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TMI Blog2008 (2) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the appeal. The first issue arising in this appeal from ground Nos. 1, 2, 3 and 5 is whether the sum received by the assessee under the consent decree passed by the hon ble Supreme Court is in the nature of capital receipt not chargeable to tax or is in the nature of revenue receipt chargeable to tax. The analysis of cases, clearly reveals that there is cleavage of opinion between the High Courts. The hon ble Madras High Court has held that mesne profits is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to tax. On the other hand the hon ble High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. In our view, such conflict can be resolved only by the hon ble Supreme Court in some appropriate case. In the absence of the judgment of the highest court of land or of the jurisdictional High Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1, 2, 3 and 5 raised by the assessee are allowed. The order of the CIT(A) confirming the addition is hereby set aside and consequently, the addition sustained by him is hereby deleted. In the result, the appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... sne profits received by the assessee was taxable as revenue receipt. However, learned counsel for the assessee contended before the Division Bench that the issue was not correctly decided by the Special Bench in the case of Sushil Kumar and Co. v. Joint. CIT [2004] 267 ITR (AT) 61 (Kolkata), inasmuch as the issue regarding the taxability of the mesne profits were neither raised before nor considered by the hon'ble Supreme Court. The issue before the hon'ble court was whether the mesne profit was assessable in the assessment year 1963-64 or the assessment year 1964-65. It was contended on behalf of the assessee that the hon'ble Madras High Court had decided two issues--(1) the issue regarding the taxability of the mesne profits and (2) the year of accessibility. The High Court decided both the issues against the assessee by holding that the mesne profit was taxable as revenue receipt in the assessment year 1963-64. However, the issue regarding taxability of the mesne profit was neither raised before nor considered by the hon'ble Supreme Court since the assessee challenged only the issue regarding the year in which the mesne profit could be taxed. The apex court held that the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this connection, he relied on the judgment of the hon'ble Supreme Court in the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1, wherein it was held that if a question which is neither raised nor argued before the Supreme Court, then the decision delivered by the Supreme Court cannot be said to be a decision in respect of such question. It was further contended by him that the theory of merger is not a doctrine of rigid and universal application and, therefore, it cannot be said that wherever there are two orders, one by the inferior authority and the other by the superior authority passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of appeal or revisional order. Thus it has been contended that what is merged is the decision on the question considered and nothing else. In this connection he has relied on various decisions mentioned below : (1) CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 (SC) ; (2) S. Shanmugavel Nadar v. State of Tamil Nadu [2003] 263 ITR 658 (SC) ; (3) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC) ; and (4) State of Madras v. Madurai Mills Co. Ltd. 19 STC 144; AIR 1967 SC 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be placed on the Supreme Court judgment in the case of Sun Engineering Works P. Ltd. [1992] 198 ITR 297, wherein it has been held that the judgment of the Supreme Court should be understood in the context of the question under consideration and the judgment must be read as a whole. A decision of the court takes its colour from the question involved in the case in which it is rendered and while applying the decision to a later case the courts must carefully try to ascertain the true principle laid down by the decision. 7. The issue for our consideration is about the impact of the judgment of the hon'ble Supreme Court in the case of P. Mariappa Gounder [1998] 232 ITR 2. In order to appreciate the controversy, it would be appropriate to refer the facts of the case as well as the questions which were referred to by the Tribunal for the esteemed opinion of the High Court. At the outset, it may be mentioned that there appeared to be some confusion in the facts as stated by the hon'ble Supreme Court and as stated by the hon'ble Madras High Court. In the Madras High Court judgment it is mentioned that as per the Income-tax Officer the mesne profit was chargeable to tax in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eality, there is no conflict of facts and the confusion had arisen only because both the courts referred to the facts relating to the different assessment proceedings. 9. Now, it would be appropriate to refer to the facts in detail relating to the case of P. Mariappa Gounder. In that case the assessee had agreed to purchase a tile factory, vide written agreement dated May 22, 1950. When the vendor did not convey the property as promised, the assessee filed a suit for specific performance which was ultimately decreed in appeal by the hon'ble Supreme Court vide its judgment dated April 22, 1958. In the terms of the decree, the assessee was required to deposit a sum of Rs. 85,000 within 30 days of the decree and thereupon the title in the property was to be conveyed to the assessee. The hon'ble court also passed a decree declaring that the assessee was entitled to mesne profits against the respondent which was to be quantified by the trial court after making due enquiry. The trial court determined the mesne profits at Rs. 57,093 vide order dated December 22, 1962, relevant to the assessment year 1963-64. However, the amount of mesne profit was received by the assessee in the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s referred to at the instance of the Revenue were also answered in favour of the Revenue and against the assessee. 12. In view of the above discussion, let us now peruse the judgment of the hon'ble Supreme Court. The very first sentence of the judgment reads as under (page 3 of 232 ITR) : "The question which arises for consideration in this appeal is as to in which assessment year the appellant is liable to be assessed in respect of mesne profits which were awarded in his favour." 13. After stating the facts of the case, their Lordships set out the questions, which were referred by the Tribunal to the hon'ble High Court for its esteemed opinion. Those questions are mentioned below (page 4) : "1. Whether the mesne profits decreed by the Supreme Court accrued to the assessee earlier to the accounting year relevant to the assessment year 1963-64 ? 2. Whether, on the facts and in the circumstances of the case, the mesne profits received by the assessee is liable to be taxed in the assessment year 1964-65 ?" 14. Proceeding further, their Lordships referred to the contentions of the parties. The contention on behalf of the assessee was noted as below (page 5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of mesne profit, i.e., whether it was, taxable in the assessment year 1963-64 or the assessment year 1964-65. The issue whether mesne profits constituted a revenue receipt or a capital receipt was not before the court as is apparent from the question posed by the court for adjudication, the contentions raised by the respective parties as well as the operational part of the judgment. The decision given by the apex court is binding on all the subordinate courts as well as other authorities across the country in view of the provisions of article 141 of the Constitution of India. What is binding is the decision given by the court after considering the facts of the case, the question referred before it, the arguments made by the parties. Hence it cannot be said that the apex court gave any decision regarding the nature of the receipt by way of mesne profits. The decision of the Madras High Court regarding the nature of receipt remained unaffected by the judgment of the apex court. 18. The view taken by us is fortified by the decision of the apex court in the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1. In that case the assessee was a Hindu undivided family which was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentions of the parties, the hon'ble Supreme Court decided the issue in favour of the Revenue. Since the High Court had not answered the other questions, the Supreme Court remanded the matter to the High Court. On remand, the High Court decided the other issues against the assessee. Aggrieved by the same, the assessee preferred the appeal before the apex court. 21. On behalf of the assessee it was contended before the hon'ble Supreme Court that amount of loans advanced to the three concerns of the assessee could not be regarded as deemed dividend within the meaning of section 2(6A)(e) since the assessee was not a registered shareholder of the company. This contention was sought to be supported by the earlier decision of the court in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 (SC). As against this, the argument, urged on behalf of the Revenue was that it was not open to the assessee to raise this contention since it was covered by the decision of the apex court in the assessee' s own case CIT v. Rameshwarlal Sanwarmal [1971] 82 ITR 628. However, the Revenue conceded that this contention was not specifically raised before the court but it was submitted that it m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this question, it is difficult to see how it can be said merely from the answer given by this court in favour of the Revenue that this contention was impliedly decided in favour of the Revenue. It would be straining logic to an absurd limit to say that though this contention was not raised, not argued, not discussed and not decided, yet it must be held to have been impliedly decided because, through an error committed by this court, an answer was given in favour of the Revenue in ignorance of the true position. It would also not be right to hold that merely because this court erroneously answered the first question against the assessee without considering whether the view taken by the High Court on this point was incorrect, the assessee must be precluded from raising the contention that the assessee not being a registered shareholder, the amounts of loans advanced to the three business concerns of the assessee did not fall within the definition of ' deemed dividend' under section 2(6A)(e) . . ." 22. The above judgment clearly lays down that any part of the judgment of the High Court which is not challenged before the apex court remains unaffected and to that extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question of applying the theory of merger does not arise. 24. The above discussion clearly reveals that the judgment of the hon'ble Supreme Court in the case of P. Mariappa Gounder [1998] 232 ITR 2 only decides the issue regarding the year of taxability of the mesne profits. That judgment, therefore, cannot be said to be an authority for the proposition that nature of mesne profits is revenue receipts chargeable to tax. Accordingly, the contention of the Revenue that the issue regarding the nature of mesne profits is covered by the aforesaid decision of the hon'ble Supreme Court cannot be accepted. 25. Having answered the question referred to by the hon'ble President in the present case, we now proceed to dispose of the appeal. The first issue arising in this appeal from ground Nos. 1, 2, 3 and 5 is whether the sum of Rs. 34,57,01,137 received by the assessee under the consent decree passed by the hon'ble Supreme Court is in the nature of capital receipt not chargeable to tax or is in the nature of revenue receipt chargeable to tax. Thus it will be appropriate to refer to the facts giving rise to this appeal. The same are being narrated as below : (a) The assessee is a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be implemented. (e) Vide order dated June 29, 1993, the Bombay civil court took cognizance of the family settlement dated January 30, 1992, and, inter alia, decreed that NIHPL shall hand over the possession of the shops at Warden Road, Mumbai to NOPL. Aggrieved by this order, NIHPL carried the matter in appeal before the hon'ble Bombay High Court and also applied for stay of the operation of the order and decree dated June 29, 1993, passed by the Bombay city civil court in Suit No. 8079 of 1990. The hon'ble Bombay High Court passed the following interim order on the said appeal/ stay petition of NIHPL : "Stay in terms of prayer 'a' till disposal of appeal on the appellant depositing Rs. 10,00,000 within 4 weeks towards arrears and continue to deposit of Rs. 1,25,000 per month with effect from August 1, 1993. The appellant to maintain the status quo and not to create third party rights." (f) Aggrieved by the above order, the assessee-company along with its director Shri Rajesh Narang filed a letters patent appeal praying for payment of arrears and commission as well as payment of the mesne profits. On the assessee' s prayer for permission to withdraw t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court considered Shri Rama Narang as the contemnor and issued a notice for award of punishment. However, soon after being held as contemnor, Shri Rama Narang decided to implement the family settlements and also to have all suits decreed by a con sent decree, including the suit filed by Rajesh Narang before the Bombay High Court (Suit No. 3578/1994). Eventually, the hon'ble Supreme Court vide order dated January 8, 2002, decreed all the suits, including the suit filed by Shri Rajesh Narang on July 2, 1994, i.e., Suit No. 3578 of 1994, in terms of the minutes of the consent order. In the meeting of the board of directors of NIHPL (to give effect to the minutes of the consent order and order of the hon'ble Supreme Court), inter alia, the following resolution was passed : "12. Resolved that the licence created by Narang Overseas Private Limited in favour of the company in respect of premises being flat Nos. 3, 3A, 5, 6 and 7 on the ground floor of Beach View Co-operative Housing Society Limited, Warden Road, Bombay-400 007 stands can celled with effect from July 3, 1991, and that accordingly the said licence in favour of the company has come to an end from the said dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 12, 2001 and January 8, 2002, the company has also received damages and mesne profit for wrongful use and occupation of the said premises from April 1, 1992, till December 31, 2001, along with interest at the rate of 21 per cent. per annum amounting to Rs. 34,57,01,137 (less amount already received through the court of Rs. 1,10,00,000) and implementation of family settlement. The said amount being received as damages and mesne profits for wrongful use and occupation of the said premises shown as ' capital reserve' after adjusting the expenditure incurred to receive the same and in implementation of the family settlement. Date Amount receivable Total principal + O/S interest Interest for the year Total amount receivable (1) (2) (3) (4) (5) April 92 to March 93 12,000,000 12,000,000 1,365,000 13,365,000 April 93 to March 94 12,000,000 2,365,000 4,171,650 29,536,650 April 94 to March 95 12,000,000 41,536,650 7,567,697 49,104,347 April 95 to March 96 12,000,000 61,104,347 11,676,913 72,781,260 April 96 to March 97 12,000,000 84,781,259 16,679,064 101,095,692 April 97 to March 98 12,000,000 113,430,324 22,665,368 136,095,692 April 98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y court holding NIHPL as being in wrongful possession of the premises at Warden Road, Mumbai. On the other hand, NIHPL was in possession of the said property on the basis of a mutually agreed contract entered into for the purpose of running business against pre-determined rate of commission calculated on the sales effected by NIHPL. (d) The dispute between the parties was on account of lack of agreement between the various members of Narang family regarding owner ship, management and control of various properties of the family including business concerns. Such disputes had been finally settled by the family members themselves and the court had not passed any judgment resolving the dispute. 29. The Assessing Officer also considered the provision of section 2(12) of the Code of Civil Procedure as well as certain decisions of the various courts namely--decision of the Privy Council in Girish Chunder Lahiri v. Shashi Shikhareshwar Roy [1900] 27 IA 110, the Supreme Court judgment in the case of P. Mariappa Gounder [1998] 232 ITR 2, the Kerala High Court judgment in the case of Smt. Annamma Alexander [1993] 199 ITR 303. Finally, it was held by him that the amount received by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no relation to sales. Therefore, the said amount could not be on account of com mission on sales. Also, whereas the commission was to be deter mined on weekly basis, the amount of Rs. 10 lakhs was on a monthly basis. (ii) The licence agreement dated February 13, 1990, had been expressly terminated vide family agreement dated July 3, 1991. Clause 1 of the licence agreement dated February 13, 1990, makes it very clear that the licence was to terminate after 11 months. Clause 12 of the agreement required the licence to vacate the premises on termination of licence. Clause 13 provided that extension/renewal of licence would be at the sole discretion of the owner of the premises. The owner had expressly terminated the licence first through the supplemental family arrangement of July 3, 1991, and finally under the third family settlement of January 30, 1992. Under the later settlement, NIHPL was obliged to vacate the shops before March 31, 1992, and to pay arrears of commission till the time the shops were vacated. Based on these family arrangements, the Bombay city civil court vide its order dated June 29, 1993, has held that occupation of the shop premises by NIHPL after March 31, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y amount of Rs. 10,00,000 and permitted the appellant to withdraw the said sum, as also further monthly deposits, on the condition, inter alia, that NOPL and Rajesh Narang shall make a statement that they shall give all necessary co-operation for renewal of various statutory licences necessary for running business by NIHPL which shall intimate in writing to NOPL the requirements in this respect. On July 2, 1994, Rajesh Narang, the director of the appellant-company, lodged a Suit No. 3578 of 1994 in the Bombay High Court, inter alia, seeking specific performance and implementation of the family settlement. These facts, to my mind, do bear out the averment of the appellant that the co-operation it rendered to NIHPL for getting the statutory licences renewed was under the conditions specified by the hon'ble High Court and that this was without prejudice to the claim of the appellant for eviction of NIHPL from the said shop premises and for mesne profits. Thus, the continued possession of NIHPL was not because of the acquiescence of the appellant but despite the best efforts of the appellant to evict NIHPL. The facts also do not indicate any collusiveness between the parties as suspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to... pay damages and mesne profits for the wrongful use and occupation of the said premises at the rate of Rs. 10,00,000 per month from April 1, 1992 . . . ' Thus, even NIHPL which was at loggerheads with the appellant-company has eventually accepted that its occupation of the shop premises was wrongful. (iv) There is no dispute that vide order of the hon'ble Supreme Court dated January 8, 2002, the Suit No. 3678/1994 filed by Shri Rajesh Narang before the hon'ble Bombay High Court on July 2, 1994, claiming, inter alia, mesne profits at the rate of Rs. 10 lakhs p.m. was decreed in terms of the minutes of the consent order. The contention of the Assessing Officer is that the decree of the hon'ble Supreme Court merely gave effect to the consent terms agreed to between the parties. Therefore, the same cannot be regarded as an award of damages by the order of a court which is essential for mesne profits. However, I do not find any merit in this contention of the Assessing Officer. Just because a suit is disposed of by a consent decree it will not be any less than an award in a contested suit. In law there is no real difference between the two. Even a vigorously con tested sui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt. 33. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals), the assessee has preferred the appeal before the Tribunal. 34. Learned counsel for the assessee has challenged the later finding of the learned Commissioner of Income-tax (Appeals) by contending vehemently that the issue of taxability of mesne profit was not before the hon'ble Supreme Court in the case of P. Mariappa Gounder v. CIT [1998] 232 ITR 2 and therefore, learned Commissioner of Income-tax (Appeals) was not justified in holding that the hon'ble Supreme Court upheld the finding of the hon'ble Madras High Court regarding taxability of mesne profits. According to him, the issue before the apex court was the year of taxability only as no appeal had been filed against the finding of the High Court that mesne profits constitutes revenue receipt chargeable to tax. It was also contended that decision of the Special Bench of the Tribunal in the case of Sushil Kumar and Co. is also incorrect in holding that the apex court decided the issue regarding the taxability of mesne profits. This contention of learned counsel for the assessee had resulted in constituting of larger Bench of five Members. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose was to run the hotel business on sharing basis. The premises was to be provided by the assessee-company while it was to be managed by NIHPL. The profit was to be shared inasmuch as the assessee was entitled to profits by way of commission on sales effected. According to him, it was not a mere letting out of the immovable property but was in substance a joint venture between the assessee and NIHPL. Proceeding further, it was submitted that the character of income would not change by the fact that the agreement was terminated and suit for possession was filed by the assessee against NIHPL. Reliance was placed on the decision of the Calcutta High Court in the case of Swaika Oil and Produce Co. P. Ltd. v. CIT [1993] 201 ITR 520 for the following proposition (page 522) : "Merely because the assessee has filed an ejectment suit or the assessee is not collecting rent or occupation charges, as the case may be, which are being deposited by the tenant to the Rent Controller, it cannot be said that the annual value cannot be assessed. Whether the owner is in possession and enjoyment of the property or has let it out to a third person is not a relevant consideration for determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o placed on the Supreme Court decision in the case of National Cement Mines Industries Ltd. [1961] 42 ITR 69. He also relied on the decision of the Bombay High Court in the case of Presidency Co-operative Housing Society Ltd. [1995] 216 ITR 321, for the proposition that the issue whether receipt is capital or revenue should be examined from a commercial point of view. Certain other decisions were also referred to in support of the preposition that remuneration received by the assessee amounted to business receipt, which is liable to be assessed as income. 39. Learned counsel for the assessee has strongly opposed such contention of the learned senior Departmental representative by submitting that at the time when the agreement was made, Rajesh Narang was not controlling the assessee-company. Rajesh Narang was to takeover the assessee-company but the agreement was not implemented. It was only in March, 1992 that shares of the assessee-company were vested in Rajesh group. Proceeding further, it was submitted that mesne profits of Rs. 34,57,01,137 did not arise from the agreement as it was terminated with effect from March 31, 1992. According to him, it arose only as a result of suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the said agreement. Consequently, the contention of the learned senior Departmental representative that the aforesaid disputed amount received by the assessee represented business receipt chargeable to tax under the terms of the agreement cannot be accepted. 41. An attempt has also been made by the learned senior Departmental representative to contend that consent decree does not make the compensation as mesne profit. According to him, compensation can be said to be mesne profit only when it is determined by the court after considering various facts. The mere fact that a particular amount was claimed by the assessee as mesne profit in the suit filed before the court and the fact that the same has been accepted by the defendant would not make the compensation as mesne profit. We are unable to accept such contention in view of the judgment of the jurisdictional High Court in the case of Anant Chunilal Kate [2004] 267 ITR 482 wherein it has been held that consent decree has the same binding force as any other decree. This legal finding was given in view of the Supreme Court judgment in the case of Kumar Sudhendu Narain Deb v. Mrs. Renuka Biswas [1992] 1 SCC 206. Therefore, resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) ; and (6) Smt. Annamma Alexander v. CIT [1993] 199 ITR 303 (Ker). 45. Learned counsel for the assessee also drew our attention to the observations of the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh at page 17 where their Lordships dissented from the judgment of the hon'ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676 on the ground that the judgment of the Privy Council in the case of Girish Chunder Lahari [1900] 27 IA 110 as well as the judgment of the hon'ble Supreme Court in the case of Lucy Kochuvareed v. P. Mariappa Gounder, AIR 1979 SC 1214, were neither cited nor noticed by the Madras High Court. It was further observed that the decisions of the Patna and Kerala High Courts, mentioned above were also not cited or considered by the Madras High Court. Accordingly, it was submitted that in view of the above judgment, the mesne profits received by the assessee must be held as capital receipt. Alternatively, he relied on the preposition that where two views are possible then the view favourable to the assessee should be preferred. 46. On the other hand, the learned senior Departmental representative has strongly approved the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the Kerala High Court decision in CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666, it is submitted that the case related to compulsory acquisition of land and the issue related to nature of interest for the period between the date of acquisition and date of award. According to him, this judgment does not lay down the preposition that mesne profit irrespective of nature would always be considered as capital receipt. As against this he relied on the decision of the Rajasthan High Court in the case of Kailash Narain Gupta [1997] 225 ITR 921 wherein their Lordships did not follow the above Kerala High Court decision. Similarly, the Bombay High Court did not follow the same in the case of Vishnudayal Dwarkadas [1980] 123 ITR 140. It was further submitted by him that the hon'ble Orissa High Court in the case of Govinda Choudhury [1977] 109 ITR 497, decided that interest received, neither under the statute nor under a contract is not chargeable to tax as revenue receipt. This decision was rendered following the above Kerala High Court decision but on appeal, the apex court has decided the issue in favour of the Revenue by holding that such profit was taxable. Hence, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of J. D. Italia [1983] 141 ITR 948, by the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9 by the hon'ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 and in the cases of CIT v. Mrs. Annamma Alexander [1991] 191 ITR 551 (Ker) and Smt. Annamma Alexander v. CIT [1993] 199 ITR 303 (Ker). In order to appreciate the controversy let us analyse the above judgments hereinafter : 51. In the case of P. Mariappa Gounder [1984] 147 ITR 676 (Mad), the assessee agreed to purchase a tile factory under an agreement dated May 22, 1950. The vendor, contrary to the agreement and in breach thereof, sold it to K and put him in possession. The assessee thereupon sued his vendor for specific performance. In the said suit, K impleaded himself and ultimately the trial court decreed the suit for specific performance. The hon'ble Kerala High Court allowed the appeal of K but the hon'ble Supreme Court reversed the said decision and restored the trial court' s decree for specific performance. The court also sustained the assessee' s claim for mesne profits payable and the amount of mesne profits was fixed by the trial court in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted by the assessee for recovery of possession was decreed in his favour. During the pendency of appeal, the parties arrived at a compromise whereunder the assessee was paid a sum of Rs. 1,45,000 which inter alia included what was styled as interest of Rs. 40,000. The question arose whether this amount could be treated as income in the hands of the assessee. The assessing authority accepted the contention of the assessee that the sum of Rs. 40,000 was not taxable as revenue receipt. However, the Commissioner of Income-tax assumed the revisionary jurisdiction under section 263 of the Income-tax Act, 1961 (" the Act" ) and held that such sum was taxable in the hands of the assessee. On appeal, the Tribunal held that the aforesaid sum was not a revenue receipt since it was an interest paid otherwise than under the provisions of the statute. On a reference, the High Court held that interest was in the nature of damages for use and occupation or compensation for the deprivation of the use and possession of land and in either event could not be classified as a revenue receipt. 54. In the case of Smt. Lila Ghosh [1994] 205 ITR 9 (Cal), the facts were these. The assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the views of the hon'ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676. The relevant observations at page 17 of the order are being reproduced as under : "With great respect to the learned judges, we could not persuade ourselves to agree with the views expressed by the Madras High Court in the aforesaid decision so far as it holds that mesne profits awarded by the court for wrongful possession are liable to be assessed as income. Neither the decision of the Privy Council in Girish Chun der Lahiri [1900] 27 IA. 110, nor the decision of the Supreme Court in Lucy Kochuvareed, AIR 1979 SC 1214, were either cited or noticed by the learned judges of the Madras High Court. In fact, even the decision of the Patna High Court in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25, and that of the Kerala High Court in CIT v. Periyar & Pareekanni Rubbers Ltd. [1973] 87 ITR 666, were neither noticed nor considered by the Madras High Court." 55. In the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 (Ker), the land of the assessee was acquired by the Government on the basis of an agreement between the assessee and the Government. Apart from the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest thereon which is an integral part of the mesne profits is also not a revenue receipt and will not be taxable as income. The fact that mesne profits are estimated with reference to the profits which the person in wrongful possession of such property actually received or would have ordinarily received for the purpose of compensation or determination of the compensation will not in any way render them an ' income' or a revenue receipt. The amount of interest received on mesne profits cannot be treated as a revenue receipt." 57. In coming to the above conclusion, their Lordships followed the judgment of the hon'ble Patna High Court in Rani Prayag Kumari Debi [1940] 8 ITR 25, of the hon'ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666, the judgment of the hon'ble Supreme Court in the case of Lucy Kochuvareed v. P. Mariappa Gounder, AIR 1979 SC 1214, as well as in the case of Mahant Narayana Dasjee Varu v. Board of Trustees, Tirumalai Tirupathi Devasthanam, AIR 1965 SC 1231, and dissented from the judgment of the hon'ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676. 58. The above analysis clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The learned senior Departmental representative has heavily relied on the decision of the apex court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 for the proposition that interest on compensation is always revenue in nature. On the other hand, learned counsel for the assessee has relied on the Kerala High Court decision in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 and the Andhra Pradesh High Court' s decision in the case of J. D. Italia [1983] 141 ITR 948. According to him, interest up to the date of determination of mesne profit would be in the nature of damages and therefore, capital in nature while the interest received after such date would be revenue in nature since it would be deprivation of use of money. 61. We are in agreement with the contention of learned counsel for the assessee. The hon'ble Andhra Pradesh High Court as well as the Kerala High Court in the cases referred to by the assessee' s counsel have considered this issue. The judgment of the hon'ble Supreme Court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 was referred to and considered by the above High Courts. The hon'ble Kerala High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 ITR 151." 62. In the later judgment in the case of CIT v. Mrs. Annamma Alexander [1991] 191 ITR 551, the hon'ble Kerala High Court again considered this issue. Their Lordships made a distinction between "interest proper" and "damages by way of interest" by approving the view of the author Law of Income-tax by A.C. Sampath Iyengar, Seventh Edition, Volume I page 518, which is reproduced, even at the cost of repetition, as under (page 556) : "If the quality of the claim for interest is compensation, for the reason that the claimant has been deprived of the use of the money and has not had his money at the due date, it would be income in his hands. It may be regarded either as representing the profit he might have made if he had had the use of the money in time, or, conversely, the loss he had suffered, because he had not had that use. If, on the other hand, the claim is for loss of property or loss of goods, or some other injury to capital and the element of interest comes in by way of estimating the compensation to be granted for such capital loss or capital injury, then, the receipt would be capital." 63. In view of the above, the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of decree. Accordingly, it is held that interest from the date of termination of lease till the date of decree would be capital receipt not chargeable to tax. However, if any interest is received by the assessee beyond that period then, it would be revenue receipt chargeable to tax. 67. Before parting with this issue it would be appropriate to deal with the contentions raised on behalf of the Revenue. The contention of the Revenue that the judgment of the hon'ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 stands overruled by the judgment of the hon'ble Supreme Court in the case of Govinda Choudhury and Sons [1993] 203 ITR 881 is without force and therefore, cannot be accepted for the reasons given hereafter. We have gone through the judgment of the hon'ble Orissa High Court in the case of Govinda Choudhury and Sons [1977] 109 ITR 497 wherein their Lordships, following the judgment of the hon'ble Supreme Court in the case of T. N. K. Govindaraju Chetty [1967] 66 ITR 465, held that where interest has been awarded under the statute or under the contract, the same is income exigible to tax and where it is not attributable either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Dr.Shamlal Narula [1964] 53 ITR 151 as well as T. N. K. Govindaraju Chetty [1967] 66 ITR 465 cannot be applied to the present case. 68. The contention of the Revenue that the hon'ble Rajasthan High Court in the case of Kailash Narain Gupta v. CIT [1997] 225 ITR 921 did not accept the judgment of the hon'ble Kerala High Court in the case of CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 is also without force. The perusal of the judgment of the hon'ble Rajasthan High Court shows that it was the Income-tax Officer who had not followed the judgment of the hon'ble Kerala High Court as is apparent from page 922 of the report. Nowhere in the judgment, the court discussed the ratio laid down by the hon'ble Kerala High Court. Therefore, it cannot be said that the judgment of the hon'ble Kerala High Court was commented upon by the hon'ble Rajasthan High Court. On the contrary at page 924 it was held that award of interest was under statute and therefore, it was in the nature of revenue receipt. Even the said judgment of the hon'ble Rajasthan High Court does not help the Revenue since in the present case before us interest was awarded neither under a statute nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Gopaldas Mohta v. CIT [1951] 20 ITR 516. After going through the said decisions, we are unable to accept this contention of the Revenue. Nowhere in these judgments the courts had expressed any different opinion. On the contrary, the courts have distinguished the earlier decisions of the hon'ble Patna High Court in the case of Rani Prayag Kumari Debi [1940] 8 ITR 25. In the case of Rai Bahadur H. P. Bannerji v. CIT [1951] 19 ITR 596 the court was concerned with the amount paid to the assessee by the military authorities as compensation for use of land. That means, that was not a case of wrongful possession of property. In the case of Maharajadhiraj Sir Kameshwar Singh (No. 2) [1953] 23 ITR 212 (Patna) the court was concerned with the amount of interest on the dues recoverable from the other party. Similarly in the case of Gopaldas Mohta [1951] 20 ITR 516 the amount related to interest against non-payment of the principal amount. Therefore, in none of the cases, the compensation related to wrongful detention of the property. In the above cases the courts have distinguished the earlier decision and, therefore, the senior Departmental representative was not justified in contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... senior Departmental representative Mr. Gupta in support of the proposition that the amount received by the assessee constitutes revenue receipt. Since we have referred to the conflict between the opinions of the High Courts and since we have preferred the majority of the High Courts, it is not necessary to burden the order with the other authorities. 73. In view of the above discussion, grounds Nos. 1, 2, 3 and 5 raised by the assessee are allowed. The order of the Commissioner of Income-tax (Appeals) confirming the addition of Rs. 34,57,01,137 is hereby set aside and consequently, the addition sustained by him is hereby deleted. 74. Ground No. 4 raised by the assessee, challenges the enhancement of addition by Rs. 1,18,75,000 made by the Commissioner of Income-tax (Appeals). Since we have held that compensation received by the assessee is not chargeable to tax, this ground does not survive being infructuous. 75. Ground No. 6 challenging the levy of interest under sections 234B and 234C of the Act is consequential in nature and, therefore, does not require any comment of the Bench. The Assessing Officer is directed to recompute the same after giving effect to our order. Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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