TaxTMI 
TaxTMI 
2008 (2) TMI 817
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....onsequently, in confirming the Assessing Officer' s order bringing the same to tax. (2) The Commissioner of Income-tax erred in holding that as per the decisions in P. Mariappa Gounder v. CIT [1998] 232 ITR 2 (SC) and Deputy CIT v. Sardar Exhibitors P. Ltd. [2005] 1 SOT 918 (Delhi) mesne profits constitute taxable revenue receipts. (3) He further erred in this connection in holding that paragraphs 28 to 31 of the Tribunal' s order dated December 16, 2004, pertaining to block assessment were not the operative parts of the Tribunal' s order and therefore, can only be construed as obiter dicta and not ratio decidendi. (4) The learned Commissioner of Income-tax (Appeals) further erred in this connection in enhancing the assessed income by Rs. 1,18,75,000. (5) The appellant prays that the impugned addition of Rs. 34,57,01,137 be demolished as unlawful, illegal and invalid and consequently, held to be null and void. (6) The learned Commissioner of Income-tax (Appeals) erred in sustaining the levy of interest under sections 234B and 234C of Rs. 4,49,59,291 and Rs. 43,302 respectively. (7) The appellant craves leave to add to and/or amend and/or delete and/or modify....
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....me to be taxable in the assessment year 1963-64. In these premises, it was contended that the judgment of the Madras High Court regarding the issue of taxability of the mesne profit did not merge in the judgment of the hon'ble Supreme Court. Reliance was placed on the judgment of the Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 245 ITR 360, wherein it was held that subject-matter of the two proceedings must be identical for applying the theory of merger. The Division Bench considering the above judgment observed "it is difficult for us to concur with the view expressed by the hon'ble Special Bench in the case of Sushil Kumar & Co. (supra)" . Consequently, reference under section 255(3) of the Act was made to the hon'ble President, Income-tax Appellate Tribunal, for constituting the Special Bench to resolve the controversy. In pursuance of the recommendation of the Division Bench, the hon'ble President vide order dated August 7, 2006, constituted a Special Bench of three Members to resolve the controversy referred to in the question mentioned earlier by us. 3. The Special Bench, constituted by three Members, heard the matter. Vide order dated April 13, 2007, i....
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.... our attention to the judgment of the Madras High Court as well as the judgment of the hon'ble Supreme Court in the case of P. Mariappa Gounder [1998] 232 ITR 2 to point out that two references were made to the hon'ble High Court-one related to the character of the mesne profit whether capital, or revenue receipt and the other related to the year of taxability. The Madras High Court held that the mesne profits decreed by the Supreme Court constituted as revenue receipt and, therefore, it was chargeable to tax. Thus this reference was decided against the assessee. In respect to the other references at the instance of the Revenue it was held that income was chargeable to tax in the assessment year 1963-64. Thus, the issue arising from the Revenue' s references was also decided against the assessee. However, the appeal by the assessee was preferred only in respect of the year of taxability and the hon'ble Supreme Court decided the issue against the assessee by holding that the mesne profits accrued in the assessment year 1963-64 as is apparent from the judgment of the apex court. On these facts it was vehemently pleaded by Mr. Dastur that the nature of the mesne profit was not the....
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....ment of the Supreme Court it was charged to tax in the assessment year 1963-64. Again the High Court judgment says that the Appellate Assistant Commissioner, on appeal, held that it was chargeable to tax in the assessment year 1963-64 while as per the judgment of the Supreme Court the Appellate Assistant Commissioner held it to be taxable in the assessment year 1964-65. Further, the High Court judgment says that on further appeal the Tribunal held it to be taxable in the assessment year 1959-60 while as per the Supreme Court judgment the Tribunal held it to be taxable in the assessment year 1963-64. 8. When such conflict was put to learned counsel for the assessee, it was clarified by him that two appeals were preferred before the Tribunal i.e., one against the order relating to the assessment year 1964-65 which was the initial order of assessment and the second appeal against the order of assessment for the assessment year 1963-64 which was the reassessment proceedings under section 147 of the Act as the Income-tax Officer had reopened the assessment on the basis of the order of the Appellate Assistant Commissioner relating to the assessment year 1964-65. In order to clarify the ....
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....assessment year 1964-65. The Income-tax Officer held that the mesne profits constituted the assessee' s taxable income and was chargeable to tax in the assessment year 1964-65 on receipt basis. On appeal, the Appellate Assistant Commissioner held it to be taxable in the assessment year 1963-64 since the mesne profits accrued on December 22, 1962, when it was quantified by the trial court. On further appeal, the Tribunal held that the mesne profits were taxable as income but took the view that the mesne profits should be deemed to have been accrued the moment the Supreme Court declared the assessee' s right thereto which was in the previous year ending on March 31, 1959, the relevant assessment year 1959-60. In the meanwhile, the Income-tax Officer reopened the assessment for the assessment year 1963-64 under section 147 on the basis of the order of the Appellate Assistant Commissioner pertaining to the assessment year 1964-65 and consequently assessed the same in the assessment year 1963-64. On appeal, the Appellate Assistant Commissioner held it to be taxable in the assessment year 1964-65. On further appeal, the Tribunal held it to be taxable in the assessment year 1963-6....
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....esne profits accrued to the appellant on April 22, 1958, when this court decreed the suit of the appellant and held that he was entitled to receive the mesne profits. Learned counsel submits that as the right had accrued on that day, merely because the quantification of the same, was postponed, it would not mean that the income accrued only at the time when the trial court computed the amount of mesne profits." 15. On the other hand the contention on behalf of the Revenue was noted as below (page 5) : "Shri Ahuja, learned counsel for the respondent, however, sub mitted that with the passing of the decree by this court the appellant only got an inchoate right and his right to receive the mesne profits got ascertained only when the trial court had determined the amount on December 22, 1962." 16. Thereafter the hon'ble court discussed the legal position regarding the date of accrual of income in the light of Order XX, rule 12 of the Code of Civil Procedure, the decision of the hon'ble High Court of Andhra Pradesh in the case of Khan Bahadur Ahmed Alladin and Sons v. CIT [1969] 74 ITR 651 and the judgment of its own court in the case of CIT v. Hindustan Housing and Land Development....
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..... However, these shares stood in the name of S. N. Saharia, karta of the Hindu undivided family, in the register of shareholders of the company. The said company advanced loan to three concerns run by the assessee Hindu undivided family and the same was treated as deemed dividend in the hands of the assessee Hindu undivided family under section 2(6A)(e) of the Indian Income-tax Act, 1922 (" 1922 Act" ) by the Income-tax Officer for the assessment years 1955-56 and 1956-57. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner as well as the Tribunal. At the instance of the assessee six questions were referred by the Tribunal for the opinion of the High Court which inter alia included the following question (page 4) : "Whether, on the facts and in the circumstances of the case, and on a true interpretation of the terms of section 2(6A)(e) of the Indian Income-tax Act, 1922, the Tribunal was right in holding that the amounts of Rs. 2,21,702 (gross) and Rs. 3,43,505 (net) were taxable as dividends in the hands of the applicant, Hindu undivided family, for the assessment years 1955-56 and 1956-57, respectively, when the shares were registered in th....
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....d the contention of the Revenue by observing as under (page 6 of 122 ITR) : " . . . The most important circumstance which it ignores is that when the reference was first heard by the High Court, the first question was decided in favour of the assessee on two counts : one was that, since the assessee was not a registered shareholder of the company, the loans advanced to the three business concerns of the asses see could not be regarded as ' deemed dividend' within the meaning of section 2(6A)(e) and the other was that even if they could be treated as ' deemed dividend' under section 2(6A)(e), they could be taxed only in the hands of S. M. Saharia, the registered shareholder, and not in the hands of the assessee who was merely a beneficial owner of the shares. When the Revenue preferred an appeal against the judgment of the High Court, the Revenue should have assailed the decision of the High Court in both its limbs, but through some inadvertence, which is difficult to understand, the Revenue challenged only the second limb of the decision ignoring completely the first. The result was that the decision of the High Court that the amounts of loans advanced to the thre....
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....n authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. State of Orissa v. Sudhansu Sekhar Misra, AIR 1968 SC 647. In Ambica Quarry Works v. State of Gujarat [1987] 1 SCC 213, it was held that ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides and not what logically follows from it. Similarly, in Sun Engineering Works P. Ltd. [1992] 198 ITR 297 it has been held by the apex court that a decision of the Supreme Court takes it colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision. In view of these judgments, it cannot be said that in the case of P. Mariappa Gounder [1998] 232 ITR 2, the hon'ble Supreme Court adjudicated the issue regarding the nature and character of the mesne profit. The judgment of the apex court is restricted only to the issue regarding the year ....
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....g known as ' Beach View' at Warden Road, Mumbai. This property was given by the assessee on leave and licence basis to another company promoted by Narang family namely, Narang International Hotels Pvt. Ltd. (NIHPL) for a period of 11 months under an agreement dated February 13, 1990. Under the agreement, the licencee i.e., NIHPL, could use and occupy the premises for carrying on the business of selling fast food under the name ' Croissants' subject to payment of com mission by way of certain percentage of sales proceeds received by NIHPL. (b) Within a period of few months, the dispute arose between the members of Narang family in respect of the properties owned and held by the individual members of the family as well as through various partner ship firms and companies promoted by the members. A family settlement was arrived at on July 12, 1990, which, inter alia, provided that Rajesh Narang shall takeover the assessee-company namely, Narang Overseas Pvt. Ltd. (NOPL) exclusively both at Bombay and Delhi with all its assets and liabilities. (c) A suit (bearing No. 8079/90) was filed in the Bombay civil court in the year 1990 by NIHPL against the assessee-company s....
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....er dated August 24, 1993, in pursuance of the order of Chavan J. in first appeal No. 591 of 1993 be paid over to the petitioner on their furnishing security to the satisfaction of the trial court." On April 28, 1994, the hon'ble High Court passed further orders directing NIHPL to deposit further amount of Rs. 10,00,000 in the trial court within two weeks towards the arrears of compensation and permitted the assessee to withdraw the said sum as also further monthly deposits on the condition that NOPL shall give a written undertaking to the hon'ble High Court by April 27, 1994, to the effect that NOPL shall not in any manner dispose of or encumber the suit property. On giving the said undertaking, NOPL was permitted to withdraw the UTI bonds given as security earlier. NOPL was also required to make a statement that they shall give all necessary co-operation for renewal of various statutory licences necessary for running business by NIHPL. NIHPL shall intimate in writing to NOPL the requirements in this respect. (g) On July 2, 1994, Mr. Rajesh Narang, the director of the assessee-company, lodged a suit number 3578 of 1994 in the Bombay High Court, inter alia, seeking specific perf....
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....d on or before January 1, 2002, and that the company agrees and undertakes to simultaneously pay to Narang Overseas Pvt. Ltd. Rs. 2,61,745 (rounded off) being arrears of commission for occupation of the said premises till March 31, 1992, along with interest at the rate of 21 per cent. per annum till December 31, 2001, amounting to Rs. 16,84,487 and further agrees and under takes to simultaneously pay damages and mesne profits for wrongful use and occupation of the said premises at the rate of Rs. 10,00,000 per month from April 1, 1992, till December 31, 2001, along with interest at the rate of 21 per cent. per annum amounting to Rs. 34,57,01,137 (less amount already paid through the court of Rs. 1,10,00,000)." (i) Accordingly, the assessee-company got vacant possession of the said shop premises and received Rs. 33,47,01,137 on December 21, 2001, (as Rs. 1,10,00,000 had been received over the years pursuant to interim order of the Bombay High Court per paragraph 6 above). 26. The assessee-company did not offer the aforesaid amount as income in its return for the year under consideration since it was of the view that the damages/mesne profits received were on capital account and w....
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.... 49,411,814 290,206,166 April to Dec. 2001 9,000,000 299,206,166 46,467,971 345,701,137" 27. In the course of the assessment proceedings, the Assessing Officer asked the assessee to explain as to why the amount received as per the Supreme Court order should not be considered as revenue in nature and as such why it should not be taxed as income in the year under consideration. The assessee vide letter dated September 30, 2004, submitted as under : "As regards your query, regarding amount received as per the Supreme Court' s order, we state that in or about 1989 disputes were arisen between the members of Narang family. The said dispute were resolved in terms of family settlement complaints of dated : July 12, 1990, July 9, 1991 and January 30, 1992. There was a disputes in Narang family regarding implementation of family settlement. There fore, the assessee-company had filed a suit bearing No. 3578/94 before the Bombay High Court for specific performance of family settlement dated : July 12, 1990, July 3, 1991 and January 30, 1992. We are attaching herewith the suit No. 3578/94. There were several litigations which were finally settled/resolved in terms of the decree b....
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....ficer was of the view that the amount received by the assessee was in the nature of revenue. Such view was formed after considering the various decisions mentioned by him in his order from pages 19 to 25. 31. The order of the Assessing Officer was challenged before the learned Commissioner of Income-tax (Appeals) who after considering the contentions raised on behalf of the assessee as well as the reasons recorded by the Assessing Officer, recorded various findings mentioned hereinafter. Firstly, it was held by him that the amount received by the assessee under the consent decree passed by the apex court represented mesne profits as against the finding of the Assessing Officer that it represented arrears of commission payable by NIHPL to the assessee under the agreement. The reasons for coming to his conclusion were recorded by him as under : "(i) The leave and licence agreement of February 13, 1990, prescribed maximum commission of 17.5 per cent. of sales to be paid by NIHPL to NOPL. As per details furnished by the Assessing Officer with his report dated April 12, 2005, the sales of NIHPL from the Beach View shops varied from Rs. 1.07 crore in 1994-95 to Rs. 72.60 lakhs in 2001....
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....there could be no question of the terms of the said licence agreement continuing to apply after the date of termination. As such, the amount of Rs. 10 lakhs per month cannot be referable to the compensation payable in terms of the licence agreement whether by way of commission on sales or rent. However, even if it be granted for the sake of argument that the amount in question represented arrears of commission or rent, it is noteworthy that in the case of Sardar Exhibitors [2005] 1 SOT 918 (Delhi) cited by the Assessing Officer, even arrears of rent arising from increase in rent awarded by arbitrator/court was held by the Delhi Tribunal to be mesne profits. The contention of the Assessing Officer that the appellant-company continued to extend co-operation to NIHPL for obtaining the statutory permissions and getting the various licences for carrying on business in the said shops renewed, shows that the business was continuing after March 31, 1992, with the indulgence of the appellant company in my opinion, is untenable. The undisputed facts are that the appellant-company was pressing NIHPL hard for vacating the shops in question. That is the reason why NIHPL, through Suit No. 8079....
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....rious court battles. The litigation came to an end with Ramesh Narang charging his own father, Shri Rama Narang, for contempt of the court and actually getting him declared a contemnor by the hon'ble Supreme Court. Surely, all this does not indicate collusiveness between the parties in obtaining the consent decree from the hon'ble Supreme Court. (iii) The facts clearly show that Shri Rajesh Narang and the appellant company through family settlements and law suits was pressing for the eviction of NIHPL from the Beach View shops on the ground that the occupation of the said shops by NIHPL after April 1, 1992, was unauthorised and illegal. It is on this ground that the appellant claimed mesne profits/damages in its Letters Patent Appeal No. 43 of 1994 and in Suit No. 3578 of 1994 filed before the hon'ble Bombay High Court. That indeed being the case, I quite agree with the appellant that the mesne profits/damages sought was for illegal deprivation of the shop premises by NIHPL and the damages sought had no relation to the compensation under the leave and licence agreement of February 13, 1990. In this view of the matter, I am unable to agree with the Assessing Officer that there was....
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....esh Narang before the hon'ble Bombay High Court. In this suit Shri Rajesh Narang had, inter alia, claimed mesne profits at the rate of Rs. 10 lakhs p.m. This claim has been decreed by the hon'ble Supreme Court. The effect of this decree is the same as that of any other binding order of the court. As has been pointed out by the appellant, it has been held by the hon'ble Bombay High Court in Anant Chunilal Kate v. ITO [2004] 267 ITR 482 that a decree in terms of the settlement arrived at by the parties before the court has the same binding force as any other decree." 32. Coming to the legal issue whether the amount received by the assessee represented the capital receipt or revenue receipt, the learned Commissioner of Income-tax (Appeals) observed that the majority of the High Court decisions were in favour of the assessee inasmuch as it was held by several High Courts that mesne profits constitute capital receipt. However, it was further observed by him that the judgment of the Madras High Court in the case of CIT v. P. Mariappa Gounder [1984] 147 ITR 676 was in favour of the Revenue and the said judgment has been affirmed by the hon'ble Supreme Court vide judgment represented as P....
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.... chargeable to tax ?" 35. The above question has already been answered by us in the earlier part of our order. It has been held by us that the issue regarding the taxability of mesne profit was not before the apex court in the case of P. Mariappa Gounder [1998] 232 ITR 2 and, therefore, the judgment of the Supreme Court is not an authority for the preposition that mesne profit constitute revenue receipt chargeable to tax. Consequently, it is held that the learned Commissioner of Income-tax (Appeals) was not justified in holding that the apex court impliedly upheld the finding of the hon'ble Madras High Court that mesne profits tantamount to revenue receipt chargeable to tax. 36. Having held as above, the only issue which arises from the appeal of the assessee and requires adjudication by us is whether the mesne profits received by the assessee is revenue receipt or capital receipt inasmuch as the finding of the learned Commissioner of Income-tax (Appeals) that the amount of Rs. 34,57,01,137 received by the assessee amounts to mesne profits has not been challenged by the Department either by filing cross-appeals or cross-objection. However, in the course of hearing, the learned se....
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....g out since NIHPL never claimed itself as a statutory tenant or protection under the Rent Control Act. He also referred to pages 34 and 35 of the paper book to point out that the other flats owned by the assessee on the first and second floors were let out to Manu Narang and in such cases the agreements referred to the terms "monthly tenants or standard rent" etc. which are absent in the agreement between the assessee and NIHPL. This fact shows that the agreement could not be considered as lease agreement. It could only be considered as business agreement. It was submitted by him that reading of the agreement as a whole would reveal that all the attributes of business are present in this case. It was pointed out that prior to the agreement, the flats were not used for commercial purpose. As per clause 4 of the agreement, the assessee was required to obtain the permission and licences to carry on the business from various authorities. Further, TDS was deducted in the assessment year 1991-92 even though there was no provision for deducting tax at source on rent payment. This also showed that both the parties treated the payment in lieu of services and not as rent. Risk factor existed....
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....y the assessee cannot be attributed to the agreement. It has to be treated as mesne profit which accrued to the assessee as a result of the suit decreed by the High Court. It was also pointed out by him that the consideration received for the period ending March 31, 1992, had already been offered as business income and is not in dispute before the Tribunal. 40. After considering the submission of both the parties, we are unable to accept the submissions made by the learned senior Departmental representative. There is no dispute to the preposition that consideration received under the leave and licence agreement amounts to revenue receipt chargeable to tax. The assessee itself has offered the same in the assessment years 1991-92 and 1992-93 as business income as is apparent from the chart given at page 119 of the paper book. As per this chart, the assessee had shown the income of Rs. 21,23,911 and Rs. 13,87,833 in the assessment years 1991-92 and 1992-93 respectively as business income. Therefore, it is not necessary for us to adjudicate about the nature of receipt under the agreement. The dispute relates to the amount received by the assessee at the rate of Rs. 10 lakhs per month ....
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....'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 therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession." 43. In view of the above statutory definition, it is not necessary for us to look into any other definition. The above definition clearly takes within its scope any receipt against wrongful possession of property. In the present case, the amount received under the decree of the court is related to the wrongful or unlawful possession of the property by NIHPL from April 1, 1992, till handing over of the property to the assessee. Therefore, in our opinion, the same has to be treated as mesne profits. 44. Now the only question which survives in the appeal of the assessee and requires our adjudication is whether the mesne profits received by the assessee under the consent decree granted by the apex court is revenue receipt chargeable to tax or capital receipt not chargeable to tax. Learned counsel for the assessee has vehemently contended that mesne profits is in the ....
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.... the case of P.Mariappa Gounder [1984] 147 ITR 676. The emphasis is on the fact that if a property is used by someone and consideration is paid for such use of the property, then such compensation is of revenue in character and, therefore, if the mesne profit is against use of the property, even unlawfully, then it will assume the same character. Reliance was placed by him on the following decisions : (1) CIT v. Maharajadhiraj Sir Kameshwar Singh (No. 2) [1953] 23 ITR 212 (Patna) ; (2) Rai Bahadur H. P. Bannerji v. CIT [1951] 19 ITR 596 (Patna) ; (3) Gopaldas Mohta v. CIT [1951] 20 ITR 516 (Nagpur) ; (4) ITO v. Hazari Lal Marwah and Sons [1992] 41 ITD 1 (Delhi) ; (5) Kailash Narain Gupta v. CIT [1997] 225 ITR 921 (Raj) ; (6) CIT v. Vishnudayal Dwarkadas [1980] 123 ITR 140 (Bom) ; (7) Govinda Choudhury and Sons v. CIT [1977] 109 ITR 497 (Orissa) ; and (8) CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881 (SC). 47. It is also contended by him that the words "profits and gains" is not restricted to business only. It is used in other cases also. Hence, it would include mesne profits also. Reliance is placed on the following decisions : (1) Kilburn Properties Ltd. ....
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....gh Court itself has not followed, the same in subsequent judgments viz., Rai Bahadur H. P. Bannerji v. CIT [1951] 19 ITR 596, CIT v. Maharajadhiraj Sir Kameshwar Singh (No. 2) [1953] 23 ITR 212 (Patna) as well as by the hon'ble Nagpur High Court in the case of Gopaldas Mohta v. CIT [1951] 20 ITR 516. Proceeding further, it was submitted that the judgment of the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9 cannot be applied to the present case since the same stands impliedly overruled by the judgment of the hon'ble Bombay High Court in the case of CIT v. Vijay Flexible Containers [1990] 186 ITR 693. It has been submitted by him that in the above judgment, the hon'ble Bombay High Court differed from the hon'ble Calcutta High Court judgment in the case of Ashoka Marketing Ltd. [1987] 164 ITR 664 which was relied upon by the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9. In view of the above submissions, it has been prayed by him that the judgment of the hon'ble Madras High Court in the case of P.Mariappa Gounder [1984] 147 ITR 676 should be followed. 50. Rival submissions of the parties have been considered carefully in the....
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....rence, the High Court affirmed the view of the Tribunal and decided the issue against the assessee by observing as under (page 679) : "We do not think it should take us long to find the correct answer. A claim for mesne profits is usually directed against one who has deprived the true owner of possession of his property and who has thereby prevented the true owner from enjoying the income or usufruct of the property. When, in such a suit or proceeding, the court awards mesne profits to the true owner, that represents a just recompense to him for the deprivation of the income which ought properly to have come into his hands but for the interference of the person in wrongful possession of the property." 52. In the case of Rani Prayag Kumari Debi [1940] 8 ITR 25 (Patna), the facts were these. The assessee who was the widow of the deceased holder of an impartible Raj instituted a suit for recovery of all the movables and immovables left by the deceased holder against a collateral of the latter, who had taken possession of them ; and a decree was passed in 1933 awarding to the assessee (i) a number of movables, (ii) the value of such movables as could not be returned, and (iii) damag....
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.... August, 1971. While the execution of the said decree and the quantification of the mesne profits were pending, the Government requisitioned the demised property on December 24, 1979. The requisition order was challenged and subsequently a settlement was arrived at. Under the terms of the settlement, the property in question was to be acquired by the State under the Land Acquisition Act, 1894, and compensation for such acquisition was to be paid to the assessee. Apart from the compensation for acquisition of the said premises, the assessee received a sum of Rs. 2 lakhs from the State on account of mesne profits for the use and occupation of the said premises by the erstwhile tenant. While making the assessment, the Income-tax Officer assessed the said sum of Rs. 2 lakhs representing mesne profits as a revenue receipt in the hands of the assessee under the head "Income from other sources" . The Tribunal held that the mesne profits of Rs. 2 lakhs arose as a result of transfer of a capital asset and the same was assessable under the head "Capital gains" . The Tribunal held that it was also possible to determine the cost of acquisition of the asset in question which, according to the T....
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....eceipt not chargeable to tax. It may be pertinent to mention that the hon'ble court pointed out the distinction between the possession of land assumed under the provisions of the Land Acquisition Act and possession otherwise taken. In the former case, sections 16 and 17 of the Act stipulated that on possession taken the property will vest in the Government. In the absence of any such statutory provisions of law or by agreement or unauthorisedly, there is deprivation of property and therefore, interest paid by the Government is merely compensation for deprivation of property. The fact that such compensation is calculated as a percentage of interest of that amount does not affect the question. It is still compensation for deprivation of property. 56. In a later decision, the hon'ble Kerala High Court in the cases of CIT v. Mrs. Annamma Alexander [1991] 191 ITR 551 and [1993] 199 ITR 303 again made out a distinction between the "interest proper" and "damages by way of interest" by observing as under (headnote of 191 ITR) : "There is a difference between ' interest proper' and, ' damages by way of interest' . If the quality of the claim for interest is compensation, ....
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....tax. On the other hand the hon'ble High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. In our view, such conflict can be resolved only by the hon'ble Supreme Court in some appropriate case. In the absence of the judgment of the highest court of land or of the jurisdictional High Court, the legal position is that where there are two views then the view favourable to the subject should be preferred. Reference can be made to various judgments of the apex court : CIT v. Vegetable Products [1973] 88 ITR 192, CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236, CIT v. Madho Pd. Jatia [1976] 105 ITR 179, CIT v. J. K. Hosiery Factory [1986] 159 ITR 85, Smt. Shashi Gupta v. Life Insurance Corporation of India [1995] 84 Comp Cas 436, therefore, following the same, it has to be held that mesne profit received for deprivation of use and occupation of property would be capital receipt not chargeable to tax. We hold accordingly. Consequently, the decision of the S....
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....ssession otherwise taken. In the former case, sections 16 and 17 of the Land Acquisition Act stipulate that on possession being taken, the property will vest in the Government. In the absence of any such statutory provision, even when possession is assumed by the Government, whether under some provision of law or by agreement or even sometimes unauthorisedly, the view is that there has been deprivation of property and the interest paid by the Government is merely compensation for deprivation of such property. The fact that compensation that is pay able for such deprivation is calculated on a percentage of interest on that amount does not affect the question. It is still compensation for deprivation of property. This is the distinction that has been drawn by the Supreme Court in the decision of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 referred to by the Tribunal. That this distinction is real, cannot be disputed and in a later decision of the Supreme Court in T. N. K. Govindaraju Chetty v. CIT [1967] 66 ITR 465 (SC) the earlier decision is referred to and approved. In the nature and in the circumstances of this case, we are unable to hold that the amount paid to the assessee and ....
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.... relied upon by the Revenue. 64. The hon'ble Andhra Pradesh High Court in the case of J. D. Italia [1983] 141 ITR 948 also held that interest awarded was in the nature of damages and therefore, capital receipt not chargeable to tax. The decision of the Supreme Court in the case of Dr. Shamlal Narula [1964] 53 ITR 151 was also considered by the court. 65. The judgment of the hon'ble Supreme Court in the case of Dr. Shamlal Narula [1964] 53 ITR 151 is quite distinguishable on facts. In that case, the interest under the Land Acquisition Act was awarded from the date of possession till the date of payment of compensation. Their Lordships observed that under the provisions of the Land Acquisition Act, the ownership of land is vested in the Government the moment the possession is taken by the Government. Thus the money by way of compensation becomes due on the date of possession taken by the Government and thus interest is for deprivation of use of money and therefore, character of such receipt is revenue in nature. After considering this judgment of the hon'ble Supreme Court, the hon'ble Kerala High Court and the hon'ble Andhra Pradesh High Court in the cases mentioned in the precedin....
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....ncome was a revenue receipt chargeable to income-tax. In view of such concession, the court did not adjudicate upon the nature of the interest receipt. Therefore, it cannot be contended that the decision of the hon'ble Kerala High Court stood overruled by the judgment of the hon'ble Supreme Court. A judgment can be said to be overruled only when a contrary proposition is laid down by the superior court. Therefore, where the superior court did not decide the issue but proceeded on the basis of concession made by the assessee, we are of the view that the decision of the inferior court cannot be said to be overruled either impliedly or expressly. It may also be mentioned, at this stage that the judgment of the hon'ble Supreme Court in the case of T. N. K. Govindaraju Chetty [1967] 66 ITR 465, the court was concerned with the interest under sections 28 and 34 of the Land Acquisition Act, 1894 i.e., interest from the date of award till the payment of compensation. Their Lordships considered the earlier decision in the case of Dr. Shamlal Narula [1964] 53 ITR 151 (SC) wherein it was held that after the possession of land was taken by the Collector, the ownership in the land vested in the....
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.... 1, 1958, the assessee agreed to sell certain agricultural properties to one "R" for a price of Rs. 2,28,442. Since the vendee was not in a position to pay the price it was agreed that the assessee could carry out the agricultural operations on behalf of the vendee until the date of the execution of the sale deed. The assessee was also entitled to interest at the rate of 6.75 per cent. from May 1, 1958, till the execution of the sale deed. The sale deed was executed on January 25, 1959, when the entire sale price was paid along with interest of Rs. 15,083. The question arose whether such interest income could be taxed as revenue receipt. A contention was raised on behalf of the assessee before the High Court that such interest was in the nature of capital receipt in view of the hon'ble Kerala High Court judgment mentioned above. The court observed that facts in the case before the hon'ble Kerala High Court and the facts before them were different in-as-much as they were not concerned with the case dealing with the rights of the parties to receive the compensation under the Land Acquisition Act. On the contrary, they were concerned with the mutual rights between the parties under th....
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....he case of Vijay Flexible Containers [1990] 186 ITR 693. It has been submitted by him that the hon'ble Bombay High Court differed from the judgment of the hon'ble Calcutta High Court in the case of Ashoka Marketing Ltd. [1987] 164 ITR 664 which relied upon by the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9. After going through the hon'ble Bombay High Court judgment relied upon by the learned Departmental representative we are unable to accept his contention. In the case before the hon'ble Bombay High Court the assessee entered into an agreement with one Captain Dhuru, whereunder the assessee agreed to purchase an immovable property. Upon execution of the said agreement for sale, the assessee paid to the vendors the sum of Rs. 17,500 as earnest money. However, the assessee had to file a suit for specific performance and in the alternative for damages for its breach. Finally consent decree was granted in favour of the assessee for a sum of Rs. 1,17,500 and interest. The question before the High Court was whether the sum received by the assessee was capital receipt and secondly, whether the earnest money could be deducted in computing the capital gain. ....