9911796707
TMI Blog2005 (1) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... g adjournment. We therefore reject the request for adjournment and proceed to decide the appeal on merits. 2. The first three grounds of appeal in ITA No. 2333/Del./01 and ground Nos. 1, 2 and 4 in appeal No. 2334/Del./01 reads as follows: ITA No. : 2333/Del./04 : "1. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 91,94,850 being enhanced rent. 2. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 4,21,475 on account of interest on enhance rent. 3. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 6,60,000 for alleged services provided to Ministry of Defence." ITA No.: 2334/Del./04 : "1. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 5,12,00,000 made on account of rent and interest thereupon. 2. On the facts and circumstances of the case, the CIT(A) erred in allowing expenses of Rs. 6,60,000 for alleged services provided to Ministry of Defence. 3. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 3.94 lakhs on account of arrears receivable as per lease deed date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rent paid Rent Interest sq. ft. difference thereon 16-9-1989 to 8.50 61,38,468 21,70,224 39,68,244 - 15-9-1990 18-9-1990 to 9.75 53,78,679 16,57,810 37,20,869 - 20-6-1991 Interest on Rs. 76,89,113 = (amount due from 6-9-1989 to 21-6-1991) @ 9% from 21-6-1991 to 20-7-1992 and @ 12% from 21-7-1992 to 31-3-1997 53,90,963 21-6-1991 to 9.75 37,16,178 11,45,396 25,70,782 17,31,878 31-12-1991 1-1-1992 to 9.75 70,41,180 21,70,224 48,70,956 29,28,164 31-12-1992 1-1-1993 to 9.75 70,41,180 21,70,224 48,70,956 23,62,407 31-12-1993 1-1-1994 to 9.75 70,41,180 21,70,224 48,70,956 17,77,894 31-12-1994 1-1-1995 to 9.75 70,41,180 21,70,224 48,70,956 11,93,371 31-12-1995 1-1-1996 to 9.75 64,92,271 20,01,040 44,91,231 58,25,534 2-12-1996 4,98,90,316 1,56,55,366 3,42,34,950 1,59,67,211 Total payable = Rs. 5,02,02,167 TDS = Rs. 10,04,043 Net paid = Rs. 4,91,98,124 The assessee-company has received rent of Rs. 5,02,02,167 in September, 1997 and further payment of Rs. 10,27,048 on account of payment of interest due on arrears of rent from the tenant thus, a total sum of Rs. 5,12,29,215 has been received from the tenant in purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from other sources'. 6. The assessee had claimed a deduction of Rs. 6,60,000 from and out of the rents it received from the tenant. This sum was claimed by the assessee to have been paid to one M/s. Amrit Properties. According to the assessee M/s. Amrit Properties provided on hire furniture and fixtures, electrical and sanitary fittings to the tenant viz., Ministry of Defence. It was also submitted that as per the agreement between the assessee and Ministry of Defence the assessee was bound to provide all these amenities. The assessee therefore claimed deduction of Rs. 6,60,000 paid to M/s. Amrit Properties from and out of the rents received from the Ministry of Finance. The Assessing Officer however refused to allow deduction of this sum by making the following observations : "The assessee-company has not been able to establish that any furniture and fixture were taken on hire and any electrical/sanitary fittings in the said properties were provided by M/s. Amrit Properties a sister concern, to the assessee-company in the said property nor stated in the lease deed with the tenant. There is no mention of Amrit Properties having provided any fixture in the lease deed nor the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to link it up with the subsequent fresh lease with MoD, the Assessing Officer completely overlooked the true nature of the receipt. It would be apparent from the original lease dated 16-9-1985 that the lease was for a duration of three years with the provisions for extension by one year after fixation of rent by Min. of Works and Housing. The renewal was subject to certain conditionalities as provided under clause 13 thereof. Further, clause 16 provided for appointing an arbitrator by Secy., MoD, Govt. of India in the event of any disputes or differences arising between the two parties to the lease agreement. In pursuance to the provisions of the lease deed and since the MoD continued to occupy the said premises beyond the expiry of the lease period, an arbitrator was appointed. As per the award dated 30-4-1992, the issues for arbitration were :-- (i )Whether MoD were liable to pay damages after the termination of the tenancy and what rate and period thereof ? (Award - Yes) (ii)Whether MoD has liable to pay damages/rent in respect of the modifications, additions and alterations of the carpet area and at what rate and period thereof ? (Award - Yes. Dates given by Arbitrator). ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludible in mesne profits cannot be brought to tax. Further, in the case of CIT v. Leela Ghosh [1994] 205 ITR 9 the Calcutta High Court has held that, in the case where the lessee did not give back possession of property after expiry of lease, the mesne profits received were in the nature of damages and therefore, constituted a capital receipt. Very recently, again the Kerala High Court in its decision in Achuthan Pillai v. CIT [2000] 109 Taxman 428, followed its earlier decision and has approved the view that mesne profits cannot be taxed as a revenue receipt. In the background of the above facts and circumstances and the judicial pronouncements on the subject. I have no hesitation in holding that the damages received by the assessee together with the interest thereon, constituted capital receipts and were not liable to tax. To summarise, the position up to this point I hold that all the amounts received by the assessee in pursuance to the award whether they be the arrears of rent or interest for delays in payment of the damages by the MoD the same constitute damages/mesne profits which being capital receipt are non-taxable. With regard to the computation of house property income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premises thereafter was entrusted to M/s. Amrit Properties. This arrangement is continuing from the very beginning of lease period. The accounts of Amrit Properties show an investment in assets of almost Rs. 13 lakhs. It should be common knowledge that even ordinary premises can be let either with bare walls or after works such as wood work fitting of electrical and other items is done. In this case since the MoD desired specific work to be done, the assessee divested itself of the responsibility of maintaining the premises which work was given to Amrit Properties by a proper agreement with the approval of MoD and for which MoD was requested to make direct payment to Amrit Properties. It should be understood that this arrangement had been continued virtually since the time the property was leased out by the assessee to MoD. The assessments of both the assessee and Amrit Properties have been made for over a decade and this arrangement has been accepted by the Deptt. with the full knowledge of all. The agreement between the appellant and Amrit Properties virtually formed a supplement to the lease agreement between the appellant and MoD, both having been entered into on 1985. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if so, in which year the same was to be brought to tax. The Honourable Madras High Court held as follows on the question of taxability of mesne profits: "We do not think it should take us long to find the correct answer. A claim for mesne profits is usually directed against one who has deprived the true owner of possession of his property and who has thereby prevented the true owner from enjoying the income or usufruct of the property. When, in such a suit on proceeding, the court awards mesne profits to the true owner, that represents a just recompense to him for the deprivation of the income which ought properly to have come into his hands but for the interference of the person in wrongful possession of the property." The Code of Civil Procedure defines mesne profits as that which is person in wrongful possession of property has actually received or might with ordinary diligence have received therefrom. The accent of the definition in section 2(12) of the Code concentrates more on the methodology of calculation of mesne profits rather than on what the true nature of mesne profits is. As we earlier stated, the rationale of awarding mesne profits is that the trespasser or the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decided in terms of the method of accounting followed by an assessee in a given case. Broadly speaking, the mercantile system of accounting treats as receipts all amounts which the taxpayer would be entitled to receive in the same way as items of expenditure, under the mercantile system, would relate to amounts which have not actually gone out of the hands of the assessee, but which are subject to a claim or demand of an instant kind. In the cash system of accounting, only cash receipts and cash disbursements would enter into the reckoning. In this sense alone, it may be appropriate to regard the mercantile method of accounting as being devised on the accrual basis. Greater significance, from the fiscal point of view, cannot be given to the system of accounts pursued by the assessee. The question of accrual or non-accrual and the subsidiary question of the time of accrual of income have got to be decided only on fiscal principles and not on the basis of any given accounting method which is in vogue or which might be practised by the assessees. The concept of accrual of income for purposes of income-tax is a concrete concept. Indeed, the Income-tax Act does not deal with abstracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was thus ultimately not ejected. The ownership of the property passed from the assessee to the State of West Bengal on acquisition. The compensation paid included the value of the property as well as the right to receive the mesne profits, which was given up by the Assessed in favour of the State of West Bengal. Under the aforesaid circumstances, the Honourable Calcutta High Court held the receipt to be of capital nature. Such are not the facts in the present case. 16. In the case of Mrs. Annamma Alexander (supra) it has been held by the Honourable Kerala High Court that under section 2(12) of the Civil Procedure Code, which contains the definition of 'mesne profits', interest is an integral part of mesne profits and it proceeds on the theory that the person in wrongful possession appropriating the income from the property himself gets the benefit of the interest on such income. Mesne profits themselves being an award of compensation in the nature of damages and not taxable, interest thereon which is an integral part of the mesne profits is also not a revenue receipt and will not be taxable as income. It is also pertinent to note that the decision of the Honourable Madras High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed provides for such payments then the action of the Assessing Officer would be justified. It would therefore be proper to set aside the order of the CIT(A) as well as the Assessing Officer on this issue with a direction to the Assessing Officer to verify whether as per the revised lease agreement dated 27-11-1998 interest was payable on enhanced rent by the tenant in respect of the period from 3-12-1996 till date of the lease deed viz., 27-11-1998. This ground of appeal is treated as allowed for statistical purposes. 21. What remains for consideration is ground No. 3 in ITA No. 2333/Del./01 and ground No. 2 in ITA No. 2334/Del./01. This ground relates to deletion of addition of Rs. 6,60,000 made by the Assessing Officer being payments claimed to have been made by the assessee to M/s. Amrit Properties. As far as this issue is concerned, the rent agreed between the parties as well as the rent fixed by the sole arbitrator is after taking into consideration all the amenities provided by the assessee. The expenditure in question is sought to be claimed as deduction from the income from house property. It is therefore necessary to verify if this sum paid to M/s. Amrit Properties is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee from M/s. A-One Tours & Travels (P.) Ltd. was alone relevant for determined the annual value of the property and deleted the addition made by the Assessing Officer in this regard. 24. Aggrieved by the order of the CIT(A) the Revenue is in appeal before us. The Ld. Departmental Representative relied on the order of the Assessing Officer. 25. We are of the view that the order of the CIT(A) in this regard does not call for any interference. Admittedly, A-One Tours and Travels was an independent entity. It is not the case of Assessing Officer that the lease between the assessee and A-One Tours and Travels was a devise to avoid tax. As a tenant with a right to sub-lease, the A-One Tours & Travels was at liberty to let out the property at such sum as it desired. The assessee as landlord was however bound by the terms of lease and was entitled to recover only a sum of Rs. 3,000 per month as per the lease agreement. There is no basis for the Assessing Officer to have applied any fiction and in coming to the conclusion that the monthly rent received by the assessee was Rs. 1,60,000. Consequently these grounds of appeal are dismissed. 26. In the result the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
