Mesne profits as rent substitute were treated as revenue receipt, taxable where the immovable property remained intact.

Mesne profits received for continued unauthorised occupation of immovable property were examined by reference to their factual character. Where the tenancy had ended, the occupier remained in possession, and the civil court award was linked to the rent that would otherwise have accrued, the receipt was treated as a substitute for rental income. Because the capital asset remained intact and there was no diminution of title or physical injury to the property, the amount was held to be revenue in character and taxable, not a capital receipt. The binding jurisdictional precedent was applied on the basis that the nature of the receipt depends on the facts of each case.

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Issues: Whether mesne profits received for continued unauthorised occupation of immovable property constitute a capital receipt not chargeable to tax or a revenue receipt liable to tax.

Analysis: Mesne profits, though defined in civil law as profits arising from wrongful possession, were examined on their factual character in the present dispute. The property had earlier been let out and, after termination of the tenancy, the occupier continued in possession; the compensation awarded by the civil court was linked to the rent that would otherwise have been received for such continued occupation. On these facts, the receipt was treated as substituting the rental income the owner would have earned, while the capital asset itself remained intact and there was no diminution of title or physical injury to the property. Applying the binding jurisdictional precedent, the nature of the receipt was held to depend on the facts of the case, and in this case the mesne profits were found to be revenue in character.

Conclusion: The mesne profits were held to be taxable revenue receipt and not capital receipt; the finding was against the assessee.

Ratio Decidendi: Mesne profits awarded for continued unauthorised occupation of an immovable property, where the capital asset remains intact and the payment represents compensation in lieu of rent that would otherwise have accrued, constitute revenue receipt chargeable to tax.

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