Mesne profits for wrongful possession treated as capital receipt and kept outside income tax and house property taxation.

Mesne profits or damages received from a tenant for wrongful possession were treated as compensation for deprivation of use and occupation of property. Applying the view of the larger Special Bench and the concept of mesne profits under section 2(12) of the Code of Civil Procedure, 1908, the receipt was held to be a capital receipt and not taxable as revenue income. It was also held not assessable as income from house property. In the absence of contrary binding jurisdictional High Court authority, the favourable view to the assessee was applied and the addition was deleted.

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Issues: Whether the assessee's share of mesne profit or damages received from a tenant pursuant to a court order was a capital receipt not chargeable to tax or assessable as income from house property.

Analysis: The receipt was treated as mesne profit arising from wrongful possession and deprivation of use and occupation of the property. The decision followed the view of the larger Special Bench that mesne profits fall within the concept recognised under section 2(12) of the Code of Civil Procedure, 1908, and that such receipts are in the nature of damages for loss of possession. In the absence of any contrary binding jurisdictional High Court decision, the favourable view to the assessee was applied and the receipt was held not to be taxable as revenue income.

Conclusion: The assessee's share of mesne profit or damages was held to be a capital receipt not chargeable to tax and not assessable as income from house property.

Final Conclusion: The revenue appeal failed and the deletion of the addition was sustained.

Ratio Decidendi: Mesne profits received for wrongful deprivation of possession are capital receipts not chargeable to tax where the binding jurisdictional law does not require a contrary view.

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