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2008 (2) TMI 817 - AT - Income TaxMesne profits - revenue receipt or capital receipt - Whether in the light of the decision in P. Mariappa Gounder v. CIT 1979 (2) TMI 200 - SUPREME COURT , it must be held that mesne profits received by the assessee is revenue income chargeable to tax ? - HELD THAT - The above discussion clearly reveals that the judgment of the hon'ble Supreme Court in the case of P. Mariappa Gounder 1979 (2) TMI 200 - SUPREME COURT only decides the issue regarding the year of taxability of the mesne profits. That judgment, therefore, cannot be said to be an authority for the proposition that nature of mesne profits is revenue receipts chargeable to tax. Accordingly, the contention of the Revenue that the issue regarding the nature of mesne profits is covered by the aforesaid decision of the hon'ble Supreme Court cannot be accepted. Having answered the question referred to by the hon'ble President in the present case, we now proceed to dispose of the appeal. The first issue arising in this appeal from ground Nos. 1, 2, 3 and 5 is whether the sum received by the assessee under the consent decree passed by the hon'ble Supreme Court is in the nature of capital receipt not chargeable to tax or is in the nature of revenue receipt chargeable to tax. The analysis of cases, clearly reveals that there is cleavage of opinion between the High Courts. The hon' ble Madras High Court has held that mesne profits is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to tax. On the other hand the hon'ble High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. In our view, such conflict can be resolved only by the hon'ble Supreme Court in some appropriate case. In the absence of the judgment of the highest court of land or of the jurisdictional High Court, the legal position is that where there are two views then the view favourable to the subject should be preferred. Reference can be made to various judgments of the apex court CIT v. Vegetable Products 1973 (1) TMI 1 - SUPREME COURT , CIT v. Naga Hills Tea Co. Ltd. 1973 (2) TMI 6 - SUPREME COURT , CIT v. J. K. Hosiery Factory 1986 (3) TMI 4 - SUPREME COURT , Smt. Shashi Gupta v. Life Insurance Corporation of India 1995 (2) TMI 450 - SUPREME COURT , therefore, following the same, it has to be held that mesne profit received for deprivation of use and occupation of property would be capital receipt not chargeable to tax. We hold accordingly. Consequently, the decision of the Special Bench of the Tribunal in the case of Sushil Kumar and Co. 2003 (8) TMI 168 - ITAT CALCUTTA-C , holding to the extent that mesne profit is taxable as revenue receipt is overruled. In the present case, after the termination of lease, NIHPL was occupying and using the property unauthorisedly and thus the assessee was deprived of the use and occupation of the property and therefore, the mesne profits received by the assessee under the consent decree awarded by the apex court at the rate of Rs. 10 lakhs p.m. was on account of damages for deprivation of use and occupation of the profits and therefore, the sum so received was capital in nature not chargeable to tax. Whether interest awarded from the date of termination of lease agreement till the date of consent decree can be said to be capital in nature - If the interest is paid for deprivation of use of money fallen due to them it is revenue receipt chargeable to tax. On the other hand, if the interest is paid on account of the injury to the capital i.e., deprivation of use and occupation of the property then it is capital receipt not chargeable to tax. In the present case, it has already been held by us that the mesne profits were for deprivation of use and occupation of the property. The interest received by the assessee is also for the same period as it is awarded up to the date of decree. The money has become due on the date of decree. Accordingly, it is held that interest from the date of termination of lease till the date of decree would be capital receipt not chargeable to tax. However, if any interest is received by the assessee beyond that period then, it would be revenue receipt chargeable to tax. Thus, grounds Nos. 1, 2, 3 and 5 raised by the assessee are allowed. The order of the CIT(A) confirming the addition is hereby set aside and consequently, the addition sustained by him is hereby deleted. In the result, the appeal of the assessee is allowed.
Issues Involved:
1. Whether mesne profits received by the assessee constitute revenue income chargeable to tax. 2. Whether the mesne profits of Rs. 34,57,01,137 received by the appellant pursuant to the consent decree constitutes revenue receipt assessable to tax. 3. Whether the Commissioner of Income-tax (Appeals) erred in holding that mesne profits constitute taxable revenue receipts. 4. Whether paragraphs 28 to 31 of the Tribunal's order dated December 16, 2004, were obiter dicta and not ratio decidendi. 5. Whether the Commissioner of Income-tax (Appeals) erred in enhancing the assessed income by Rs. 1,18,75,000. 6. Whether the addition of Rs. 34,57,01,137 should be demolished as unlawful, illegal, and invalid. 7. Whether the Commissioner of Income-tax (Appeals) erred in sustaining the levy of interest under sections 234B and 234C. 8. Whether the mesne profits received under the consent decree passed by the Supreme Court is in the nature of capital receipt not chargeable to tax or revenue receipt chargeable to tax. Detailed Analysis: 1. Whether mesne profits received by the assessee constitute revenue income chargeable to tax: The Tribunal examined the impact of the Supreme Court judgment in P. Mariappa Gounder [1998] 232 ITR 2. It was determined that the Supreme Court only addressed the year of taxability of mesne profits, not their nature as revenue or capital receipts. The Tribunal concluded that the Supreme Court judgment did not imply that mesne profits are revenue receipts chargeable to tax. 2. Whether the mesne profits of Rs. 34,57,01,137 received by the appellant pursuant to the consent decree constitutes revenue receipt assessable to tax: The Tribunal found that the mesne profits received by the assessee under the consent decree were not revenue receipts but capital receipts. This conclusion was based on the fact that the mesne profits were compensation for the deprivation of the use and occupation of the property, which is a capital asset. 3. Whether the Commissioner of Income-tax (Appeals) erred in holding that mesne profits constitute taxable revenue receipts: The Tribunal disagreed with the Commissioner of Income-tax (Appeals), holding that mesne profits are capital receipts. This decision was supported by several High Court judgments that classified mesne profits as capital receipts, not revenue receipts. 4. Whether paragraphs 28 to 31 of the Tribunal's order dated December 16, 2004, were obiter dicta and not ratio decidendi: The Tribunal noted that the Commissioner of Income-tax (Appeals) erred in holding that these paragraphs were obiter dicta. However, this issue was rendered moot by the Tribunal's finding that mesne profits are capital receipts. 5. Whether the Commissioner of Income-tax (Appeals) erred in enhancing the assessed income by Rs. 1,18,75,000: Since the Tribunal concluded that the mesne profits were capital receipts, the enhancement of the assessed income by Rs. 1,18,75,000 by the Commissioner of Income-tax (Appeals) was deemed unnecessary and was set aside. 6. Whether the addition of Rs. 34,57,01,137 should be demolished as unlawful, illegal, and invalid: The Tribunal held that the addition of Rs. 34,57,01,137 was not justified as the mesne profits were capital receipts. Consequently, this addition was deleted. 7. Whether the Commissioner of Income-tax (Appeals) erred in sustaining the levy of interest under sections 234B and 234C: The Tribunal directed the Assessing Officer to recompute the interest under sections 234B and 234C after giving effect to its order, which deleted the addition of mesne profits as income. 8. Whether the mesne profits received under the consent decree passed by the Supreme Court is in the nature of capital receipt not chargeable to tax or revenue receipt chargeable to tax: The Tribunal concluded that the mesne profits received by the assessee were capital receipts. This conclusion was based on the fact that the mesne profits were compensation for the deprivation of the use and occupation of the property, which is a capital asset. The Tribunal also noted that there was a difference of opinion among various High Courts on this issue, and in such cases, the view favorable to the assessee should be preferred. Summary: The Tribunal ruled that the mesne profits received by the assessee under the consent decree were capital receipts and not revenue receipts chargeable to tax. This decision was based on the nature of mesne profits as compensation for the deprivation of the use and occupation of the property. The Tribunal also set aside the enhancement of assessed income by Rs. 1,18,75,000 and directed the Assessing Officer to recompute the interest under sections 234B and 234C after giving effect to its order.
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