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2003 (8) TMI 168 - AT - Income TaxBusiness Income - taxability of a receipt capital or revenue - wrongful possession of the property - Whether the amount received by the assessee in terms of the consent decree passed by the Small Causes Court is mesne profit - HELD THAT - Since in this case, the parties to the suit have utilized the process of the Court to obtain a decree on the mutual terms and conditions, the term 'mesne profit' used in the consent decree, which has become part of the consent decree, does not become binding for the Revenue authorities or the appellate authorities and it would, in our view, be open to the taxing authorities to consider the real nature of the grant in a suit on the facts and in the circumstances of the case. The assessee was maintaining her previous year as per Bengali calendar year. The question was whether the gift could be included in the assessment for assessment year 1973-74 according to the Bengali calendar year or whether such gift was to be included in the assessment for assessment year 1974-75 on the basis of date of registration. Their Lordships of the Calcutta High Court held that the value of the gifted property was includible for assessment year 1974-75 as between the donor and the donee the registered document may take effect from the date of execution but as regards a third party, the point of time at which the deed becomes effective is when it is registered. Their Lordships of the Calcutta High Court have pointed out that if the registered document is held to be effective against the Revenue which is not a party to the deed from the date of execution, it will entail great hardship, because the Revenue will have no knowledge of the date of execution of the document and the document can only be effected against the Revenue from the date of registration. Their Lordships have, accordingly, held that the deed of gift in the present case so far as the Revenue is concerned would not be the date when the document was executed but the date when it was registered. Taking the totality of the facts and circumstances into consideration including the decision of the jurisdictional High Court in the case of Smt. Aloka Lata Sett 1989 (7) TMI 11 - CALCUTTA HIGH COURT , we are of the view that the mere fact that the term 'mesne profit' is used in the consent terms and incorporated in the consent decree by the Court of Small Causes is of no consequence insofar as the facts and circumstances of this case clearly justify the conclusion that the amount granted to the appellant does not fall within the definition of 'mesne profit' as per section 2(12) read with Order XX, Rule-12 of First Schedule of C.P.C. We are, therefore, of the considered view that from 2610-1989 the amount payable to the appellants monthly for user of the property is nothing but a compensation for lawful user of the property not falling within the ambit of mesne profits. We, accordingly, uphold the assessment of Rs. 14,40,000 received by the assessee in each of the assessment years 1996-97 and 1997-98 as revenue receipt. To reiterate the decision of the Hon'ble Calcutta High Court is not an authority for the proposition that the mesne profits is not liable to tax under any circumstances. The taxability of mesne profits would depend on the nature of deprivation etc. It may also be pertinent to refer to the decision of the Madras High Court in the case of S. Kempadevamma v. CIT 2000 (11) TMI 40 - MADRAS HIGH COURT . In this case, their Lordships held - that the money payable for the period subsequent to the date of termination of the lease termed as damages for use and occupation did not on that ground alone render that amount a capital receipt in the hands of the owner. The amount received was an yield from the property and was a revenue receipt. Therefore, the damages awarded to the assessee were in the nature of compensation for loss of profits and hence revenue income. Thus the amount received by the assessee in assessment years 1996-97 and 1997-98 from the licensee is assessable to tax as revenue receipt even if the said amount is said to be mesne profits. Thus, we in the final analysis hold as under - (1) That Rs. 14,40,000 each received by the assessee for assessment years 1996-97 and 1997-98 is not for wrongful possession of the property and, accordingly, does not fall within the ambit of mesne profits and therefore the receipt has rightly been brought to tax as revenue receipt for both the assessment years. (2) That even if the aforementioned amount is mesne profits the same having been received from the lessee for the user of the property is liable to tax as a revenue receipt. Thus ground Nos. 2 and 3 taken in both the appeals of the assessee for assessment years 1996-97 and 1997-98 are decided against the assessee. We direct the Registry to fix the appeals for hearing before the Division Bench of the Tribunal for deciding the other grounds of appeal in accordance with law.
Issues Involved:
1. Whether the amount received by the assessee in terms of the consent decree is mesne profit. 2. Whether the amount is taxable as a capital receipt or revenue receipt. 3. Whether the amount is taxable either as revenue receipt or capital receipt. Detailed Analysis: 1. Whether the amount received by the assessee in terms of the consent decree is mesne profit: The Tribunal considered whether the amount received by the assessee from the licensee under the consent decree constituted mesne profit. The definition of mesne profit under section 2(12) of CPC was pivotal, which describes mesne profits as profits received by a person in wrongful possession of the property. The Tribunal noted that mesne profits are awarded for wrongful possession, and the compensation is based on what the wrongful possessor might have earned with ordinary diligence. In this case, the Tribunal observed that the possession of the property by M/s. Imkemex India Ltd. was initially lawful under the leave and license agreement dated 1-9-1989. However, due to a breach in the agreement (failure to pay the deposit of Rs. 24,00,000), a suit was filed, and a consent decree was obtained. The consent decree allowed the licensee to continue occupying the premises under revised terms, which included the payment of Rs. 22,80,000 and monthly compensation. The Tribunal concluded that the licensee was in lawful possession of the property from 26-10-1989 onwards, as per the consent terms, and therefore, the amount received could not be considered mesne profit. The Tribunal emphasized that mesne profit is compensation for wrongful possession, which was not the case here post the consent decree. 2. Whether the amount is taxable as a capital receipt or revenue receipt: The Tribunal examined whether the amount received by the assessee was a capital receipt or revenue receipt. The Tribunal referred to the decision of the Madras High Court in the case of CIT v. P. Mariappa Gounder, which held that mesne profits are taxable as income. The Tribunal noted that the Madras High Court's decision was affirmed by the Supreme Court, thus making it binding. The Tribunal also considered the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh, which held that mesne profits received as compensation for deprivation of possession of property were capital receipts. However, the Tribunal distinguished this case on facts, noting that the amount received by the assessee was not for deprivation of the property but for its use and enjoyment. The Tribunal concluded that the amount received by the assessee was in the nature of compensation for the use of the property and not for wrongful possession, making it a revenue receipt and not a capital receipt. 3. Whether the amount is taxable either as revenue receipt or capital receipt: The Tribunal upheld the assessment of the amount received by the assessee as revenue receipt. The Tribunal reasoned that even if the amount were considered mesne profit, it would still be taxable as revenue receipt. The Tribunal referred to the decision of the Supreme Court in the case of P. Mariappa Gounder, which affirmed that mesne profits are taxable as income. The Tribunal also addressed the argument that the term "mesne profit" used in the consent decree should bind the Revenue authorities. The Tribunal held that the term used in the consent decree does not determine the nature of the receipt for tax purposes. The Tribunal emphasized that the substance of the transaction should be considered, and in this case, the amount received was for the lawful use of the property, making it taxable as revenue receipt. Conclusion: The Tribunal concluded that the amount of Rs. 14,40,000 received by the assessee for the assessment years 1996-97 and 1997-98 was not mesne profit but compensation for the lawful use of the property. Therefore, it was taxable as revenue receipt. The Tribunal upheld the assessment of the amount as revenue receipt and dismissed the assessee's appeals.
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