Mesne profits for unauthorised occupation are revenue receipts where the property remains intact and the payment substitutes rent.

Mesne profits and interest received for unauthorised occupation of leased immovable property were treated as revenue receipts, because the payment compensated the owner for continued use of the property after termination of the lease and substituted the rent or occupation value otherwise receivable. The capital asset remained intact; there was no sterilisation, destruction, or diminution of the asset itself. On that basis, the receipt was not a capital receipt and was taxable as income in the assessee's hands.

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Issues: Whether mesne profits and interest received for unauthorised occupation of immovable property were capital receipts or revenue receipts chargeable to tax.

Analysis: The receipt arose after termination of the lease and represented compensation for continued unauthorised use and occupation of the assessee's property. The Court distinguished cases involving sterilisation, destruction, or diminution of a capital asset from the present situation, where the capital asset remained intact and the amount awarded substituted the rent or occupation value that the assessee would otherwise have earned. The Court also treated the earlier decision on mesne profits and the later decision applying Section 25B as binding and materially on point, and rejected the argument that the receipt was a non-taxable capital receipt.

Conclusion: Mesne profits and interest on mesne profits were held to be revenue receipts and taxable in the assessee's hands.

Final Conclusion: The question of law was answered against the assessee and in favour of the Revenue, and the appeal was disposed of accordingly.

Ratio Decidendi: Compensation for unauthorised occupation of leased property, where the capital asset itself remains intact, is a revenue receipt taxable as income and not a capital receipt.

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