H.N.SETH, J. - (1.) AT the instance of the assessee, this Court, vide its order dt. 26th March, 1975, called upon the Tribunal to state the case and refer the following question of law in respect of assessee's assessment for the years. 1960-61 and 1961-62 for its opinion: "Whether on the facts and in the circumstances of the Tribunal was right in its view that the assessee was liable to tax on the rental income of Rs. 8,000 on the ground that the assessee had been following mercantile system of accounting in respect of this business income?" The Tribunal has accordingly drawn up the statement of the case and has referred the aforesaid question for the opinion of this Court.
(2.) THE assessee is a registered firm which owned house property, government security and derived income form business. It has leased out its factory premises to Narain Das Gopal Das on an annual rent of Rs. 8,000 payable by the 31st October each year. In due course, the financial position of the lessee became bad and the made defaults in payment of the less money to the assessee. Accordingly, by means of a notice dt. 4th Jan.,1960, the assessee determined the lease of Narain Das Gopal Das. Inasmuch as during the previous years, relevant to the asst. yrs. 1960-61 and 1961-62, the lessee did not pay any rent to the assessee, the assessee did not include any rental income on this account in the tax returns filed by it for the tow years. However, while making the assessment the ITO, as had been done by him in respect of assessee's assessment for the earlier years, included a sum of Rs. 8,000 on this account as income that had accrued to the assessee under the head income form other source. Being aggrieved the assessee went up in appeal before the AAC and contended that inclusion of the said amount in the income of the assessee, on accrual basis was unjustified. The AAC pointed out that for the asst. yrs, 1958-59 & 1959-60 also he had, while computing the assessees income, upheld the inclusion of the lease rent on accrual basis and that the objection raised by the assessee to such inclusion deserved to be rejected for the same reason. The assessee then went up in appeal before the Tribunal and contended that as it was not realising the lease rent it had by means of a notice dt.
(3.) TH Jan.,1960 terminated the lease granted to Narain Das Gopal Das. After determination of the said lease, it could not be said that any income accrued to the assessee and the addition made by the ITO on the account deserved to be deleted. 4. It may, at this stage, be mentioned that the question of inclusion of the aforesaid lease rent in computing assessees' income had also come up before the Tribunal in connection with the assessee's assessment for the years 1956-57, 1957-58, 1958-59 and 1959-60. For the asst. yrs., 1956-57 and 1957-58 the Tribunal ruled that the said lease rent had accrued to the assessee during the relevant previous years and was as such, liable to be included in assessee's income for those years. However, in respect of the asst. yrs. 1958-59 and 1959-60 the Tribunal held that no rental income accrued to the assessee for the relevant previous years and it did not uphold the addition in that respect made by the ITO.;