2016 (6) TMI 534 - HC - Income Tax

Mesne profits - capital or revenue receipt - whether the Tribunal was correct in holding that mesne profits, cannot be part of book profit u/s. 15JB, as it was held as capital assets? - Held that - The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (2008 (2) TMI 817 - ITAT MUMBAI ) held that the same is capital in nature. There is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the RespondentAssesse. In this case also, the amounts are received by the RespondentAssessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end. Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd., (supra) has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) The least that is expected of the State which prides itself on Rule of Law is that it would equally apply the law to all assessees s. No substantial question of law. - Decided against revenue

Summary

Issues:
1. Whether mesne profits are capital or revenue receipts?
2. Whether mesne profits can be part of book profit u/s. 15JB?

Analysis:

Issue 1: Mesne profits classification
The Tribunal held that mesne profits received by the Respondent-Assessee for unauthorized occupation of its premises are of capital nature and not taxable. The Tribunal relied on the decision of a Special Bench in Narang Overseas Pvt. Ltd., which defined mesne profits as capital in nature based on the Code of Civil Procedure. The Tribunal emphasized that any amount received from a person in wrongful possession of property qualifies as mesne profits and is considered capital. This classification was crucial in determining the taxability of the receipts.

Issue 2: Inconsistency in Revenue's stance
The Revenue appealed the Tribunal's decision, questioning the classification of mesne profits. However, during the proceedings, it was revealed that the Revenue had previously appealed a similar case to the High Court but failed to pursue it further. The Court noted that the Revenue's inconsistency in challenging the classification of mesne profits raised concerns about the uniform application of tax law. The Court emphasized the importance of maintaining consistency in legal positions unless there are substantial reasons for deviation.

Uniform application of law
The Court highlighted the significance of maintaining a consistent legal stance, especially when a specific issue has been settled by a higher forum. The Court stressed that the Revenue should not selectively challenge decisions based on individual cases but should adhere to established legal interpretations. The failure of the Revenue to restore its previous appeal indicated an implicit acceptance of the Special Bench's decision, reinforcing the need for uniformity in applying tax laws.

Conclusion
The Court dismissed the appeal, citing the Revenue's failure to provide sufficient justification for challenging the established classification of mesne profits as capital receipts. The Court emphasized the importance of upholding consistent legal positions and declined to entertain the appeal based on the principle of uniform application of law. No costs were awarded in the case.

This comprehensive analysis outlines the key issues, legal interpretations, and the Court's decision regarding the classification of mesne profits and the Revenue's inconsistent stance, ensuring a detailed understanding of the judgment.