Re-Opening of Assessment of Accrual Income is illegal; SC quashes notice u/s 148 Seeking Re-assessment of Income for the FY 1989-90

The Supreme Court recently quashed a notice seeking re-assessment u/s 148 of the Income Tax Act alleging that the same was issued without jurisdiction and authority of law.

The premises belonging to the appellant were let out on rent to the Government of India. The rent was enhanced from Rs.4.00 to Rs.8.11 per sq.ft. per month effective from 01.09.1987. The said enhancement of rent was made by a letter dated 29.03.1994 of the Estate Manager of the Government of India. The said letter makes it clear that the enhancement was subject to conditions including execution of a fresh lease agreement and communication of acceptance of the conditions incorporated therein. Such acceptance was communicated by the appellant by letter dated 30.03.1994. The amount of rent received by the appellant was liable to be computed u/s 22 and 23 of the Act.

The issue raised before the Court was to determine the validity of the notice sent to the assessee seeking re-opening of assessment for the year 1989-90 u/s 148 of the Income Tax Act,1961.

The appellant relying upon the decision in'E.D. Sassoon &Company Ltd. And Others vs. Commissioner of Income-Tax', (1954) 26 ITR 27, contended that no income accrued or arose and no annual value which is taxable under Sections 22 and 23 of the Act was received or receivable by the assessee at any point of time during the previous year corresponding to the assessment year 1989-1990. Hence, the impugned notice seeking to reopen the assessment is without jurisdiction or authority of law.

The respondent-Revenue, on the other hand, contended that the enhancement of rent is retrospective i.e. from 01.09.1987 and, therefore, the income must have to be understood to have been received in the said assessment years.e. 1989-1990.

The Court while deciding analyzed the decision in E.D Sasson and opined that no such right to receive the rent accrued to the assessee at any point in time during the assessment year in question, inasmuch as such enhancement through with retrospective effect, was made only in the year 1994. The contention of the Revenue that the enhancement was with retrospective effect, in our considered view, does not alter the situation as retrospectivity is with regard to the right to receive rent with effect from an anterior date. The right, however, came to be vested only in the year 1994.

On the basis of the above analysis, the impugned notice was held to be without jurisdiction and authority of law and hence, invalid. While concluding, the learned judges Justices Ranjan Gogoi and Prafulla.C.Pant pointed out that “Needless to say, the present adjudication is confined to the question of jurisdiction to issue the notice under Section 148 of the Act for reopening the assessment for the assessment year 1989-1990. No opinion on the rights and liabilities of the parties in respect of the receipt in question with regard to any subsequent year(s) has been dealt with by us and we make it clear that the same will be governed by the relevant provisions of the Act.”

Read the full text of the order below.

[googleapps domain="drive" dir="file/d/0B3j3oXdY53gVaW9HRnBIM2tOem8/preview" query="" width="640" height="480" /]