A Rajasthan High Court ruling, giving retrospective effect of the special provision for assessing arrears of rent provided under section 25B of the Income Tax Act, has irked the Supreme Court. A bench comprising Justice SH Kapadia and Justice Swatanter Kumar on Friday took strong exception to the high court ruling on the issue.
The high court had said that the provision of Section 25B of the Income Tax Act is clarificatory in nature and should be given retrospective effect. The apex court, however, said, such findings of the high court was uncalled for after hearing the plea of Dowager Maharani Residential Accommodation Welfare Amenities Trust.
Advocate Pratap Venugopal on behalf the Trust, said the high court erred in arriving at such a conclusion when it was not the issue before the court. “The high court failed to appreciate that the question or issue regarding section 25B of the IT Act did not at all arise out of the orders of the Appellate Tribunal (Income Tax Appellate Tribunal) and therefore, the high court did not have the jurisdiction under section 250 A of the IT Act to go into or decide that question”, said the Trust in its Special Leave Petition. Section 25 B was inserted by the Finance Act 2000 which lays down that where the owner of the property received any amount, by way of arrears of rent from such property, the amount so received, after deducting a sum equal to one-fourth of such amount for repairs of, and collection of rent from, the property, shall be deemed to be the income chargeable under the head ‘income from house property’ as the income of the previous year in which such rent is received. This will be the position even if the assessee is not the owner of that property in the year of receipt of enhanced rent.
It was made effective from April 1, 2001. However, the question was left open whether it can be applied retrospectively.
DMRAWA Trust said, “the high court completely failed to appreciate that section 25 B was inserted into IT Act by the Finance Act 2000 with effect from April 1, 2001 and therefore, section 25B could not in law be given retrospective effect in respect of any earlier assessment years”.
Secondly, “the high court completely failed to appreciate that legal position prevailing prior to April 1, 2001 as laid down by several high court judgements was entirely different from that contained in section 25B and that the said previously obtaining legal position was consequently and materially changed by the amendment made by insertion of section 25 B in IT Act and therefore, section 25B could not possibly be considered to be a clarificatory provision”, said Trust.
The trust had let out its property to the department and derived rental income. There was a retrospective revision of the rent payable to the trust which related to the past period even though the decision to grant the rent increase was taken long after the expiry of the previous years in question and the amount of such increase in rent was received subsequently.
The income tax department took the view that since such revision of rent was related to the past assessment years, the amount of increase in rent was assessable as the income of those assessment years. Accordingly, department issued re-assessment notices in respect of the earlier assessment years for re-opening the assessment and for including the rent amount of such increased rent in the annual value of the property.
On appeal, the ITAT had said that the amount of retrospective rent increase could not be included in the annual value of the property. It had also held department’s re-assessment notices as illegal. It was challenged by the department in the high court.