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TMI Blog2020 (2) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... e which is in favour of the assessee and any reliance placed on any other decision would be premature at this stage in the aforesaid circumstances. Hence, we proceed to follow the decision of the Co-ordinate Bench of this Tribunal in the case of Goodwill Theaters referred to supra by holding receipt of compensation (i.e. mesne profit) of ₹ 2 Crores as capital receipt. Disallowance of professional fees u/s.40(a)(ia) - HELD THAT:- We find that the ld. AR fairly stated that let this issue be factually valued by the ld. AO as to whether the recipient had already disclosed the subject mentioned receipt in its returns and had paid due taxes thereon. We find lot of force in the said argument as it is a statutory claim made by the assessee in terms of second proviso to Section 40(a)(ia) of the Act which says that once the recipient has already paid the taxes on a particular payment made by the assessee to the said recipient, then the disallowance u/s.40(a)(ia) of the Act cannot be invoked in the hands of the payer i.e. assessee herein. The ld AO is directed accordingly. Hence the ground No.2 raised by the assessee is allowed for statistical purposes. Addition with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) was justified in confirming the action of the ld. AO in considering mesne profit of ₹ 2 Crores as revenue receipt and accordingly assessing the same under the head income from house property‟ in the facts and circumstances of the case. 3. The brief facts of this issue and the chronology of various events which triggered receipt of mesne profit by the assessee are narrated as under:- The assessee is engaged in the business of development of pre-fabricated accommodation systems/modular designs for providing housing solutions. The assessee has also designed and developed products for various applications, its flagship products being mufti storey building for transit camps for slum rehabilitation projects. The assessee had e-filed its original return of income for A. Y. 2014-15 on 24.11.2014 declaring total income as Nil and claiming refund of ₹ 13,27,060/-. The assessee had given 1st and 2nd Floor Mittal Tower, Nariman Point Mumbai 400021 ('premises') admeasuring 20800 sq. ft. of area on lease to MMTC limited, as per the terms of agreement dated 22-10-1980 for a period of 9 years and 9 months. The said lease expired on 30.06. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt against the order of Hon'ble Bombay High Court. The Supreme Court upheld the order of Bombay High Court vide order dated 16.03.2012 and directed MMTC to pay an amount of ₹ 3,00,00,000/- to the assessee out of balance amount of ₹ 5,00,00,000/-. 3.1. Thereafter, the Hon‟ble Supreme Court vide order dated 04/12/2012 directed MMTC to pay final amount of ₹ 2 Crores to the assessee as compensation which was received by the assessee during the year under consideration. The assessee claimed the same as capital receipt while filing the return of income for the A.Y.2014-15, in view of the fact that the said sum was received as damages from MMTC for wrongful possession of the premises of the assessee. The assessee submitted that expression mesne profits has been defined in Section 2(12) of the code of Civil Procedure 1908 as under:- (12) mesne profits of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received there from, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in the form of compensation is to be treated as arrears of rent u/s.25B and u/s.25AA which was inserted in the statute of Finance Act 2000 and 2001 respectively w.e.f. 01/04/2000 and 01/04/2001 respectively. Accordingly, he brought to tax the compensation received in the sum of ₹ 2 Crores as arrears of rent chargeable under the head income from house property‟ and granted 30% standard deduction thereon u/s.24 and assessed the remaining ₹ 1,40,00,000/- as taxable income from house property. 3.4. The assessee submitted before the ld. CIT(A) as under:- a) The learned AO in para 5.6 has observed that the letter dated 6th May 2000 of the Advocate of the assessee to MMTC for termination of tenancy was unsigned and does not bear proper acknowledgement by any of the parties. In this regard we invite Your Honour's attention to page no 1 to 3 of the paper book where the said letter is placed and on perusal of the same it will be noticed that it is 'sd/-' copy which means it is signed by the person who has issued the fetter. Further, on perusal of the order dated 02.05.2001 passed by the Small Causes Court, Your Honour will appreciate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment at ₹ 161 per sq.ft was mesne profits for wrongful occupation of the appellant's premises by MMTC. c) In para 5.6, 5.8, 5.17, 5.18, 5.22 and 5.23 the learned AO has observed that even after expiry of the lease period the assesses had recognized MMTC as its tenant. The sudden terminology of treating the rent received at market rates as a capital receipt is wrongly interpreted by the assessee The Bombay High Court has upheld the order of the Small Causes Court wherein the compensation @ 161 per sq.ft. per month for 20800 sq.ft. was decided on prevalent market rent. If such cases are admitted as capital receipts, there may prevail cases of window dressing where small duration rent agreements may crop up to give compensations to properly owners and such owners claiming it as capital receipts thus depriving the Revenue the share of taxes thereon. The enhanced rate of ₹ 161 was determined as per the market forces and thus the amount so received during the year is required to be treated as Arrears of Rent u/s 25B and is chargeable to tax u/s 25AA even in those conditions when the assessee is not the owner of the property at the time of realization (para 5.6, 5.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined on the basis of comparable market rate (emphasis supplied). Thus, the basis of determination of mesne profit will not change the nature of such compensation from mesne profit to rent as sought by the learned AO. The mesne profit has to be determined on the basis of what benefit the owner of the premises has lost or deprived when the premises is in unlawful or wrongful possession by someone else. Further on perusal of section 25B (relevant to assessment year under consideration Your Honour will appreciate that the said section will become applicable only when property was let (refer clause (a) of section 25B) and the assessee is in receipt of any amount by way of arrear. Thus, as per the section any arrear of rent received for the period during which the property was actually let will be taxable in the year of receipt. However, in the case of the appellant the property was not let out for the period 1.07.2000 to 31.03.2002 as the appellant has terminated the tenancy w.e.f..01.07.2000 by giving notice through Its advocate vide letter dated 6th May 2000 and therefore MMTC was unlawfully occupying the said property for the period 1.7.2000 to 31.03.2002 for which Mesne Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt. - The award given was a lump sum award of ₹ 10 lacs per month with interest, while in the case of the assessee market rent was allowed which is clearly arrears of rent due to the assessee. With reference to the AO's observation that in case of Narang Overseas the compensator was not a statutory tenant will not make any difference on nature of receipt so far so the property was occupied unlawfully. In case of the appellant on perusal of para 3 of order dated 02.05.2001 of Small Causes Court it will be appreciated that the tenant was occupying the property of the appellant unlawfully. Further, the learned AQ:s observation that in case of Narang Overseas it was not letting out of premises but a business arrangement on profit sharing basis will not change the characteristic or nature of receipt. Once the Mesne Profit, awarded for unlawful possession of premises, is held to be 'capital receipt' by Special Bench of ITAT it will not make any difference whether the rental income was taxable under house property or business profit. The other observation of the learned AO that in Narang overseas tenant continued to occupy the premises after terminatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in the instant case are different from that in the case of P. MaraiappaGounder. The ITAT in the above case has upheld the order of CIT(A) which held that Mesne Profit is capital receipt and not taxable. On perusal of the facts in the case of Goodwill Theatre and facts in the case the' appellant as discussed in the beginning. Your Honour will appreciate that there is no change in the facts Further the learned AO's observation ''that- Goodwill Theatre was running theatre and whereas the assessee was out the property to MMTC and offering the income under the head ''House property will not change the characteristic or nature of receipt. Once the Mesne Profit, awarded for unlawful possession of premises, is held to be 'capita! receipt' by the tribunal it will not make any difference whether the rental income was taxable under house property or business profit. Similarly, there is no difference in the facts of the Kerla High Court in CIT v Annamma Alexander and Calcutta High Court in CIT v Lila Ghosh as both the decisions has been considered by the Special Bench of ITAT in the case of Narang Overseas f) With reference to lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). The fact that even after the dismissal of its Appeal (L) No.1791 of 2008 for non-removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). Thus, the question as framed in the present facts does not give rise to any substantial question of law. 3.6. The ld. CIT(A) further observed that on further appeal by the revenue, the Hon‟ble Supreme Court in the case of CIT vs. Goodwill Theaters Pvt. Ltd., reported in 93 Taxmann.com 36 dated 29/11/2017 had set aside the above order of the Hon‟ble Bombay High Court with a direction to decide the matter on merits. Accordingly, the ld. CIT(A) held that the reliance placed on the decision of Goodwill Theaters would not advance the case of the assessee and thereby he upheld the action of the ld. AO in treating the mesne profits as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit received for unauthorized occupation of the premises is a capital receipt not chargeable to tax in the light of the decision of Special Bench of the Tribunal in the case of Narang Overseas Pvt. Ltd. Vs. ACIT, reported in 100 ITD (Mum)(SB). Further reliance was placed on the decision in the case of CIT Vs. Mrs. Annamma Alexander, 191 ITR 551 (Ker.). Regarding the decision of the Hon'ble Madras High Court relied upon by the learned AO, it was submitted that the facts in that case are different. The finding of the learned AO were explained before the CIT(A) through written submission and it was submitted that findings of the learned CIT(A) are not correct. It was further submitted that the decision of the Hon'ble Madras High Court, which is merged in the decision of the Hon'ble Supreme Court, has been considered by the Special Bench and found that the facts are different. Learned CIT(A) after considering the order of the AO, detailed written ITA No.8185/2011 submission filed on behalf of the assessee, which are part of the order of learned CIT(A) also, found that the AO was not justified in treating the receipts as revenue in nature. Learned CIT(A) found that the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctional High Court. However, the appeal against this decision was dismissed vide order dated 25.6.2009 in ITA No. 1797 of 2008 by the Hon'ble Bombay High Court. In the light of these facts, the mesne profit received by the appellant on account of decree and depreviation of use of occupation of property and therefore, the sum so received was capital in nature not chargeable to tax. Since the decision of Special Bench is binding on the appellate authorities working under its jurisdiction. Therefore respectfully following the same, the mesne profit is received by the appellant is treated as capital receipt and not chargeable to tax. 6. After going through the order of AO and the above findings of the learned CIT(A), we noted that the AO decided the issue against the assessee following the decision of the Hon'ble Madras High Court in the case of P. Mariappa Gounder (supra). This decision of the Hon'ble Madras High Court and the decision of the Hon'ble Supreme Court confirming the order of Hon'ble Madras High Court has been considered by the Special Bench and found that the facts are different. It is further seen that the decision of the Special Bench has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt. Ltd had duly offered the subject mentioned receipt in their returns of income and had paid taxes thereon and hence, the assessee could not be treated as assessee in default in terms of Section 201(1) of the Act in view of the second proviso thereon. The ld. CIT(A) however, upheld the action of the ld. AO. We find that the ld. AR fairly stated that let this issue be factually valued by the ld. AO as to whether the recipient had already disclosed the subject mentioned receipt in its returns and had paid due taxes thereon. We find lot of force in the said argument as it is a statutory claim made by the assessee in terms of second proviso to Section 40(a)(ia) of the Act which says that once the recipient has already paid the taxes on a particular payment made by the assessee to the said recipient, then the disallowance u/s.40(a)(ia) of the Act cannot be invoked in the hands of the payer i.e. assessee herein. The ld AO is directed accordingly. Hence the ground No.2 raised by the assessee is allowed for statistical purposes. 7. The ground No.3 raised by the assessee is challenging the action of the ld. CIT(A) in confirming the addition of ₹ 16,245/- made by the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has accepted the stand of the assessee that the interest income on fixed deposits had got business nexus and had to be assessed only as business income. Hence, the ld. AR pleaded that there is no reason for the revenue to take a divergent stand during the year under consideration alone when there is absolutely no change in the facts and circumstances of the case. In this regard, the ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of CIT vs. Dalmia Promoters and Developers Pvt. Ltd. in Civil Appeal No.74/2007 dated 22/09/2015 wherein it was held as under:- By an assessment order dated 29the February, 1996, with regard to Assessment Year 1993-94 (with which we are concerned in the present case), the Assessing Officer held that interest earned from Fixed Deposits before business actually commenced would be taken under the head interest from other sources‟ and not under the head business income.‟ This was reversed by the Commissioner of Income Tax (Appeals) by its order dated 4th September, 1996 taking into account inter alia the fact that for the previous three assessment years the assessee for similar interest from such fixed dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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