TaxTMI 
TaxTMI 
2008 (2) TMI 817
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...., 2002, constitutes revenue receipt assessable to tax and consequently, 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 res....
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....the year in which the mesne profit could be taxed. The apex court held that the High Court rightly held the same 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....
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....000] 245 ITR 360 (SC) ; and (4) State of Madras v. Madurai Mills Co. Ltd. 19 STC 144; AIR 1967 SC 681. 5. Proceeding further he drew 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 appa....
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....gment it is mentioned that as per the Income-tax Officer the mesne profit was chargeable to tax in the assessment year 1964-65 while as per the judgment 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 reope....
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....evant to the assessment year 1963-64. However, the amount of mesne profit was received by the assessee in the following accounting year relevant to the 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 Assistan....
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...., their Lordships referred to the contentions of the parties. The contention on behalf of the assessee was noted as below (page 5) : "It is contended by Shri Balakrishnan that the right to receive the mesne 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 d....
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.... the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1. In that case the assessee was a Hindu undivided family which was the beneficial owner of certain shares in a private limited company called Shams under Tea Company Pvt. Ltd. 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 th....
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....venue conceded that this contention was not specifically raised before the court but it was submitted that it must be held to have been impliedly decided against the assessee by the earlier decision of the court. The hon'ble Supreme Court rejected 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, ....
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....udgment of the High Court which is not challenged before the apex court remains unaffected and to that extent it does not become part of the judgment of the apex court. It has been repeatedly observed by the hon'ble Supreme Court that a decision is only an 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 cann....
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....o refer to the facts giving rise to this appeal. The same are being narrated as below : (a) The assessee is a company promoted by the members of Narang family. It owns various properties including shops Nos. 3, 3A and 4 to 7 on the ground floor in the building 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 sha....
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....t appeal praying for payment of arrears and commission as well as payment of the mesne profits. On the assessee' s prayer for permission to withdraw the amounts so paid by NIHPL, the hon'ble High Court passed the following order on March 21, 1994 : "Amount deposited by respondent in pursuance of the order 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 re....
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.... Housing Society Limited, Warden Road, Bombay-400 007 stands can celled with effect from July 3, 1991, and that accordingly the said licence in favour of the company has come to an end from the said date" . Further resolved that the company does agree and undertakes to handover quite, peaceful and vacant possession of the said premises to Narang Overseas Private Limited 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 r....
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....00 41,536,650 7,567,697 49,104,347 April 95 to March 96 12,000,000 61,104,347 11,676,913 72,781,260 April 96 to March 97 12,000,000 84,781,259 16,679,064 101,095,692 April 97 to March 98 12,000,000 113,430,324 22,665,368 136,095,692 April 98 to March 99 12,000,000 148,095,692 29,945,095 178,040,787 April 99 to March 2000 12,000,000 190,040,787 38,753,565 228,794,352 April 2000 to March 2001 12,000,000 240,794,352 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 resolv....
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....ns of the various courts namely-decision of the Privy Council in Girish Chunder Lahiri v. Shashi Shikhareshwar Roy [1900] 27 IA 110, the Supreme Court judgment in the case of P. Mariappa Gounder [1998] 232 ITR 2, the Kerala High Court judgment in the case of Smt. Annamma Alexander [1993] 199 ITR 303. Finally, it was held by him that the amount received by the assessee could not be treated as mesne profits. 30. The next question posed by the Assessing Officer was whether such receipts could be treated as revenue receipts or capital receipts. The Assessing Officer 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 p....
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....der the third family settlement of January 30, 1992. Under the later settlement, NIHPL was obliged to vacate the shops before March 31, 1992, and to pay arrears of commission till the time the shops were vacated. Based on these family arrangements, the Bombay city civil court vide its order dated June 29, 1993, has held that occupation of the shop premises by NIHPL after March 31, 1992, was illegal and unauthorised. This order as brought out by the appellant in paragraph 7.2.3 above, has indeed become final. Thus, the licence agreement having been terminated before March 31, 1992, 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/cour....
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.... hon'ble High Court and that this was without prejudice to the claim of the appellant for eviction of NIHPL from the said shop premises and for mesne profits. Thus, the continued possession of NIHPL was not because of the acquiescence of the appellant but despite the best efforts of the appellant to evict NIHPL. The facts also do not indicate any collusiveness between the parties as suspected by the Assessing Officer. Actually, the facts show, quite to the contrary, that a bitter feud raged among the members of Rama Narang family over division/distribution of assets which manifested in various 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 af....
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....rties. Therefore, the same cannot be regarded as an award of damages by the order of a court which is essential for mesne profits. However, I do not find any merit in this contention of the Assessing Officer. Just because a suit is disposed of by a consent decree it will not be any less than an award in a contested suit. In law there is no real difference between the two. Even a vigorously con tested suit may eventually end up in an out of court settlement sub sequently decreed by the court. In this instant case what has been decreed by the hon'ble Supreme Court is the Suit No. 3678 of 1994 of Shri Rajesh 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 th....
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....h Court that mesne profits constitutes revenue receipt chargeable to tax. It was also contended that decision of the Special Bench of the Tribunal in the case of Sushil Kumar and Co. is also incorrect in holding that the apex court decided the issue regarding the taxability of mesne profits. This contention of learned counsel for the assessee had resulted in constituting of larger Bench of five Members. The following question was referred to this Bench for adjudication : "Whether in the light of the decision in 232 ITR page 2 it must be held that the mesne profits received by the assessee is revenue income 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 ....
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.... "Merely because the assessee has filed an ejectment suit or the assessee is not collecting rent or occupation charges, as the case may be, which are being deposited by the tenant to the Rent Controller, it cannot be said that the annual value cannot be assessed. Whether the owner is in possession and enjoyment of the property or has let it out to a third person is not a relevant consideration for determination of the annual value of the property. The liability does not depend upon the right of the owner to enjoy or let out the property." 38. Proceeding further, it was submitted that it could not be a case of simple letting 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. ....
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....any. Rajesh Narang was to takeover the assessee-company but the agreement was not implemented. It was only in March, 1992 that shares of the assessee-company were vested in Rajesh group. Proceeding further, it was submitted that mesne profits of Rs. 34,57,01,137 did not arise from the agreement as it was terminated with effect from March 31, 1992. According to him, it arose only as a result of suit filed before the Bombay High Court in 1994 which has been upheld by the apex court. It was submitted by him that after the termination of the agreement, NIHPL was in unlawful possession of the property and therefore the amount received by 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 ....
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....e are unable to accept such contention in view of the judgment of the jurisdictional High Court in the case of Anant Chunilal Kate [2004] 267 ITR 482 wherein it has been held that consent decree has the same binding force as any other decree. This legal finding was given in view of the Supreme Court judgment in the case of Kumar Sudhendu Narain Deb v. Mrs. Renuka Biswas [1992] 1 SCC 206. Therefore, respectfully following the said judgments, the contention of the learned senior Departmental representative cannot be accepted. 42. The mesne profits has been defined in section 2(12) of the Code of Civil Procedure, 1908 as under : "(12) '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 p....
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....above were also not cited or considered by the Madras High Court. Accordingly, it was submitted that in view of the above judgment, the mesne profits received by the assessee must be held as capital receipt. Alternatively, he relied on the preposition that where two views are possible then the view favourable to the assessee should be preferred. 46. On the other hand, the learned senior Departmental representative has strongly approved the submission of learned counsel for the assessee by contending that mesne profits received by the assessee is against deprivation of the use of the property and, therefore, the receipt is of revenue nature as rightly held by the hon'ble Madras High Court in 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) ; ....
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....rt did not follow the same in the case of Vishnudayal Dwarkadas [1980] 123 ITR 140. It was further submitted by him that the hon'ble Orissa High Court in the case of Govinda Choudhury [1977] 109 ITR 497, decided that interest received, neither under the statute nor under a contract is not chargeable to tax as revenue receipt. This decision was rendered following the above Kerala High Court decision but on appeal, the apex court has decided the issue in favour of the Revenue by holding that such profit was taxable. Hence, it is pleaded that the decision of the Kerala High Court stand overruled. Further, it was contended by him that the decision of the hon'ble Patna High Court in the case of Rani Prayag Kumari Debi [1940] 8 ITR 25 is no more good law since the hon'ble Patna High 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. Lil....
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....K and put him in possession. The assessee thereupon sued his vendor for specific performance. In the said suit, K impleaded himself and ultimately the trial court decreed the suit for specific performance. The hon'ble Kerala High Court allowed the appeal of K but the hon'ble Supreme Court reversed the said decision and restored the trial court' s decree for specific performance. The court also sustained the assessee' s claim for mesne profits payable and the amount of mesne profits was fixed by the trial court in the year ending March, 1963, and paid to the assessee some time during the financial year ending on March 31, 1964. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Tribunal held that the mesne profits were taxable as income. On a reference, 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 usufruc....
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.... the hands of the assessee. On appeal, the Tribunal held that the aforesaid sum was not a revenue receipt since it was an interest paid otherwise than under the provisions of the statute. On a reference, the High Court held that interest was in the nature of damages for use and occupation or compensation for the deprivation of the use and possession of land and in either event could not be classified as a revenue receipt. 54. In the case of Smt. Lila Ghosh [1994] 205 ITR 9 (Cal), the facts were these. The assessee inherited, on the death of her husband in 1960, a property which was under a lease. The lease expired in 1970. However, the lessee did not give possession to the assessee. The assessee filed a suit for eviction and mesne profits. The suit was decreed in favour of the assessee in 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, a....
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....as High Court. In fact, even the decision of the Patna High Court in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25, and that of the Kerala High Court in CIT v. Periyar & Pareekanni Rubbers Ltd. [1973] 87 ITR 666, were neither noticed nor considered by the Madras High Court." 55. In the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 (Ker), the land of the assessee was acquired by the Government on the basis of an agreement between the assessee and the Government. Apart from the compensation, the assessee also received interest of Rs. 24,103 for the period commencing from the date of acquisition and the date of award. The question arose before the High Court was whether this interest could be treated as revenue receipt. The court held that such interest was in the nature of capital receipt 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 st....
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....le Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666, the judgment of the hon'ble Supreme Court in the case of Lucy Kochuvareed v. P. Mariappa Gounder, AIR 1979 SC 1214, as well as in the case of Mahant Narayana Dasjee Varu v. Board of Trustees, Tirumalai Tirupathi Devasthanam, AIR 1965 SC 1231, and dissented from the judgment of the hon'ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676. 58. The above analysis clearly reveals that there is cleavage of opinion between the High Courts. The hon'ble Madras High Court has held that mesne profits is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to 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....
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....n nature since it would be deprivation of use of money. 61. We are in agreement with the contention of learned counsel for the assessee. The hon'ble Andhra Pradesh High Court as well as the Kerala High Court in the cases referred to by the assessee' s counsel have considered this issue. The judgment of the hon'ble Supreme Court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 was referred to and considered by the above High Courts. The hon'ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 considered the situation where the interest was paid to the assessee up to the date of award under the Land Acquisition Act, 1894. Their Lordships held as under (page 668) : "A distinction has been drawn in relation to possession assumed under the provisions of the Act and possession 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, t....
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....ting the profit he might have made if he had had the use of the money in time, or, conversely, the loss he had suffered, because he had not had that use. If, on the other hand, the claim is for loss of property or loss of goods, or some other injury to capital and the element of interest comes in by way of estimating the compensation to be granted for such capital loss or capital injury, then, the receipt would be capital." 63. In view of the above, the High Court held that interest up to the date of award of mesne profits is nothing but damages for deprivation of use and occupation of the property and thus receipt is in the nature of capital not chargeable to tax. It may also be mentioned that their Lordships dissented from the view of the hon'ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676 which has been 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 cou....
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...., cannot be accepted for the reasons given hereafter. We have gone through the judgment of the hon'ble Orissa High Court in the case of Govinda Choudhury and Sons [1977] 109 ITR 497 wherein their Lordships, following the judgment of the hon'ble Supreme Court in the case of T. N. K. Govindaraju Chetty [1967] 66 ITR 465, held that where interest has been awarded under the statute or under the contract, the same is income exigible to tax and where it is not attributable either to the statute or to the contract but has been awarded on ex gratia basis it would partake the character of compensation. Then, it was observed that this principle has also been adopted by the hon'ble Kerala High Court in the case of CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666. On appeal, the assessee conceded before the hon'ble Supreme Court that interest income 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 w....
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....own by the hon'ble Kerala High Court. Therefore, it cannot be said that the judgment of the hon'ble Kerala High Court was commented upon by the hon'ble Rajasthan High Court. On the contrary at page 924 it was held that award of interest was under statute and therefore, it was in the nature of revenue receipt. Even the said judgment of the hon'ble Rajasthan High Court does not help the Revenue since in the present case before us interest was awarded neither under a statute nor under a contract. 69. The contention of the Revenue that the judgment of the hon'ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 was not accepted by the hon'ble Bombay High Court in the case of CIT v. Vishnudayal Dwarkadas [1980] 123 ITR 140 is also without force. In that case, in pursuance of an agreement to sell, concluded on May 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 en....
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....rt was concerned with the amount of interest on the dues recoverable from the other party. Similarly in the case of Gopaldas Mohta [1951] 20 ITR 516 the amount related to interest against non-payment of the principal amount. Therefore, in none of the cases, the compensation related to wrongful detention of the property. In the above cases the courts have distinguished the earlier decision and, therefore, the senior Departmental representative was not justified in contending the decision of the hon'ble Patna High Court in the case of Rani Prayag Kumari Debi [1940] 8 ITR 25 had not been followed in subsequent cases. 71. Mr. Gupta on behalf of the Revenue has also contended that the judgment of the hon'ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9 stands impliedly overruled by the judgment of the hon'ble Bombay High Court in the 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 IT....