The former connotes the idea of a growth or
accumulation and the latter of the growth or accumulation with a tangible shape so
as to be receivable. It is difficult to say that this distinction has been throughout
maintained in the Act and perhaps the two words seem to denote the same idea or
ideas very similar, and the difference only lies in this that one is more appropriate
than the other when applied to particular cases. It is clear, however, as pointed out
by Fry, L. J., in Colquhoun v. Brooks [1888] 21 QBD 52, 59 [this part of the decision
not having been affected by the reversal of the decision by the House of Lords
[1889] 14 AC 493 that both the words are used in contradistinction to the word
'receive' and indicate a right to receive. They represent a state anterior to the point
of time when the income becomes receivable and connote a character of the
income which is more or less inchoate.One other matter need be referred to in connection with the section. What is
sought to be taxed must be income and it cannot be taxed unless it has arrived at a
stage when it can be called 'income'.The observations of Lord Justice Fry quoted above by Mukerji, J., were
made in Colquhoun v. Brooks [1888] 21 QBD 52 while construing the provisions of
16 and 17 Victoria Chapter 34, Section 2, Schedule 'D'. The words to be construed
there were 'profits or gains, arising or accruing' and it was observed by Lord Justice
Fry at page 59:'In the first place, I would observe that the tax is in respect of "profits or gains
arising or accruing". I cannot read those words as meaning "received by". If the
enactment were limited to profits and gains "received by" the person to be charged,
that limitation would apply as much to all Her Majesty's subjects as to foreigners
residing in this country. The result would be that no income-tax would be payable
upon profits which accrued but which were not actually received, although profits
might have been earned in the kingdom and might have accrued in the kingdom. I
think, therefore, that the words "arising or accruing" are general words descriptive
of a right to receive profits.'


       To the same effect are the observations of Satyanarayana Rao, J., inCIT v.
Anamallais Timber Trust Ltd.[1950] 18 ITR 333 (Mad), and Mukherjea, J., inCIT v.
Ahmedbhai Umarbhai and Co., Bombay[1950] 18 ITR 472 (SC), where this
passage from the judgment of Mukerji, J., inRogers Pyatt Shellac and Co. v.
Secretary of Statefor India [1925] 1 ITC 365 (Cal) is approved and adopted. It is
clear therefore that income may accrue to an assessee without the actual receipt of
the same. If the assessee acquires a right to receive the income, the income can
be said to have accrued to him though it may be received later on its being
ascertained. The basic conception is that he must have acquired a right to receive
the income. There must be a debt owed to him by somebody. There must be as is
otherwise expressed debitum in praesenti, solvendum in futuro; See W. S. Try Ltd.v. Johnson (Inspector of Taxes) [1946] 1 All ER 532 (CA) and Webb v. Stenton,
      Garnishees, 11 QBD 518.         Unless and until there is created in favour of the
      assessee a debt due by somebody it cannot be said that he had acquired a right to
      receive the income or that income has accrued to him.The word 'earned' even though it does not appear in section 4 of the Act has
      been very often used in the course of the judgments by learned judges both the
      High Courts as well as the Supreme Court. (Vide CIT v. Ahmedbhai Umarbhai and
      Co., Bombay[1950] 18ITR 472 (SC) and CIT v. K.R.M.T.T. Thiagaraja Chetty and
      Co.[1953] 24 ITR 525 (SC)).It has also been used by the Judicial Committee of
      the Privy Council in Commissioners of Taxation v. Kirk [1900] AC 588.             The
      concept, however, cannot be divorced from that of income accruing to the
      assessee. If income has accrued to the assessee it is certainly earned by him in
      the sense that he has contributed to its production or the parenthood of the income
      can be traced to him. But in order that the income can be said to have accrued to
      or earned by the assessee it is not only necessary that the assessee must have
      contributed to its accruing or arising by rendering services or otherwise but he must
      have created a debt in his favour. A debt must have come into existence and he
      must have acquired a right to receive the payment.                Unless and until his
      contribution or parenthood is effective in bringing into existence a debt or a right to
      receive the payment or in other words a debitum in praesenti, solvendum in futuro it
      cannot be said that any income has accrued to him. The mere expression 'earned'
      in the sense of rendering the services, etc., by itself is of no avail."InHamilton's case it appears thatthe said decisionof the Apex Court was not

considered.Following the decision inSassoon's case (Supra), inCIT Vs. A. Gajapathy

Naidu[1964] 53 ITR 114 (SC), the Hon'ble Supreme Court held that there is no relevancy

of the question of reopening of accounts in considering the question when an assessee

acquired a right to receive an amount.InCIT Vs. Hindustan Housing and Land
 Development Trust Ltd., reported in [1986] 161 ITR 524, the Apex Court made a clear

distinction between the cases where the right to receive payment is in dispute and it is not

a question of quantifying the amount to be received, and cases where the right to receive

payment is admitted and the quantification only of the amount payable is left to be

determined in accordance with settled or accepted principles.In the decision ofHope India Ltd.(Supra) the Hon'ble Division Bench after

consideringthe said decisionheld as follows :-"In the instant case, as indicated hereinbefore, the Government Departments
      agreed to enhance the rent with retrospective effect from 1982, and, thus, the
      parties were not ad idem in their mind as regards the actual quantum of rent
      payable to the assessee by its tenants and, thus, the actual amount was not
      ascertainable.    Fair rent, keeping in view the provisions of theWest Bengal
      Premises Tenancy Act, has to be determined and till such fair rent is determined,
      actual rent has to be paid by the tenants. Although the said provisions have no
      application in case the Government is the tenant the rent has to be paid on the
      basis of the agreement entered into by the parties. A claim made by a landlord for
      enhancement of rent cannot, thus, be said to be an amount receivable within the
      meaning ofsection 23(1)of the Act. A claim or a demand by itself does not come
      within the purview of the word "income received or receivable" and keeping in view
      the provision ofsection 5of the Income-tax Act there cannot be any doubt
      whatsoever such income either received or deemed to be received, accrued or
      arose or is deemed to accrue or arise to him or accrues or arises in India or
      accrues or arises outside India during the previous year.An agreement entered into between the parties in terms whereof the
      quantum of rent is determined with retrospective effect, in our considered view,
       does not come within the purview of any of the provisions ofsection 5aforementioned."It is true that a system of accountancy followed by the assessee may be a relevant

factor, but even in a mercantile system of accounting income would be assessed in

respect of such amount which the assessee had a right to receive and/or became

accrued. A mere claim or a mere demand cannot be treated as an income within the

meaning ofSection 5of the Income-Tax Act. It is also a fact that an assessment of

income cannot be reopened after lapse of many years. It also cannot be taken into

account that the amount payable by a tenant in favour of the landlord which has been

agreed upon or which has been determined as fair rent by the rent controller. In a case of

assessment of fair rent the same may be assessed with retrospective effect, but it cannot

be treated to be an income for the assessment year for which the rent was received and

assessed by the authority. Therefore, the amount so received, subsequently, held that it

cannot be treated as income within the meaning ofSection 5of the Income-Tax Act for the

said assessment year.The facts of this case that the appellant company, i.e., P. G. & W. Sawoo Pvt. Ltd.

filed its return of income for the Assessment Year 1989-90 showing the amount of rent

being the income from house property, which was received and/or receivable in terms of

the agreement with the Government of India. The said agreement was in force during the

relevant period. The return was filed on 22nd November, 1989. Subsequent thereto, the

Government of India on 29th March, 1994 decided to enhance the rent in respect of the

property situated at 4, Brabourne Road, Calcutta from Rs.4/- per Sq. ft. per month to Rs.
 8.11 paise per Sq. ft. per month with effect from 1st September, 1987. In view of such

decision taken by the Government for the Assessment Year 1989-90 to enhance the rent

of the premises in question with retrospective effect from 1st September, 1987, a purported

notice underSection 147of the Income Tax Act, 1947 (hereinafter referred to as "the said

Act") was issued on 18th May, 1994 i.e. after the expiry of four years from the end of the

relevant Assessment Year (1989-90).        The appellant/assessee had challenged the

jurisdiction of the Assessing Officer to issue the said notice underSection 147of the said

Act, inter alia, on the ground that the enhancement of rent having been made with

retrospective effect from 1st September, 1987. The enhanced rent for the Assessment

Year 1989-90 was neither received nor receivable in terms of the agreement prevalent at

the time when the return was filed on 22nd November, 1989 for the said Assessment Year

1989-90. The said enhanced rent cannot be taken as the income of the assessee for the

said relevant assessment year and, therefore, there cannot be any question of

escapement of income of the assessee for the said year and, hence, the Assessing

Authority cannot have any reason to believe that any income of the assessee for

representing the enhanced rent for the Assessment Year 1989-90 has escaped

assessment.Dr. Debi Pal, Learned Senior Advocate appearing on behalf of the appellant,

submitted that in the case of Hope India Ltd. reported in 238 ITR 740, the Division Bench

of the Calcutta High Court considered the question as to whether arrears of rent as a

result of the enhancement of rent subsequent to an agreement with retrospective effect,

the enhanced rent can be treated to be the income liable to tax for the past years in
 respect of which the enhancement has been allowed with retrospective effect. In the said

case the question before the Division Bench was as follows:-"Whether, on the facts and in the circumstances of the case, and an

     interpretation of the documents in respect of rent at 2/3rds of the house property at

     18, Rabindra Sarani, Calcutta, for the assessment year 1984-85 andSection 23(1)of the Income Tax Act, 1961, the Tribunal was justified in law in directing the

     Assessing Officer to recomputed the income from the aforesaid house property on

     the basis of enhanced rent sanctioned and agreed after the close of the previous

     year to be paid by the various tenants and to determine the income under the head

     'income from house property'?"In that case the Division Bench of the Calcutta High Court held that a claim made by

a landlord for enhancement of rent cannot be said to be an amount receivable within the

meaning ofSection 23(1)of the Act. A mere claim or a mere demand without anything

else does not come within the purview of the word 'income received or receivable'. An

agreement entered into between the parties in terms whereof the quantum of rent is

determined with retrospective effect, does not come within the purview of any of the

provisions ofSection 5of the Act [see pages 751-752]. In that case it is relevant to note

that the assessee having made a claim for the enhancement of the rent but ultimately the

decision was taken much later to allow the enhancement of rent with effect from the earlier

year i.e. 1982. Therefore, the question was whether the decision to increase the rent with

retrospective effect, can be assessable to tax underSection 23 (1)of the Act being the
 'income from house property'. In the facts ofthe above casethe Division Bench observed

at page 751, last para that the Government Departments agreed to enhance the rent with

retrospective effect from 1982 and the parties were not ad idem in their mind as regards

the actual quantum of rent payable to the assessee by its tenants and thus the actual

amount was not ascertainable. A claim made by a landlord for enhancement of rent

cannot be said to be an amount receivable within the meaning ofSection 23(1)of the Act.

A claim or a demand by itself does not come within the purview of the word 'income

received or receivable' and keeping in view the provision ofSection 5of the Act there

cannot be any doubt whatsoever that such claim cannot either be income received or

deemed to be received, accrued or arose or is deemed to accrue or arise to him during

the previous year. The Division Bench thus observed at page 752 of the report that an

agreement entered into between the parties in terms whereof the quantum of rent is

determined with retrospective effect does not come within the purview of any of the

provisions ofSection 5of the Act.Dr. Pal further contended that the Division Bench considered the earlier decision of

the Division Bench of the Calcutta High Court in the case ofHamilton's case reported in

194 ITR 391.The High Court referred to the question inHamilton's case at page 747.The question in theHamilton's case was as follows :-"Whether, on the facts and in the circumstances of the case, the Tribunal

       was right in holding that the additional or extra rent attributable to preceding years
       of account which could not be taxed underSection 22of the Act should, instead, be

      taxed under the head 'income from other sources'."The Division Bench inHope India's case points out that the question which has

been raised inHope India's case was not at all the question in the case of Hamilton's

case.It will appear that inHamilton's case it was assumed that the additional or extra rent

which could not be taxed underSection 22of the Act should, instead, be taxed under the

head 'income from other sources'. In other words, it was assumed that the additional or

extra rent consequent upon a subsequent enhancement of the rent could not be assessed

under the head 'income from house property' but whether such additional rent was taxed

as income from other sources.But inHope India's case the question directly was whether

the enhanced rent consequent upon the subsequent agreement with retrospective effect is

liable to be assessed as income from house property.Therefore, the question which was

directed in issue inHope India's case was not at all the question which was before the

Division Bench inHamilton's case.InHope India's case the Division Bench considered

the scope of the expression 'income received or receivable' on the basis of the principle of

accrual and referred to the well known decision of the Supreme Court in the case of E.D.

Sassoon & C. Ltd. -Vs.- CIT, reported in 26 ITR 27 and quoted extensively from the said

judgement.The Division Bench inHope India's case specifically pointed out at page 750

that the decision of the Supreme Court inSassoon's case had not been considered in the

earlier Division Bench inHamilton's case.     The Division Bench also pointed out that

probably in the facts of the said case it was not required to be considered.In Hamilton's

case as it was evident from the very question itself that the enhanced rent could not be
 assessed under the head 'income from house property', therefore, the scope of the

expression 'received or receivable' appearing inSection 23was not required to be

considered by the earlier Division Bench inHamilton's case.But the said question directly

was in issue before the Division Bench inHope India's case where the Division Bench

pointed out the scope of the expression 'income received or receivable' on the basis of the

well known decision of the Supreme Court in the case of E.D Sassoon & Co. Ltd. -Vs. -

CIT, reported in 26 ITR 27 following the judgment delivered by the Calcutta High Court in

the case of Rogers Pyatt Shellac & Co. -Vs.- Secretary of State, reported in 1 ITC 363.It

is submitted that theSassoon's case is a landmark decision on the question as to when

income can be said to be accrue or arise which is equated with the concept of income

receivable. In 26 ITR 27 at page 50 the Supreme Court quotes with approval the decision

of the Special Bench of the Calcutta High Court in Rogers Pyatt Shellac & Co. -Vs.-

Secretary of State, reported in 1 ITC 363 = AIR 1925 Cal. 34 observed that the word

'accrue' and 'arise' also are not defined in the Act. The Supreme Court thereafter held

that two words 'accrue' and 'arise' are used in contradiction to the word 'receive' and

indicate a right to receive. They represent a state anterior to the point of time when the

income becomes receivable and connote a character of the income which is more or less

inchoate. The Supreme Court, therefore, at page 51 of the judgment held that the income

may accrue or arise to an assessee, if the assessee acquires a right to receive the income

during the previous year, the income can be said to have accrued to him though it may be

received later on its being ascertained. The basic concept is that he must have acquired a

right to receive the income.Keeping in view the aforesaid principle the Division Bench inHope India's case pointed out that during the accounting year 1982-83 the assessee did
 not acquire any right to receive the enhanced rent which was agreed upon subsequently

with retrospective effect. The same principle will equally apply in the present case where

the enhanced rent decided by the Government of India in the year 1994 could not be said

to be receivable by the assessee in the assessment year 1989-90 and, therefore, the said

enhanced rent could not be taken as the income of the assessee for the assessment year

1989-90 and, hence, there cannot be any escapement of income regarding the enhanced

rent for the assessment year 1989-90 and the Assessing Officer, therefore, had no

jurisdiction to reopen the proceeding underSection 147of the Act.Dr. Pal further pointed out that it is relevant to note that the principle decided inHope India's case has been accepted by the Parliament when Parliament introducedSection 25Bby theFinance Actof 2000 with effect from 1st April, 2001 relevant to the

assessment year 2000-01. As a result of the introduction ofSection 25Bwith effect from

1st April, 2001 relevant for the assessment year 2001-02, where the assessee is the owner

of any property 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.

Memorandum explaining the provisions in the Finance Bill of 2000 has been set out in 122

ITR (ST.) 144. The Memorandum sets out the object for which the said newSection 25Bwas introduced which are as follows :-"The scheme of taxing the income from house property under the Income-Tax Act involves the concept of 'annual value'. Annual value has been deemed to

       be the sum for which the property might reasonably be expected to let from year to

       year or annual rent received or receivable in excess of annual value. Therefore,

       arrears of rent received subsequently do not fall within the ambit of annual value or

       annual rent.   There is difficulty in taking such income as income from other

       sources as they retain the character of income from house property. It is also

       difficult to include arrears of rent in the relevant years as they were not receivable

       during those years.Therefore, it is proposed to insert a newSection 25Bin theIncome-Tax

      Actto provide that if any arrears or rent, other than what has already been taxed

      underSection 23, are received in a subsequent year, the same will be taxed in the

      year of receipt whether the property is owned by the assessee in the year of receipt

      or not. A deduction of sum equal to one-fourth of such amount of rent shall be

      allowed towards repairs and collection of rent.The proposed amendment will take effect from 1st April, 2001 and will

      accordingly apply in relation to assessment year 2001-02 and subsequent years."Dr. Pal further contended that the Memorandum also pointed out that before the

introduction ofSection 25Bthe arrears of rental income from house property could not be

taxed under the head 'income from house property' nor could it be taxed under the head

'income from other sources'.     To obviate such difficulty the saidSection 25Bwas

introduced. However, the Memorandum also pointed out that the proposed amendment
 will be operative from 1st April, 2001 and will accordingly apply for the assessment year

2001-02 onwards.He further contended that the prospective operation ofSection 25Bis as follows:"Section 25B, therefore, could not be made applicable to rope in arrears of

     rent for the assessment year 1989-90 in the present case. It is also made clear that

     Parliament while introducingSection 25Bhas specifically laid down that the said

     section will be applicable with effect from 1st April, 2001. It is also submitted that

     even in the course of hearing the Learned Counsel for the Revenue has made it

     clear that the said newSection 25Bwould be applicable prospectively and would not

     apply in the assessment year 1989-90. The said statement of law as pointed out by

     the Learned Counsel for the Revenue is in consonance with the lawlaid down bythe Supreme Court in 215 ITR 165 (SC) at page 173 and 289 ITR 83 (SC) at page107."He further contended thatHope India's case was decided on 7th April, 1999 and the

Revenue had not preferred any appeal againstthe said judgmentbefore the Supreme

Court.In other words, the Revenue has accepted the decision of the Division Bench inHope India's case and has introduced a newSection 25Baccordingly. It is now well

settled by a catena of decisions of the Supreme Court that if the revenue has not

challenged the correctness of the lawlaid down bythe High Court and has accepted in the

case of one assessee then it is not open to the revenue to challenge its correctness in the
 case of other assessee without any just cause [see 266 ITR 99 (SC) at page 104]. The

said decision refers to earlier decisions of the Supreme Court reported in 249 ITR 219

(SC), 254 ITR 606 (SC) and 257 ITR 59 (SC).He further submitted that the notice issued under 147 of the Act is clearly without

jurisdiction.Section 147of the Act can apply only in a case when the Assessing Authority

has reason to believe that there has been any escapement of income. If the enhanced

rent cannot be treated as the income of the assessment year 1989-90, the question of

escapement of income does not arise at all and the condition precedent for the

assumption of jurisdiction underSection 147of the Act does not exist and the writ Court

can always quash such a notice. The Supreme Court in catena of cases had quashed the

notice underSection 147when the Assessing Authority had no jurisdiction to issue the

said notice as the condition precedent for the assumption of jurisdiction did not exists and

was not satisfied.He further contended that if the Assessing Authority has no jurisdiction to reopen the

proceeding as the enhanced rent could not be treated as the income for the assessment

year 1989-90. The notice and subsequent assessment also have been quashed and he

relied upon the case reported in 41 ITR 191 at page 208. Therefore, Dr. Pal submitted

that since the notice issued underSection 147of the said Act was not satisfied, the

assessment pursuant to the said notice was issued, quashed by the order.On the contrary, Mr. D. K. Shome, Learned Senior Advocate appearing on behalf of

the respondent in the matter, submitted that the challenge in this Mandamus Appeal is to

a notice underSection 148dated 18th May, 1994. The tenant unilaterally increased the

rent with effect from 1st September, 1987 and which was accepted by the landlord.Mr. Shome further submitted that by a letter dated 18th April, 1994, the appellant

suggested settlement of tax liability and agreed to revision of assessment for the

Assessment Years 1990-91, 1991-92 and 1992-93, but contended that Assessment Year

1989-90 had become time barred, but would pay interest for subsequent years to

compensate the loss.Mr. Shome further submitted that by a letter dated 19th May, 1994, the appellant

requested for issuance of notices underSection 148for completion of reassessment

within May, 1994. Accordingly, notice underSection 148was issued on 18th May, 1994.Mr. Shome further submitted that by an interim order dated 23rd June, 1994 the

Hon'ble First Court directed continuance of the reassessment proceeding, but no

communication or enforcement of the final order without leave of the Court.Mr. Shome further submitted that by its letter dated 18th May, 1994, the appellant in

anticipation of reassessment deposited Rs. 51,37,676/- before 30th April, 1994 in self-

assessment challan to cover a substantial portion of additional liability. The appellant

recorded that steps have been taken to reopen the assessment from Assessment Year
 1989-90. The assessee, however, prayed for waiver of interest and approached various

authorities including C.B.D.T (papers are annexed to the Paper Book at page 84).Mr. Shome further submitted that the assessment was completed underSection

143(1)by accepting the Assessee's Return and intimation was duly sent to the assessee.

No scrutiny assessment was done. Subsequently, the recorded reasons for reopening

were duly served upon the appellant/assessee which would be evident from the document

appearing at page 105 of the Paper Book. It is also recorded in the interim order passed

by the Appeal Court dated 22nd September, 1994 recording the submission on behalf of

the appellant that it had "deposited estimate amount of tax on the differential income for

the relevant year" and the Hon'ble Division Bench by its judgment observed that "since

there is a direct conflict of judgment between Division Benches, it is not proper for this

Court to accept one and reject the other". It was further contended on behalf of the

appellant that "there was no inconsistency in the view taken by the subsequent Division

Bench presided over by Justice S. B. Sinha".Mr. Shome further pointed out that the sole question of law inHamilton's case (194

ITR 391) at page 392 is as follows :-"Whether, on the facts and the circumstances of the case, the tribunal was right

     in holding that the additional or extra rent attributable two preceding years of account

     which could not be taxed underSection 22of the Act should, instead, be taxed under

     the head "income from other sources"."Mr. Shome further pointed out that the sole question of law inHope India's case

(239 ITR 740) at page 745 is as follows :-"Whether, on the facts and in the circumstances of the case, and an

       interpretation of the documents in respect of rent at 2/3rds of the house property at

       18, Rabindra Sarani, Calcutta, for the Assessment Year 1984-85 andSection 23

       (1)of the Income-Tax Act 1961, the income from the aforesaid house property on

       the basis of enhanced rent sanctioned and agreed after the close of the previous

       year to be paid by the various tenants and to determine the income under the head

       "income from house property"."In answering the question of lawHamilton's case laid down the ratio as follows :-"The simple case is that the rent of the past year increased retrospectively

       shall be the annual rent of such past year or years but not the annual rent of the

       year in which it is received consequent upon subsequent increase (page 395). It is

       further laid down at page 397 that 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 owner, the rent shall continue to have its character as income from

       house property."In answering the question of lawHope India's case laid down the ratio (page 751)as

follows :-"A claim made by a landlord for enhancement of rent cannot be said to be

      an amount receivable within the meaning ofSection 23 (1)of the Act. A claim or a

      demand by itself does not come within the purview of the word "income received or

      receivable"."Hope India's case consideredHamilton's case at page 747 and observed that the

question raised in theHope India's case had not been raised inHamilton's case at all.It

was further observed at page 748 that observations inHamilton's case must be

understood to have been rendered in the fact situation of that case.Hope India's case emphasized the meaning of the word 'receivable' as referred to

various Law Dictionaries and the Supreme Court Dictum reported in 26 ITR page 27. In

that context Hope India held that a claim or a demand by itself cannot be construed as

income receivable.According to Mr. Shome, two reference cases and the present Mandamus Appeal

are not identical. The facts in this situation of these two cases are identical. The issues

involved are different whereasHamilton's case laid down that retrospective increase of

rent cannot be brought under income from other source (Section 14).Hope India's case

laid down that a mere demand or claim cannot amount to income receivable within the

meaning ofSection 5of the Act. In the instant case the validity of the 148 Notice is in

question.   The said notice is assailed on the sole ground that retrospective increase of

rent cannot amount to escapement of income.It is submitted that the present reference is strictly not necessary in view of the fact

the questions of law sought to be answered inHamilton's case were different and that

each case must be understood and limited to the facts of that case as observed by S. B.

Sinha, J. inHope India's case itself.Mr. Shome further contended that Chapter II deals with basis of charge.Section 4is the charging section, whereasSection 5is the computation provision.Section 5refers

to "received, deemed to be received, accrues, arises or deemed to accrue or arise". The

deeming provisions are built intoSection 2 (45)read withSection 5.Section 22refers to

"annual value of property" whereasSection 22is the charging provision,Section 23is the

computation provision which deals with determination of annual value.Section 23 (1) (a)refers a notional concept of rent as it states that the sum for which the property might

reasonably be expected to let from year to year.Section 23 (1) (b)refers to actual rent

received or receivable by the owner in excess of the sum referred to in Clause (a).

Clauses (a), (b) and (c) are disjunctive. In other words, actual rent received or receivable

comes into play only if it is in excess of the notional rent stipulated in Clause (a).He further submitted that retrospective enhancement of rent comes withinSection

23 (1) (a)in determining the annual value within the meaning ofSection 22of the Act. It is

submitted thatSections 22and23read together is a complete code inChapter IV of the

Act.He further submitted that just as deeming provision is built intoSection 5for

computing total income, deemed escapement of income is built intoSection 147(vide

Explanation 2 toSection 147). The impugned notice was issued after due compliance

with all statutory requirements. The reasons were recorded underSection 148 (2)as

income chargeable to tax which has escaped assessment exceeds Rs.1,00,000/- for

1989-90, the notice is not time barred underSection 149 (1) (b).He further submitted that there is no conflict betweenHamilton's case andHope

India's case as rightly submitted by the appellant and recorded in the order of reference.

The ratio of the said two cases is to be read and understood in the context of the

questions of law formulated and answered in the said two cases.He further submitted that the impugned notice underSection 148is neither time

barred nor invalid. It was issued in pursuance of the Assessee's own request. The

Assessee voluntarily submitted its return of income in response to the impugned notice

underSection 148and paid the tax for the additional rent on self-assessment along with

the said return. The interest charged in the reassessment order was ultimately waived by

the C.I.T. The factum of payment of tax is also reflected at page 165 in the Paper Book.Section 25Bexpressly made prospective with effect from 1st April, 2001 and has,

therefore, no application to Assessment Year 1989-90.In the Memorandum explaining

introduction ofSection 25B[242 ITR (ST) 144] the ratio ofHamilton's case andHope

India's case was recognized. Such increase of rent retains the character of income from

house property and suggested taxing the said income in the year of receipt.This matter was referred before the Special Bench by the Hon'ble Division Bench

on the ground that there is a direct conflict of judgment between two Division Benches

and, accordingly, the Hon'ble Division Bench thought it fit and referred the matter before

the Larger Bench so that the principle of the subject can be laid down.It is also to be noted that Dr. Pal at that point of time tried to distinguishthe said

judgmentin theHamilton's case (supra) with the judgment ofHope (India) Ltd.(supra) and

submitted that there is no inconsistency in the view taken by the subsequent Division

Bench in theHope (India) Ltd.case (supra) and in this subsequent decision the Hon'ble

Division Bench duly considered the judgment delivered in theHamilton's case (supra)

and, according to Dr. Pal, the judgment in Hope (India) Ltd. holds the field.We have also heard the learned Counsel for the parties extensively and after going

through the said decisions of the Hon'ble High Court and after taking into consideration

the facts of this matter, it appears to us that inHamilton's case the Court laid down

the ratio that the rent of the past year increased retrospectively shall be the annual

rent of the said past year or years but cannot be said to be the annual rent of the

year in which the said amount was received.It was also held that the said amount

which was received by the landlord subsequently being the enhanced rent is

nothing to yield of the house property and the character of such receipt, being the

rent shall continue to be an income from the house property whereas in theHope

India's case it has been laid down that a claim made by a landlord for enhancement
 of rent cannot be said to be an amount within the meaning ofSection 23(1)of the

Act. Since a claim or a demand by itself does not come within the purview of the

word "income received or receivable".It would be also evident fromthe said

judgmentinHope India's case the Hon'ble Division Bench duly considered theHamilton's case and observed that the question raised in theHope India's case had

not been raised in thatHamilton's case at all.Therefore, it must be understood that

the facts of both the cases were not identical and inHope India's case the Division Bench

specifically dealt with the meaning of the word 'receivable' in the light of the decision of the

Hon'ble Supreme Court reported in 26 ITR 27 and held that a claim or a demand by itself

cannot be construed as income receivable.          Therefore, in our considered opinion,

there cannot have any conflict in the said two decisions of the Hon'ble Division

Bench.Since, in our opinion, theHamilton's case it was laid down that the

retrospective increase of rent cannot be brought under income from other source

(seeSection 14of the Act) whereas in theHope India's case there was laid down that

a mere demand or claim cannot amount to income receivable within the meaning ofSection 5of the Act and, furthermore, we do agree with Dr. Pal as it would be

evident from the order of reference that Dr. Pal tried to distinguish the judgment in

theHamilton's case (supra) with the judgment ofHope (India) Ltd.(supra) and

submitted that there was no inconsistency in the view taken by the Hon'ble Division

Bench and further inHope India's case the Hon'ble Division Bench also considered

the judgment delivered inHamilton's case and he further contended before the Hon'ble

Division Bench that the amendments which had been brought about inSection 25Bwas

expressly made prospective with effect from 1st April, 2001.Therefore, we answer the reference as follows :We do not find that there is any conflict in those two judgments.Before we part, we do find that the moot question in this matter that the notice

issued underSection 147of the said Act whether issued by the department is without

jurisdiction and further the said question would only apply in a case where the Assessing

Authority has reason to believe that there has been any escapement of income.According to Dr. Pal, the enhanced rent cannot be treated as income of the

Assessment Year 1989-1990. Therefore, the question of escapement of income does not

arise at all and the condition precedent for the assumption of jurisdiction underSection

147of the Act does not exist and, therefore, it is the duty of the Writ Court to quash the

notice which was issued by the authority since the Assessing Authority has no jurisdiction

to issue the said notice.It appears from the fact that the Assessment Year in question is 1989-1990, Return

was filed in respect of that year on 22nd November, 1989 and an intimation was issued to

the appellant underSection 143 (1) (a)of the Act on 20th February, 1990. The fact reveals

that the appellant by a letter dated 18th April, 1994 suggested settlement of tax liability and

agreed to revision of assessment for the Assessment Years 1990-1991, 1991-1992 and

1992-1993 and contended that the Assessment Year 1989-1990 had become time barred,
 but would pay interest for subsequent years to compensate the loss. By a letter dated 19th

May, 1994 the appellant itself requested for issuance of notices underSection 148for

completion of reassessment within May, 1994 (being notice underSection 148) on the

basis of such letter was issued on 18th May, 1994. It further appears that on 18th April,

1994 the appellant in anticipation of reassessment duly deposited Rs. 51,37,676/- before

30th of April, 1994 in self-assessment challan to cover a substantial portion of additional

liability.   The appellant also informed that steps have been taken to reopen the

assessment from Assessment Year 1989-1990 and prayed for waiver of interest and also

approached various authorities.It would be evident from the said letter dated 9th May, 1994 that the assessee

addressed to the Commissioner of Income Tax, West Bengal VI as follows :"In view of the mistakes in computation of our liability we are withdrawing
         our application dated 18.4.94 addressed to your honour and our application dated
         25.4.94 addressed to the learned CHIEF Commissioner, Calcutta III on the same
         subject and both the application may kindly be treated as cancelled.The assessee has prepared fresh returns for the assessment years 1990-91
         to 1992-93 which can be filed immediately on receipt of noticesu/s. 147/148of the
         I.T. Act for those years.The assessee will be grateful if the Assessing Officer is directed to issue the
         notices U/s. 148 immediately and also to complete the re-assessment, within the
         month of May 1994 so as to reduce the burden to interest.As a revised return has been filed for the assessment year 1993-94 and self
         assessment tax with interestu/s. 234Band234Cof the I.T.Act has been deposited
        both for the assessment years 1993-94 and 1994-95, the assessee will not incur
       any further liability on account of interest for those two years."It further appears that the assessment was completed underSection 143(1)of the

Act by accepting the Assessee's Return and intimation was duly sent to the assessee.

Thereafter the Assistant Commissioner of Income Tax after recording the reasons issued

the notice underSection 147of the said Act. The reasons which were stated are as

follows :"Reasons recorded for initiating proceeding U/s. 147.         The assessee
       company in deriving its income mainly from house property. The Major portion of
       its - building at 4, Brabourne Road, Calcutta in occupied by Government of India
       through Estate Manager. The Government has enhanced rent from Rs. 4/- per Sq.
       ft. to Rs. 8/- per Sq. ft. with retrospective effect from 1.09.1987 on 19.3.94 as per
       Assessee's letter dated 25.4.94 placed on record. This has resulted in escapement
       of income for Assessment Year 1989-90 to the time of Rs. 33,46,000/- Issue notice
       underSection 148read withSection 147 (a)immediately for the assessment year
       1989-90."It appears that Explanation 2,Section 149 (1) (b)of the Act provides that in

determining income chargeable to tax which has escaped assessment for the purposes of

this sub-section, the provision of Explanation 2 ofSection 147shall apply. It appears

under Explanation 2 toSection 147three classes of cases have been mentioned where it

would be deemed that income chargeable to tax which has escaped. The first class of

cases which is against Clause (a) of Explanation 2 is in applicable as it relates to a

situation where no Return of Income has been furnished. The second class of cases

which has been mentioned against Clause (b) of Explanation 2 relates to a situation where
 a Return of Income has been furnished, but no assessment has been made. In such a

case it is only when the assessee understates his income that there would be a question

of escapement of income. The last class of cases is mentioned against Clause (c) of

Explanation 2 which deals with a situation where assessment has been made but income

chargeable to tax has been underassessed or income has been assessed at too low a

rate or such income has been made. The subject of excessive relief under the Act or

excessive loss of depreciation allowance or any other allowance under Act has been

computed. According to the appellant, no assessment had been made in respect of the

Assessment Year in question in the case of the appellants. It was also submitted by Dr.

Pal that there was no scope for understatement of income because the income which the

Authorities were claiming had escaped assessment and which was caused by virtue of

enhancement of rent in the year 1994 with effect from 1987. It appears that in this matter

the assessment has been made. The assessee did not dispute the fact that the case of

the assessee would come within the four-corners of Clause (c) of the said Section. The

question is whether an intimation underSection 143 (1) (a)of the Act can be an

assessment within the meaning of Explanation 2(c) toSection 147of the Act. It is also

clear from Explanation 2(c) toSection 147of the Act which does not speak of an

Assessment Order but merely of assessment. Therefore, there cannot be any reason for

limiting the word "assessment" used in Clause (c) of Explanation 2 toSection 147of the

Act.It further appears that the Hon'ble First Court held as follows :"Indeed, whensection 143(1)(a)was introduced by the Direct Tax Laws
      (Amendment) Bill, 1987, it was made clear that the Section had been introduced to
      provide for a new scheme of 'assessment' wherein requirement of passing an
      Assessment Order in all cases where Returns are filed is dispensed with, and that
      is what an intimation underSection 143(1)of the Act is, namely, an assessment.
      That being the case, Explanation 2 (c) toSection 147of the Act is applicable and it
      cannot, therefore, be said that the impugned Notice underSection 148of the Act is
      vitiated on the ground as claimed by the petitioners."Therefore, in our considered opinion, the Hon'ble First Court correctly held that on

the given facts the impugned notice underSection 148of the Act cannot be said to be

vitiated. Since, in our considered opinion, the appellant has failed to make out a case that

the said notice is without jurisdiction and, hence, we uphold the decision of the Hon'ble

First Court and, accordingly, the appeal is also dismissed.I agree.(SURINDER SINGH NIJJAR, C. J.)                     (PINAKI CHANDRA GHOSE, J.)




                          (BISWANATH SOMADDER, J.)