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TMI Blog2003 (8) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-74 according to the Bengali calendar year or whether such gift was to be included in the assessment for assessment year 1974-75 on the basis of date of registration. Their Lordships of the Calcutta High Court held that the value of the gifted property was includible for assessment year 1974-75 as between the donor and the donee the registered document may take effect from the date of execution but as regards a third party, the point of time at which the deed becomes effective is when it is registered. Their Lordships of the Calcutta High Court have pointed out that if the registered document is held to be effective against the Revenue which is not a party to the deed from the date of execution, it will entail great hardship, because the Revenue will have no knowledge of the date of execution of the document and the document can only be effected against the Revenue from the date of registration. Their Lordships have, accordingly, held that the deed of gift in the present case so far as the Revenue is concerned would not be the date when the document was executed but the date when it was registered. Taking the totality of the facts and circumstances into consideration including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) That even if the aforementioned amount is mesne profits the same having been received from the lessee for the user of the property is liable to tax as a revenue receipt. Thus ground Nos. 2 and 3 taken in both the appeals of the assessee for assessment years 1996-97 and 1997-98 are decided against the assessee. We direct the Registry to fix the appeals for hearing before the Division Bench of the Tribunal for deciding the other grounds of appeal in accordance with law. - HON'BLE V. DONGZATHANG, PRESIDENT M.A. BAKSHI, VICE-PRESIDENT AND B.R. MITTAL, JUDICIAL MEMBER For the Appellant : D. Khasnabis, Adv. For the Respondent : D.K. Ghosh, Adv. ORDER 1. This Special Bench was constituted under section 255(3) on the recommendation of the Division Bench of the. Tribunal for considering the issue as to whether the amount received by the assessee in terms of the consent decree passed by the Small Causes Court is mesne profit and whether it is taxable as a capital receipt or revenue receipt. We have heard the parties and perused the record including the order of the E Bench of the Tribunal in assessee's own case in I.T.A. Nos. 2690/C/97, 2953/C/94, 1413/C/97, 709-11/C/99, 1l08/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent decree on the terms as agreed upon between the parties. 4. On the very next day, i.e., 26th October, 1989, the Court of Small Causes at Mumbai issued a consent decree on the terms agreed upon between the parties. As per the consent terms, the tenants had to vacate the suit premises by 30-11-1989 and a sum of Rs. 1,25,700 was to be paid by way of mesne profits from 1-9-1989 till 30-11-1989. The agreed terms also provided for continued occupation of the leased premises on payment of further deposit of Rs. 22,80,000 by 1-11-1989, payment of mesne profit of Rs. 1,25,700 calculated @ Rs. 41,900 from 1-9-1989 till 30-11-1989 and further stipulated monthly payments without any default. It was further provided that in the event of default, the lessees would vacate the premises on receipt of the registered notice from the Advocate of the appellants subject to refund of Rs. 24lakhs deposits by the assessee to the licensees/lessees. The lessees did not vacate the premises. Instead, they exercised the option of paying a further deposit of Rs. 22,80,000 and other payments referred to in the consent terms as a result of which they continued to be in possession of the property. The monthly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent decree passed by the Small Causes Court on 26th October, 1989 is mesne profit and nontaxable. In support of his submission the Ld. A.R. of the assessee referred to the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh. He further submitted that the case of the Madras High Court viz., P. Mariappa Gounder is not applicable to the case of the assessee as in that case the issue whether mesne profit was taxable or nontaxable was not subject-matter of dispute as the assessee had himself offered the mesne profit for taxation. The Ld. AR submitted that the decision of the Supreme Court at P. Mariappa Gounder's case is on the appeal filed against the decision of the Madras High Court and that the only issue raised, was as to the year of assessability and not as to whether the amounts received as mesne profit were taxable at all. Such issue not having been raised or decided, the aforementioned decision of the Supreme Court was inapplicable, it was contended. The learned counsel for the assessee further contended that the E Bench of the Kolkata Tribunal in the assessee's own case for assessment years 1990-91 to 1995-96 vide order dated 28-3-2000 held the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as stipulated in the agreement dated 1-9-1989 and the Court has simply granted the request of the parties and issued a consent decree. It was further contended that the amount received by the assessee under the consent decree does not fall within the definition of mesne profit. Our attention was invited to section 2(12) of CPC which defines mesne profit to be a profit which a person in wrongful possession of that property actually received or the profits which might, with ordinary diligence, have received therefrom. It was submitted that in the instant case the amount was actually received by the owner of the premises, i.e., the appellants, which is being taxed by the department and not the amount received by the licensee on account of any wrongful possession. Had the licensee by wrongful possession earned profit or the profits which might have with ordinary diligence been received by the licensee, the amount could be termed as mesne profit with in the definition of section 2(12) of C.P.C. The Ld. Departmental Representative further submitted that if at all the licensee was in wrongful possession of the property on account of breach of agreement dated 1-9-1989, it could be only u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the assessee is nothing but compensation for use of property in the form of rent. Referring to the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh, it was contended that the said decision is distinguishable on facts. It was pointed out that in that case a sum of Rs.2lakhs received by the assessee was a mesne profit for deprivation of the possession of the property and the amount was paid by the Government on acquisition of the land and, therefore, the receipt was a capital receipt. The Ld. Departmental Representative further pointed out that in the said case their Lordships held that the mesne profit was capital gain but the same was not liable to tax as there was no cost of acquisition (capital gains not being workable). It was further submitted that the Hon'ble High Court had nowhere stated that the amount received as mesne profit was not liable to tax at all under any circumstance. Referring to the decision of the Apex Court in the case of P. Mariappa Gotmder, the Ld. Departmental Representative pointed out that in the said case the subject-matter of dispute was the assessment of mesne profit and on appeal the matter was decided by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs the leave and licence agreement was to commence subject to payment of security deposit amount of Rs. 24 lakhs. However, only a sum of Rs. 1,20,000 Was paid within the stipulated period of one week and the balance of Rs. 22,80,000 remained unpaid. Thus there was a breach of the agreement. 12. The assessee filed a suit in the Small Causes Court being Suit No. 208/251 of 1989. Despite requisition by the Assessing Officer as well as by us, the assessee failed to file copy of the suit. The date of filing of the suit has also not been indicated. The filing of the suit not being in dispute and the default having occurred on 8-9-1989 and the compromise terms having been filed in the Small Causes Court on 25-10-1989, it is presumed that the suit must have been filed in between 8-9-1989 and 25-10-1989. Copy of the consent terms filed by the appellants and M/s. Imkemex India Ltd. in the Court of Small Causes at Mumbai is on record. It will be useful to reproduce the consent terms filed by the parties in the Court for the sake of ready reference:-- Consent Terms 1. The defendants hereby admit and concede that they had remained in arrears of compensation and had defaulted in paying the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mesne profits and other dues as provided herein. 4. It is agreed and declared by both the parties herein that the agreement dated 1st September, 1989 stands terminated and that the defendants are not and will hereafter continue to be in occupation and user of the suit premises entirely on the basis of these consent terms and not under the said agreement dated 1st September, 1989. It is however further agreed and declared by the parties hereto that the liabilities and undertakings of the defendants and plaintiffs as contained in clauses 4, 6, 7, 8, 9, 10, 13, 15 and 16 of the agreement dated 1st September, 1989 shall continue to apply to the plaintiffs and defendants during the period of these terms. 5. No order as to costs. 6. Refund of 2/3rd costs to the plaintiffs. Dated this 25th day of October, 1989. 13. A decree passed by the Small Causes Court at Mumbai on 26-10-1989 is also on record and the same is reproduced hereunder for the sake of convenience and ready reference:-- Decree : The plaintiffs abovenamed have filed this suit against the defendants and praying as follows: (a) that the Defendants be decreed and ordered to quit and vacate the office premises on the 21st floor o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent terms vide Ex-A, copy attached herewith Two third court fee return to the plaintiffs. No order as to cost. Thus, by virtue of the decree passed by the Small Causes Court, the entire consent terms have been given effect to. A perusal of the consent terms reveals that there is an admission of default in payment of balance deposit amount of Rs. 22,80,000 by M/s. Imkemex India Ltd. In para-2 of the consent terms it is provided. In view of the above, on admission, a decree against the Defendants to vacate the suit premises by 30th November, 1989. It is evident from the consent terms read with the Court order that there are two aspects of the consent terms. One is that the suit premises is decreed to be vacated by 30-11-1989 and that the agreement executed on 1-9-1989 stood terminated. Another aspect of the consent terms is that the parties mutually agreed that if the sum of Rs. 22,80,000 is paid by M/s. Imkemex India Ltd. by 1-11-1989 and a sum of Rs. 1,25,700 at the rate of Rs. 41,900 per month for three months is paid by 10-11-1989 and further a sum of Rs. 1,10,000 per month is regularly paid in advance by 10th of each month for which the same is payable commencing from 1-12-1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether with interest on such profits but shall not include profits due to improvements made by the person, in wrongful possession. 17. The meaning of the word 'mesne' is defined in Chambers 20th Century Dictionary and Merriam Websters Collegiate Dictionary, 10th Edition as 'intermediate' 'intervening'. The words 'mesne profit' is defined in The Law Lexicon, 2nd Edition at page 1225 as under: Mesne Profits Intermediate profits. The profits or other pecuniary benefits which one who dispossesses the true owner receives between disseizin and the restoration of possession, those which are received intermediate the original entry and the restoration of the possession of the premises. 18. The Andhra Pradesh High Court in the case of Poluru Ranga Rao v. Koppolu Ramadoss AIR 1959 AP 182 at 184 has explained the mesne profits as under: The criterion for calculation of mesne profits cannot be what the person out of possession might have got had he been on the land. Mesne Profits could only consist of what the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom. A perusal of the above definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession of best evidence does not produce the same, adverse inference can be drawn against the person who ought to have filed it. CIT v. Smt. Krishnaveni Ammal [1986] 158 ITR 826, 829, 830 (Mad.). 20. Be that as it may, we are inclined to agree with the Ld. D.R. that the mesne profit is awarded by the Court for wrongful possession of a property which the wrongful possessor has actually received or might with ordinary diligence have received. The rationale for awarding mesne profit by court, in our view, is that the trespasser or the person in wrongful possession not only denies the true owner of rightful possession of the property but also prevents the true owner from enjoying the income therefrom. Therefore, the mesne profit is decreed to recognize the facts that the true owner is entitled to the income from the property and the person in wrongful possession is to compensate the true owner by paying either actual income from the property or a reasonable estimate of that income. Let us first consider as to whether M/s. Imkemex India Ltd. was in wrongful possession of the property. The licensor handed over the possession of the property on the terms and conditions of the agreement ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r directing an inquiry as to such rent; (ba) for the mesne profits or directing an inquiry as to such mesne profits. (c) directing an inquiry as to rent or mesne profits from the institution of the suit until- (i) the delivery of possession to the decree-holder, [B] (ii) the relinquishment of possession by the judgment-debtor with notice to the decree-holder through the Court, or (iii) the expiration of three years from the date of the decree [B] whichever event first occurs. [B] (2) Where an inquiry is directed under clause (b) or clause (c), a final decree in respect of the rent or mesne profits shall be passed in accordance with the result of such inquiry, [AP, KNT, KM.]. Order XX, Rule 12A relates to a decree for specific performance of contract for the sale or lease of immovable property, which reads as under:-- Where a decree for the specific performance of a contract for the sale or lease of immovable property orders that, the purchase-money or other sum be paid by the purchaser or lessee, it shall specify the period within which the payment shall be made. 21. It is evident from Rules 12 12A of Order XX that the assessee had the option to sue for specific performance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent decree by the licensee/lessee. As such, the licensee/lessee was in lawful possession of the property at least from 26-10-1989. Therefore, there was no question of granting of mesne profits for the period for which the licensee was under lawful possession of the property. 24. The question required to be considered now is as to whether it is open to the Revenue authorities and the appellate authorities to interpret the decree of the Court contrary to the specific language used by the Court in the judgment. In this connection, it would be relevant to refer to the definition of the judgment under section 2(9) of the C.P.C. The 'judgment' is defined as under:-- (9) Judgment means the statement given by the Judge of the grounds of a decree or order; , In the case of Dineshwar Prasad Bakshi v. Parmeshwar Prasad Sinha A 1989 Pat. 139 at 142, it was held that Court must state the grounds for its conclusion and passing of a mere decree mechanically without application of mind does not satisfy the requirement of the judgment. In the case of Bengal SM v. Aisha A 1947 C 106 confirmed in appeal in A 1966 C 120 and A 1969 SC 1133, it was held that trial judge acting extra cursum curi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered document is held to be effective against the Revenue which is not a party to the deed from the date of execution, it will entail great hardship, because the Revenue will have no knowledge of the date of execution of the document and the document can only be effected against the Revenue from the date of registration. Their Lordships have, accordingly, held that the deed of gift in the present case so far as the Revenue is concerned would not be the date when the document was executed but the date when it was registered. 27. Taking the totality of the facts and circumstances into consideration including the decision of the jurisdictional High Court in the case of Smt. Aloka Lata Sett, we are of the view that the mere fact that the term 'mesne profit' is used in the consent terms and incorporated in the consent decree by the Court of Small Causes is of no consequence insofar as the facts and circumstances of this case clearly justify the conclusion that the amount granted to the appellant does not fall within the definition of 'mesne profit' as per section 2(12) read with Order XX, Rule-12 of First Schedule of C.P.C. We are, therefore, of the considered vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received by the appellant in the accounting year relevant for the assessment year 1964-65. The ITO held that the mesne profit constitutes the assessee's taxable income in the assessment year 1964-65 since the assessee actually received the amount only during the relevant previous year. The AAC agreed with the view that the mesne profits constituted taxable income but took the view that the mesne profit had accrued to the assessee in the year in which the trial court, acting on the remand by the Supreme Court, quantified the amount of mesne profits, which was in the previous year ending March 31, 1963, relevant to the assessment year 1963-64. The Tribunal also held that the mesne profit is taxable as income but took the view that the mesne profit should be held to have accrued the moment the Supreme Court declared the assessee's right thereto which was in the previous year ended March 31, 1959 relevant to assessment year 1959-60. On reference, the Madras High Court held that the mesne profits had to be assessed as taxable income in the hands of the assessee. It was further held that it cannot be said that the mesne profit had accrued at any point of time earlier to its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation suffered by the assessees therein was of capital assets of which the assessees were the true owners. In the present case, the award of mesne profits is an award of compensation for the true owner's deprivation of the yearly income from the property, which is a different thing altogether. The true principle to be applied is that where compensation is paid for deprivation of a capital asset or for a restraint on trading or the conduct of a business undertaking as such, it would be a capital receipt in the hands of the recipient of the compensation. A similar consideration will prevail in cases where compensation is received for immobilization, sterilization, destruction or loss of an assessee's capital asset even without affecting his business as such. In such cases it can truly be said that the compensation is in substitution, not of income. But of the very source of income. Mesne profits are not of that kind. Even the measure of mesne profits, as the definition in the Code of Civil Procedure makes clear, is the income which the person in wrongful possession derives from the property or might with due diligence have obtained from the property. Mesne profits are, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt at page 687 held as under:-- Our observations last mentioned provide the answer to the following two questions of law referred to this court by the Tribunal at the instance of the Department on the issue as to the year of accrual of the mesne profit: '1. Whether the mesne profits declared 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?' 33. Complete reading of the decision of the Madras High Court referred to above reveals that the issues before their Lordships were two-fold. Firstly, as to whether the mesne profit is liable to tax and secondly which is the year of assessability - whether the year of grant or the year of quantification. The Hon'ble Supreme Court on appeal dealt with the issue relating to year of assessability only. So, however, the appeal against the decision of the Madras High Court was dismissed in toto. In our view it would be necessary to consider the effect of the dismissal of the appeal. In this connection, reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court has merged with the order of the. Supreme Court. Thus, the issue relating to the chargeability of mesne profit 'as also the year of assessability have got to be taken as a binding precedence by virtue of the judgment of the Supreme Court in the case of P. Mariappa Gounder. In the light of the above decision of the Supreme Court, the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh disagreeing with the view of the Madras High Court is rendered as not binding more so when the Calcutta High Court in the case of Smt. Lila Ghosh did not lay down the law that mesne profits are not liable to tax in all the circumstances. It is well-settled principle of law that a decision of the Court is not to be applied blindly. The decision of the Court has got to be understood in the context in which it has been rendered. This principle is stated by the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297. The decision of the Calcutta High Court in the case of Smt. Lila Ghosh is to be understood in the light to its own facts and the issue involved on such facts. 36. We have pointed out earlier that the decision of the Calcutt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages and, therefore, a capital receipt. The Hon'ble High Court, however, disagreed with the Tribunal that the amounts spent towards stamp duty and other legal expenses for obtaining the decree could be said to be the cost of acquisition. Their Lordships, accordingly, held that the capital gain derived by the assessee was not liable to tax there being no cost of acquisition. Reliance was placed on the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294. Thus, it is seen that the decision of the jurisdictional High Court is distinguishable on facts. The land had been taken over by the State Government and apart from compensation, the amount of Rs. 2 lakhs had been granted by the Government as compensation for the period the property was in wrongful possession of the lessee. It was thus evident that the consideration received by the assessee of Rs. 2 lakhs was as part of compensation for acquisition of the land. 37. To reiterate the decision of the Hon'ble Calcutta High Court is not an authority for the proposition that the mesne profits is not liable to tax under any circumstances. The taxability of mesne profits would depend on the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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