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TMI Blog2001 (12) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... o a lease agreement on November 26, 1979, with Arya Dharma Seva Sangh, for the lease of the first floor premises, Flat No. H-72, Connaught Circus, New Delhi, together with right of entrance passage and other easements of the said premises for 114 months at a rent of Rs.1,000 per month. This lease deed was renewable at the desire of the tenant. The assessee entered into sub-lease vide lease deed dated August 18, 1981, with the Traders Bank. The Traders Bank regularly paid the rent till 1998 at the rate of Rs.24,201.75 p.m. On nationalisation the Bank of Baroda took over the possession of the premises from the Traders Bank. On June 15, 1989, this sub lease expired. Since the Bank of Baroda, after taking over from the Traders Bank failed to pay the rent to the assessee, the assessee vide its letter dated January 11, 1989, terminated the tenancy agreement with effect from January 31, 1989, on the ground of non-payment of rent. After January 11, 1989, the assessee received a letter from the bank dated January 6, 1989, along with a cheque dated December 19, 1988, for Rs.96,807 representing the rent for the months of July to October, 1988. The assessee vide its letter dated January 13, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier years was not assessed under the head "Income from house property" because of the fact that the assessee was not the owner of the said property. It was pointed out by him that the income recorded in the earlier years was also assessed accordingly. He pointed out that when the bank failed to pay the rent in accordance with the terms of the lease deed, a suit for possession and recovery was filed before the Delhi High Court claiming compensation therein as under: (a) Rent for the period July, 1988, to May, 1989, i.e., for 11 months at the rate of Rs.24,201.75 p.m. totalling Rs.2,66,219.25. (b) Compensation for the period June 1, 1989, to July 31, 1991, i.e., 26 months at the rate of Rs.70,000 per month as the market value of the premises on June 1, 1989, was approximately Rs.70,000 per month and since then it had further gone up, totalling Rs.18,20,000. Referring to paragraph 18 of the suit filed before the High Court, learned counsel pleaded that the assessee's total claim of Rs.2,66,219.25 was towards the rent received from July, 1988, to May, 1989, and of Rs.18,20,000 was towards compensation from June 1, 1989, to July 31, 1991. Learned counsel explained tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted that the provisions of the Delhi Rent Control Act are not applicable and the relationship of the landlord and the tenant is governed by the provisions of the Transfer of Property Act. Section 105 of the Transfer of Property Act is as follows: "105. Lease defined.-A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service of any other thing of value, to be rendered periodically or on specified occasions, to the transferor by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined: The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent." It is beyond any cavil of doubt that rent is payable by a lessee to his landlord so long the lease subsists. It is accepted that the lease by and between the appellant and Traders Bank came to an end with effect from January 31, 1989. Upon valid termination of tenancy, the tenant no longer remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees. Explanation.--For the purposes of this section,- (i) 'rent' means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; (ii) where any income is credited to any account, whether called suspense account, or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." It is well settled that the definition of an expression used for one purpose, cannot be applied for another purpose. The Explanation appended to the aforementioned provision whereupon Mr. Jolly placed strong reliance, begins with the expressions "for the purposes of this section". Section 194-I provides for deduction of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin and Sons v. CIT [1969] 74 ITR 651 wherein it was held that where the land has been taken over by the Government, the right of the owner to compensation was an inchoate right until the compensation had been actually determined and had become payable. The said decision has been considered by the apex court in P. Mariappa Gounder v. CIT [1998] 232 ITR 2 wherein the court has even proceeded on the basis that even if a decree has been passed allowing mesne profits, if the same is required to be quantified in terms of Order 29, rule 12 of the Civil Procedure Code, the same would not be an accrued income, holding: "On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m different sources in an appropriate case. The Department cannot compel the assessee to adopt the mercantile system of accounting. As a matter of fact, it was not adopted. Under the circumstances, the income from lease rent could not be taxed on accrual basis." In Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746, the apex court held that: "The Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made, represented only hypothetical income, and the impugned amounts as brought to tax by the Income-tax Officer did not represent income which had really accrued to the assessee-company during the relevant previous years." In CIT v. 0.P.N. Arunachala Nadar [1983] 141 ITR 620 (Mad), it has been held: "One other question which has been referred to us in this case relates to another item of deduction claimed by the assessee, which was disallowed by the Income-tax Officer in the first instance, but subsequently allowed by the appellate authorities. The claim for allowance related to the mesne profits decreed in the partition suit as payable by the assessee to his erstwhile partner, John Samu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the conclusion of the Tribunal that the sum of Rs.8,000 was properly allowable in the year of account relevant to the assessment year 1962-63. Since we have answered both the questions in this reference in favour of the assessee, the Department will pay the assessee's costs. Counsel's fee Rs.500." The decisions referred to hereinbefore, in no uncertain terms, clearly show that the mesne profits which are yet to be determined, do not come within the purview of an accrued income for the purpose of sections 4 and 5 of the Income-tax Act. In that view of the matter, question No. 1 must be answered in favour of the assessee and against the Revenue. As a logical corollary, question No. 2 must also be answered in favour of the assessee and against the Revenue. However, we may place on record that after a period of two years, by an interim order passed by the court, some amount had been directed to be paid to the assessee herein which the assessee had shown in its return without prejudice to his rights and contentions. We do not intend to express any opinion on the merits so far as the contention of the assessee is concerned that despite the same, the income accrued by it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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