TaxTMI 
TaxTMI 
2004 (8) TMI 645
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....her sources. 4. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in disallowing repair and maintenance expenses and directing allowance of repair and maintenance expenses in accordance with section 24 of the Act without prejudice and alternatively an appropriate portion of total repair and maintenance expenses incurred for bringing the property to its original and habitable position is allowable as business expenses." We have heard the learned representatives of both the parties and gone through the observations of the authorities below and the details submitted in the paper book by counsel for the assessee and case law relied upon by the learned representatives. The facts as taken from the record are that the original return of income declaring income of Rs. 21,79,770 was filed on December 29, 1999. Subsequently, the return was revised on April 11, 2000 declaring income of Rs. 11,55,450 under section 115JA. In the original return, the mesne profits of Rs. 77,87,303 were declared as taxable income whereas in the revised return, the assessee-company claimed it as a capital receipt and excluded it from its taxable inc....
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....cal wiring, painting the building, replacement of the flooring of the parking area of about 4,000 sq. ft. and repair of the boundary wall, etc. The Assessing Officer did not accept the submission of the assessee as it was capital expenditure in nature which was spent for improving the fixed assets. The Assessing Officer also observed that from the nature of the expenses incurred above, it is apparent that all the expenses have been incurred to restore the building into shape so as to increase the earning capacity. The Assessing Officer also observed that the capital expense is a non-recurring outlay whereas revenue expenditure is normally recurring outlay. The nature of the repairs carried out outrightly confirm that these are in the nature of capital expenditure. The Assessing Officer also relied upon Hylam Ltd. v. CIT [1973] 87 ITR 310 (AP). The Assessing Officer accordingly disallowed the building repair and maintenance expenses of Rs. 31,64,769. However, the Assessing Officer allowed depreciation at 5 per cent. The assessee claimed mesne profit amounting to Rs. 77,87,303 received during the year as exempt income. The Assessing Officer recorded the facts as under : The ....
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....n the above case held that it is crystal clear that because of wrongful possession, the assessee owner was prevented from enjoying the income therefrom or usufruct of the property. The Assessing Officer following the decision of the Madras High Court in the matter of P. Mariappa Gounder [1984] 147 ITR 676 held that mesne profits awarded to the assessee are revenue receipt and taxable as income. The Assessing Officer, therefore, did not accept the argument of the assessee and assessed the amount of Rs. 77,87,303 to tax under the head "Income from other sources". However, he has allowed deduction of legal expenses incurred of Rs. 3,10,000 being allowable against mesne profits. The assessee challenged the assessment order before the Commissioner of Income-tax (Appeals). It was submitted before the Commissioner of Income-tax (Appeals) that the assessee had converted different small commercial units into a totally different unit specially to meet the requirement of Indian Overseas Bank by constructing a strong room, currency chest, etc., therefore, the income received is business income rather than income from other sources. It was also submitted that in the previous years, the renta....
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....It was argued that the hon'ble Calcutta High Court has given reasons for disagreeing with the view of the hon'ble Madras High Court in support as referred to and relied upon the decisions reported in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25 (Patna) and CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 (Ker). It was also submitted that the hon'ble Calcutta High Court has held that the mesne profits received by the assessee in that case were in the nature of damages and therefore, a capital receipt. The assessee also relied upon the observation from the decisions of different High Courts as is referred to before the Assessing Officer. The assessee also took the alternate plea before the Commissioner of Income-tax (Appeals) that even if the amount received in the form of mesne profits is treated as arrears of rent, the same cannot be taxed under the Income-tax Act because section 25B of the Income-tax Act was inserted subsequently. The assessee also explained the purpose of insertion of section 25B in the Act. The Commissioner of Income-tax (Appeals) considering the facts and circumstances of the case and relying upon the decision of the hon'ble Madras High Court i....
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....lternate contention also argued that section 25B of the Income-tax Act is not applicable as it was inserted in the Income-tax Act subsequent to the assessment year involved in the appeal. Learned counsel for the assessee as such argued that the orders of the authorities below may be reversed and appeal of the assessee may be allowed. On the other hand, the learned Departmental Representative heavily relied upon the orders of the authorities below and argued that the Commissioner of Income-tax (Appeals) has taken the income of the assessee from the main source, i.e., lease rent received of Rs. 8,06,670 as income from house property as against business income shown by the assessee and the findings of the Commissioner of Income-tax (Appeals) have not been challenged by the assessee. Therefore, these findings of facts recorded by the Commissioner of Income-tax (Appeals) have become final. The learned Departmental Representative accordingly argued that the assessee is not entitled for any deduction of expenses incurred for the purpose of business as the assessee was not having any business income. The Commissioner of Income-tax (Appeals) has therefore, rightly directed that whatever ....
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.... of letting out the premises. The Commissioner of Income-tax (Appeals), therefore, directed that the income shown by the assessee is to be taken as "income from house property". The assessee has not taken any specific ground challenging the finding of the Commissioner of Income-tax (Appeals) taking it to be the income from house property. No other income is claimed and even the learned Departmental Representative during the course of argument, submitted that the assessee has not shown any business activity during the assessment year in question and this fact is not disputed by the assessee before the authorities below. Therefore, in our considered view, the Commissioner of Income-tax (Appeals) has rightly taken the income shown by the assessee as income from house property. Since there is no specific challenge to the finding of the Commissioner of Income-tax (Appeals), therefore, the Commissioner of Income-tax (Appeals) was justified in directing that whatever deductions are permissible under the head "Income from house property", be allowed as deduction to the assessee. Once no business activity is claimed, therefore, no deduction for the expenses can be allowed which is not permi....
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....possession. The suit No. 365/97/90 was decreed from the court of Sh. S. N. Dhingra, ADJ Delhi vide judgment/ decree dated July 27, 1998. The civil court decreed the mesne profits/ damages at 12 per sq. ft. per month with effect from February 1, 1990 to January 31, 1992, from February 1, 1992 at 16 per sq ft. and from February 1, 1995 at 20 sq. ft. per month, In addition to this, the assessee was also granted interest on unpaid mesne profits/damages duly withheld by the bank at 15 per cent. per annum. In compliance with the directions of the civil court, the assessee was paid a sum of Rs. 77,87,303 as mesne profits/damages and interest thereon. The assessee claimed it to be exempt from income-tax being capital receipt. However, the Assessing Officer considering the decision of the Madras High Court in the matter of P. Mariappa Gounder [1984] 147 ITR 676 held it to be revenue receipt and taxable as income. Since the suit was decreed in the financial year relevant to the assessment year in question, on July 27, 1998 and the amount was also received in the financial year, therefore, it was taxed in the assessment year in question. However, the Assessing Officer has taken it to be "i....
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....is that the trespasser or the person in wrongful possession not only defies the title of the true owner, but also prevents the true owner from enjoying the income or the usufruct of the property in question. When, therefore, the court decrees mesne profits, that decree is in recognition of the position that the true owner is entitled to the income from the property and the person in wrongful possession is to compensate the true owner in that regard by paying either the actual income from the property or a reasonable estimate of that income. Having regard to these characteristics of mesne profits, there can be no doubt that they are also a species of taxable income. Under the scheme of the Income-tax Act, anything which can properly be regarded as income and which is not expressly exempted from taxation under a specific provision of the statute must be regarded as taxable income. We are, therefore, satisfied that the Tribunal and the other authorities were right in their view that mesne profits has to be assessed as taxable income in the hands of the present assessee." The second question was answered by the Madras High Court as was held by the Appellate Assistant Commissioner wh....
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....s. These facts clearly proved that whatever amount was received by the assessee was shown as income but we are concerned with the assessment year under appeal in which the assessee has shown the business income in a sum of Rs. 8,06,670, being lease rent received during the financial year relevant to the assessment year under appeal which was taken as income from house property by the Commissioner of Income-tax (Appeals) and his findings are not challenged. The finding of the Commissioner of Income-tax (Appeals) and the findings of the civil court show that what the assessee has received by way of mesne profit was the enhanced income of the assessee for use and occupation of the tenanted premises by the lessee bank. Therefore, the learned Departmental Representative rightly contended that the assessee claimed for enhancement of the rent by way of mesne profit. The learned Departmental Representative also rightly contended that there is no case for loss of capital asset. The learned Departmental Representative also rightly contended that the assessee received mesne profit being loss of income. The hon'ble Madras High Court in the matter of P. Mariappa Gounder [1984] 147 ITR 676....
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....provides that the annual value of the property of which the assessee is the owner shall be chargeable to Income-tax Act under the head "Income from house property". Section 23(1)(a) of the Income-tax Act provides how annual value is to be determined and provides that for the purposes of section 22, the annual value of the property shall be deemed to be-(a) the sum for which the property might reasonably be expected to let from year to year. The assessee as per the contract (stated in the assessment order) with the lessee banker was entitled for higher rate of rent which the banker did not comply. The assessee claimed mesne profit at the higher rent as was applicable in the nearby locality as per the latest rates prevailing in the market. The civil court accepted the evidence of the assessee and granted higher rate of mesne profit which was prevailing in the market nearby the tenanted/suit premises. The tenancy was terminated with effect from January 31, 1990 and the civil court granted enhanced rate of mesne profit with effect from February 1, 1990 till the decree satisfied and payment is made of the decreed amount. Therefore, the sum which was granted by the civil court as mesn....
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....e of compensation for loss of profits and hence revenue income." [This decision is directly applicable to this case along with the decision of the Madras High Court in the matter of P. Mariappa Gounder [1984] 147 ITR 676]. Learned counsel for the assessee relied upon the following decisions : 1. Decision of the Kerala High Court in the case of CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666. In this case, the property was compulsorily acquired by the Government and therefore, held that interest paid was a capital receipt. This case is clearly distinguishable on facts. 2. Decision of the Patna High Court in the matter of CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25 in which the facts are distinguishable as the amount in question was received by the assessee as damages for wrongful detention of movable properties of the assessee. 3. Decision of the Kerala High Court in the case of Smt. Annamma Alexander [1993] 199 ITR 303 in which the assessee claimed mesne profits and also damages for the waste committed by the trespassers in cutting down some trees. The facts are clearly distinguishable. 4. Decision of the Kerala High Court in Mrs. Annamma Alexander....
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....TR 676 considered the different facts. Therefore, with great respect to the decision of the hon'ble Calcutta High Court, we do not propose to rely upon the aforesaid judgment as the mesne profits are always at the discretion of the court, depending upon the nature of evidence available on record and more particularly the facts in the case of Smt. Lila Ghosh [1994] 205 ITR 9 (Cal) are altogether different to the facts under appeal. Counsel for the assessee heavily relied upon this decision as in this decision the case of the Madras High Court in the matter of P. Mariappa Gounder [1984] 147 ITR 676 was dissented from. The Commissioner of Income-tax (Appeals) referred to the facts in this case. This decision was rendered on January 18, 1993. However, the hon'ble Madras High Court in its subsequent decision in the matter of S. Kempadevamma [2001] 251 ITR 871 delivered the contrary decision in favour of the Revenue on the identical facts vide judgment dated November 27, 2000. The later decision of the Madras High Court is clearly binding in nature. The hon'ble Madras High Court delivered this judgment after the decision of the Calcutta High Court. The decisions of the hon'ble Madras Hig....
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....plicable from the assessment year 2001-02. The Commissioner of Income-tax (Appeals) also observed that there is no need to mention section 25B as is pointed out as if we look at the scheme of section 25B. The Commissioner of Income-tax (Appeals) found that this particular section does not bring any novel idea. The view of the Commissioner of Income-tax (Appeals) had been that it only sets at rest the doubts in the area regarding taxation of such income. Such incomes like arrears of rent have been taxed in the past also. According to the Commissioner of Income-tax (Appeals), section 25B of the Income-tax Act only sets at rest the controversy in this area and it is crystal clear that such incomes are rightly taxable. The Commissioner of Incometax (Appeals), therefore, held that alternate plea of the assessee would be of no help to the assessee. It is an admitted fact that mesne profits were computed and settled by a decree of the civil court vide decree dated July 27, 1998. The assessee also admittedly received the mesne profit from the lessee banker in the financial year relevant to the assessment year in question. Therefore, the computation and receipt of the mesne profit are ad....