assessee has filed this appeal challenging order of CIT(A)-III, Trivandrum dt. 30th Aug., 2004 for asst. yr. 1996-97. assessee has taken following effective grounds: "2. learned CIT(A) erred in holding that arrears of rent amounting to Rs. 2,60,000 relating to period 1992 to 1995 received during previous year relevant to asst. yr. 1996-97 constituted income from other sources, if not income from property. learned CIT ought to have seen that Jt. CIT while making assessment had treated arrears of rent as income from house property giving statutory deductions. CIT(A) had no justification to treat income from property as income from other sources. learned CIT(A) as well as AO ought to have seen that being arrears of rent, this is not assessable under property or as income from other sources. income being in nature of property income, appellant does not get benefit of statutory deductions like municipal tax, allowance for repairs, etc., when treated as income from other sources. IT Act clearly exempts arrears of rent as income from property but Act does not stipulate that arrears should be assessed under income from other sources. learned CIT(A) erred in holding that arrears of rent has to be assessed as income from other sources." only issue which arises for our consideration in these appeals is whether arrears of rent received by assessee is taxable in year of receipt. We have heard parties. In previous year relevant to assessment year, assessee received arrears of rent amounting to Rs. 2,60,000 pertaining to earlier year, but he did not offer same for taxation. contention of assessee was that amount of arrears of rent received relating to earlier year are not taxable and s. 25B to tax such arrears came into effect from asst. yr. 2001-02. learned CA for assessee relied on following precedents: (i) Hamilton & Co. (P.) Ltd. vs. CIT (1992) 104 CTR (Cal) 95: (1992) 194 ITR 391 (Cal); (ii) Jagtar Singh Purewal, In re (1995) 126 CTR (AAR) 341: (1995) 213 ITR 512 (AAR); (iii) CIT vs. Ms. Sadhna Chadha (2004) 188 CTR (SC) 78: (2004) 270 ITR 534 (Del). Per contra, learned. Departmental Representative supported orders of authorities below. We have heard parties. short controversy is regarding assessability of arrears of rent received by assessee in previous year relevant to asst. yr. 1996-97. argument of learned. Chartered Accountant for assessee is that section 25B of Act is brought on statute book w.e.f. asst. yr. 2001-02 and it has no retrospective effect to bring to tax arrears prior to introduction of said section as it is not retrospective in operation. We find substance in argument of learned. Chartered Accountant. Sec. 25B which was brought on statute book reads as under: "25B. Where assessee (a) is owner of any property consisting of any buildings or lands appurtenant thereto which has been let to tenant; and (b) has received any amount, by way of arrears of rent from such property, not charged to IT for any previous year, amount so received, after deducting sum equal to thirty per cent of such amount, shall be deemed to be income chargeable under head "Income from house property" and accordingly charged to income-tax as income of that previous year in which such rent is received, whether assessee is owner of that property in that year or not." above section is applicable from asst. yr. 2001 -02 and said section cannot be said to be clarificatory or declaratory in nature. In case of Hamilton & Co. (P.) Ltd. (supra), Hon ble Calcutta High Court has held as under: "In this connection, it may be mentioned that Explanation below s. 23(1) was inserted by Taxation Laws (Amendment) Act, 1976, " w.e.f. asst. yr. 1976-77 simultaneously with amendment of sub-s. (1). Tribunal is correct to extent that arrears of rent of past year are not assessable s actual rent from house property in year in which it is received. Tribunal, however, gave receipt complexion of income from other sources so as not to let it escape taxation in year of receipt. This leads us in logical train on to question whether arrears of rent received in respect of tenancy of house property lose their character as income from house property as Tribunal s order postulates. answer would be in negative. Rent, whether current or in arrears, is yield of house property and source of income being letting of house property by owner, rent shall continue to have its character as "income from house property". In case of Ms. Sadhna Chadha(supra), Hon ble Delhi High Court has held as under: "Cl. (a) of sub-section lays down that annual value is sum for which property may reasonably be expected to be let from year to year. Cl. (b) takes care of situation where annual rent of property let out is in excess of sum for which it may reasonably be expected to be let from year to year. Obviously, cl. (b) covers case where rent for year, actually received by owner of property, is in excess of fair rent, like some fancy rent, which tenant may pay to owner by way of extra consideration for some special reason. It only provides that actual "annual rent" which is received or receivable by owner, even though it may be in excess of fair market rent, has to be taken as annual value of property. This is so because of what is clearly stipulated in Explanation, rent is actual rent received or receivable in respect of previous year. Cl. (b) which is more explicit, clearly refers to period of 12 months, which leaves no scope for doubt that annual rent has to be rent for 12 months. Therefore, bare reading of s. 23(1) with Expln. 1 appended thereto, makes it clear that any rent not relating to relevant previous year cannot form part of "annual rent" for previous year, for determining annual value of property for purposes of s. 22 of Act. similar view has been expressed by Calcutta High Court in Hamilton s case (supra), with which we are in respectful agreement." We are, therefore, of opinion that arrears of rent received by assessee which relates to earlier years and received by assessee during previous year relevant to asst. yr. 1996-97 cannot be brought to tax. We also do not agree with observations of learned. CIT(A) that if it is not chargeable to tax under head "Income from house property" then it must fall under residuary head of "Income from other sources", as in case of Hamilton & Co. (P.) Ltd. (supra), Hon ble Calcutta High Court has held that rent whether current or in arrears shall continue to have its character as "Income from house property". Hence, same cannot be taxed under head as "Income from other sources". We, therefore, direct AO to delete amount of Rs. 2,60,000 being arrears of rent which relates to period prior to previous year. In result, assessee s appeal is allowed. *** K. VINOD KUMAR v. ASSISTANT COMMISSIONER OF INCOME TAX