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Issues Involved:
1. Determination of the cost of the property as of 1st January 1964 for capital gains calculation. 2. Classification of Rs. 36,400 received as mesne profits - whether it is taxable as income from other sources. Detailed Analysis: 1. Determination of the Cost of the Property as of 1st January 1964: The assessee, a former Government servant, was allotted a site by the City Improvement Trust Board in 1958 and constructed a building on it in 1960-61. The property was sold in 1982, and the question of capital gains arose during the assessment for 1983-84. The Income Tax Officer (ITO) determined the cost of the property as of 1st January 1964 to be Rs. 49,000 based on a departmental valuation. The assessee, however, relied on an approved valuer's report, which valued the property at Rs. 1,31,860. The Commissioner (A) held that it was a long-term capital gain since the assessee had become the owner of the site from 1960-61, and this finding was not challenged by the Revenue. The primary grievance of the assessee was regarding the valuation as of 1st January 1964. The departmental valuer used an average of the rent capitalization method and the land and building method to arrive at the value of Rs. 49,000. The approved valuer valued the land at Rs. 64,500 and the building at Rs. 67,360, totaling Rs. 1,31,860. The Tribunal agreed with the Commissioner (A) that the rent capitalization method was not appropriate due to the low rent granted out of philanthropic considerations. Instead, the land and building method was deemed more appropriate. The Commissioner (A) had taken the value of the plot at Rs. 125 per sq. mtr. based on sale instances in the same area, but the Tribunal found this to be on the lower side and determined a more reasonable rate of Rs. 140 per sq. mtr. for the land. The value of the building was fixed at Rs. 63,000, considering the cost of construction and the appreciation in site value offsetting the depreciation of the building. Final Valuation: - Value of land (359.33 sq. mtrs. at Rs. 140 per sq. mtr.): Rs. 50,306 - Value of the building: Rs. 63,000 - Total: Rs. 1,13,306 Thus, Rs. 1,13,306 was adopted as the cost for the purpose of capital gains. 2. Classification of Rs. 36,400 Received as Mesne Profits: The assessee had leased the property to a tenant and later terminated the tenancy, leading to a suit for ejectment and recovery of past rent and mesne profits. A compromise was reached, and the tenant agreed to pay Rs. 75,000, including Rs. 36,400 as mesne profits. The ITO charged this Rs. 36,400 as income from other sources. The Tribunal examined the nature of mesne profits, which are compensation for wrongful possession of the property after the termination of the lease. The assessee argued that mesne profits should not be taxable as income since they are compensation for an injury suffered due to the tenant's wrongful act. Additionally, the rental income had already been assessed annually under the head 'income from property,' and taxing the mesne profits would result in double taxation. The Tribunal upheld the assessee's submission, noting that mesne profits are related to ownership of the property and should not be taxed again under a different head. They also referenced case law supporting the view that compensation for wrongful possession is not taxable income. The Tribunal concluded that the Rs. 36,400 received as mesne profits could not be classified as taxable income and ordered its deletion from the taxable income. Conclusion: The appeal was allowed in part, with the Tribunal directing the deletion of Rs. 36,400 from the taxable income and adopting Rs. 1,13,306 as the cost for capital gains calculation.
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