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Issues involved: The judgment involves the following issues: 1. Taxability of mesne profits received by the assessee as capital receipt, 2. Treatment of mesne profits in book profits under Section 115JB.
Issue 1: Taxability of mesne profits received as capital receipt: The department raised objections regarding the taxability of mesne profits received by the assessee, contending that it should be treated as revenue in nature based on a decision of the Hon'ble Madras High Court. The assessee argued that the mesne profit for unauthorized occupation of premises is a capital receipt not chargeable to tax, citing relevant case laws such as Narang Overseas Pvt. Ltd. Vs. ACIT and CIT Vs. Mrs. Annamma Alexander. The CIT(A) found in favor of the assessee, holding that the mesne profit received is capital in nature and not chargeable to tax, aligning with the decision of the Special Bench and the Hon'ble Bombay High Court. Issue 2: Treatment of mesne profits in book profits under Section 115JB: The AO added the mesne profits to the book profit under Section 115JB, as the receipt was treated as revenue and not credited to the profit and loss account. However, the CIT(A) deleted the addition, stating that the mesne profit is capital in nature and hence not chargeable to tax. The CIT(A) observed that while the mesne profit was reflected in the profit and loss account, it was rightly taxable for computing book profit, but since it is capital in nature, the income computed under Section 115JB was also deleted. The Tribunal upheld the CIT(A)'s decision, confirming that the mesne profit being capital in nature cannot be taxed under Section 115JB. In conclusion, the appeal of the department was dismissed, and the order of the CIT(A) was upheld in both issues involved in the judgment.
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