SC on fixation of rent and its payment is statutory or contractual and Tax effect

1) This appeal is filed by the Revenue against the final judgment and order dated 20.05.2005 passed by the High Court of Judicature of Kerala at Ernakulam in ITA No. 166 of 2000 whereby the High Court dismissed the appeal filed by the appellant herein holding that the claim for deduction of lease rent made by the respondent (assessee) in their Income Tax Return is allowable in that assessment year wherein the dispute relating to lease rent has attained finality and not in the assessment year wherein the lease rent was fixed by the Government.

2) Few facts need to be mentioned infra to appreciate the short controversy involved in the appeal.

3) The respondent is an assessee under the Income Tax Act. The State Government, in the year 1965, acquired the land measuring 46.79.250 acres in Varapuzha Village (now Eloor Village) of Parur Taluk, District Ernakulum. Out of the acquired land, the State allotted 43.45.250 acres of land to the respondent for setting up of the factory.

4) By order (G.O. Ms. 576/88/RD) dated 25.06.1988, (Annexure-P-1), the State Government fixed the lease rent of the demised land payable by the respondent to the State. The respondent felt aggrieved of the fixation of the lease rent made by the State as, according to them, it was on higher side. The respondent, therefore, objected to the fixation made by the State Government vide order dated 25.06.1988 and prayed for its suitable reduction. By order dated 07.11.1991, the State Government rejected the respondent’s request and maintained the order dated 25.06.1988 which had originally fixed the lease rent.

5) It is with these background facts, the respondent filed their Income Tax Return for the Assessment Year 1992-93. In the Return, the respondent claimed deduction of accumulated lease rent amounting to Rs. 97,69,077/-. The Assessing Officer by order dated 28.02.1995 while dealing with the claim in question disallowed the deduction claimed by the respondent. In his opinion, such deduction could not be claimed in the Assessment Year 1992-93 but it could be claimed only in the Assessment Year 1989-90.

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