TaxTMI 
TaxTMI 
2023 (1) TMI 1514
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.... The learned Commissioner (Appeals) erred in sustaining the addition made by the Assessing Officer (AO) amounting to Rs. 1,31,49,000 being amount received as mesne profits. 2. The learned Commissioner (Appeals) erred in not appreciating the fact that mesne profits was received under the decree of the Court and it was awarded for deprivation of use of property and thus, it is a capital receipt not chargeable to tax. 3. Will take up appeal for the AY 2014-15 and our finding given in this year will apply mutatis mutandis for the AY 2015-16 also. 4. The facts in briefs qua the issue involved are that, during the previous year relevant to A.Y. 2014-15, the Assessee received sum of Rs 6,31,49,000/- as mesne profits from SBI. As per the order of the Court of Small Causes, Mumbai, whereby SBI was ordered to pay compensation for the wrongful possession of the property. In the return of income filed u/s 139(1), Assessee had shown the Mesne profit received at Rs. 6,31,49,000/- as rental income and offered to tax under the head, "Income from house property" against which it claimed deduction u/s 24(a) at the rate of 30% and offered Rs. 4,42,04,300/- for tax. During the course of....
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....interest thereon was rejected by Hon'ble Court. Also claim of SBI regarding protection against eviction under provision of Maharashtra Rent control Act, 1999, was rejected by the court and also the plea of SBI that it is a Bank and provision of aforementioned act are not applicable to the premises let out to Bank. Notice dated 10/11/2006 given by the Assessee to the SBI for termination of tenancy of the premises was held legal and valid as SBI was in unlawful/ illegal possession of the said premises from 01/12/2006 onwards till SBI handed over possession of the same to Assessee. In lieu of order dt. 6th November 2009, the assessee filed Mesne Profit (Misc. Application) No. 3 of 2010 in TE & R. SUIT No. 13/16 of 2007 against SBI in May 2010 along with Architect and Valuer, Mr. Roshan Namavati's Report in respect of mesne profit payable by SBI to Assessee from 1st Dec '2006 onwards. 8. On 7th January 2014, the assessee and SBI agreed upon an out of court settlement and filed consent terms with the Hon'ble Court. On 5th February 2014, Hon'ble Judge of Small Cause Court passed order in Mesne Profit (Misc. Application) No. 3 of 2010 in view of settlement between b....
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....pon by the Assessee and the Assessing Officer, noted that there are, various judgments favoring both the sides, wherein in some it was held as revenue receipts chargeable to tax and others treated to be capital receipts not chargeable to tax. 12. Ld. CIT (A), further observed that the assessee received two tranches of payment and the character of the two payments received are significantly different. The payment received of Rs. 5 crores for the period 1.12.2006 to 30.12.2012 is a lump-sum payment which was received by the assessee as a compensation paid for deprivation of capital asset and the balance Rs. 1,31,49,000/- as additional mesne profits at the rate of Rs 180 per sq. ft. for 4870 sq ft. per month w.e.f. 1" January, 2013 till the date of entering into new premises. 13. After going through the orders of the court and various observations made there and analyzing the various judgments, he held and observed as under :-. 21. Thus, after reading the court's order it is clear that the payment received by appellant for the period 30.11.2006 to 31.12.2012 is in the nature of Mesne profits, which is clear from the definition of Mesne Profits' under section 2(1....
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....Uberoi Sons (Machines) Lid (supra). The same is a decision of a co-ordinate bench of this court, and we are bound by that decision. We have not been persuaded by the submissions of Mr Jagia to take a contrary view. Therefore, We reject the appellant's reliance on Smt. Leela Ghosh (supra)." 15. On the another hand, the Ld. Counsel, for the Assessee submitted that, the observation of the Hon'ble High Court, has not been approved by the Hon'ble Supreme Court on the issue in hand. The issue before the, Hon'ble Supreme Court in the case of, P. Mariappa Gounder 232 ITR 2, was only year of taxability and not the issue whether mesne profit is taxable or not? Although, the point of reference before the Hon'ble Madras High Court in P. Mariappa Gounder case was following; "(1) Whether mesne profits, decreed by a court of law, can be held to be taxable income in the hands of the decree holder? (2) The other question is about the relevant year in which mesne profits are to be charged to income-tax?" 16. He further, referred to the various observation of the Ld. CIT (A) as well as the submissions made before him. Thus, he submitted that; (a) B....
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....edure, 1908 as 'those profits is the person in wrongful position of such property actually received or might with ordinary diligence have received there from, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession'. In short, it means a any receipt against wrongful possession of property. The term 'mesne profits' relates to the damages or compensation recoverable from a person who has been in wrongful possession of immovable property. The Mesne profits are nothing but a compensation that a person in the unlawful possession of others property has to pay for such wrongful occupation to the owner of the property. The definition of 'Mesne Profits' under section 2(12) of Code of Civil Procedure 1908 clearly takes within it scope any receipt against wrongful possession of property. The nature of deprivation suffered by the assessee is crucial for the purpose of determination of nature of receipt of mesne profits. Where the compensation is paid for deprivation of capital asset, or source of income, it would be a capital receipt in the hands of recipient of the compensation. 19. In short....
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..../ subject premises and also recovery of some amounts. As on that date, SBI was still operational from the same/ subject / said premises, which was leased to it in year 1968 of Area admeasuring 4870 sq. ft. SBI, Vile Parle (East) Branch was in illegal Occupation of Same / subject premises for period 30th June 1998 till 30th July 2015 as Lease Deed/ Agreement dated 3rd July, 1990 had already expired on 30th June, 1998. 6 6th Nov,2009 The Hon'ble Court of Small Causes at Bombay (Bandra Branch) passed an order and asked SBI, Vile Parle (E), Branch to handover vacant possession of the said / subject / same/ premises to us (Owner) along with some other directions in TE & R Suit No: 13/16 of 2007. As on that date, SBI was still operational from the same subject/ said premises, which was leased to it in year 1968 of Area admeasuring 4870 sq. ft. SBI, Vile Parle (East) Branch was in illegal Occupation of same / subject premises for period 30th June 1998 till 30th July 2015 as Lease Deed / Agreement dated 3rd July, 1990 had already expired on 30th June, 1998. 7 May 2010 In view of the order dated 6th November, 2009 of the Hon'ble Court of Small Causes at Bombay (Ban....
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....anch, finally handed over vacant possession of the said / subject/ same Suit premises of Area admeasuring 4870 sq. ft on Ground floor/ First floor / Basement to us (Owner) for first time since 12th December. 1968 and shifted it's entire operations to New Premises admeasuring 2705 sq. ft. on Ground Floor & First Floor constructed/developed by us (owner) on same plot of Land after execution of fresh Lease Deed / Agreement dated 6th August, 2015 for lease period starting from 1st August, 2015 on Revised Lease Rental of Rs. 280/- per sq. ft. per month payable by them to owner (us) along with other Terms & Conditions. 20. From the above event, it is seen that SBI was occupying the premises of area admeasuring 4870 sq. ft. from the period of 3rd June, 1998 till 30th July, 2015, even though leased had already expired on 30th June, 1998. The Court had awarded amount of Rs. 5 core and Rs. 180 per sq. ft per month with effect from the 1 Jan, 2013 was paid to the assessee for illegal occupation of the premises of the SBI. Whenever decree for, mesne profits is passed, the real owner is compensated for the deprivation of the sums that are rightfully his. It is kind of compensation for th....
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....or the period from 01 12 2006 till plaintiff gets vacant and peaceful possession of suit premises. However an enquiry is directed under order 20 Rule 12 of Code of Civil Procedure for determination of Mesne profits for the above period. 4. The claim of the plaintiff for difference in rent amounting to Rs. 2,25,75,226/- is dismissed." 22. Thus, the difference in rental amount was clearly rejected by the Court and gave very clear cut finding that, no arrear rent is payable to the Assessee in absence of rent agreement. What the court has directed was purely mesne profit on account damages for property being illegally occupied by the SBI. After, two different order dated, 07.01.2014 & 18.01.2014, the Assessee received Rs. 5 crore, as one time lump sum payment for the period of 01.12.2006 to 31.12.2012, but another sum of Rs. 1,31,49,000/- was given separately for the period 01.01.2013 to 31.01.2014 which was on the basis of some calculation per sq. ft area. No way, the court has said it is compensation of an arrear rent for this period. This in our opinion, even this amount of Rs, 1,31,49,000/- is similar to the lump sum payment of Rs. 5 crore and purely in the nature of me....
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....r (Supra), has considered and distinguished the view taken by the Hon'ble Madras High Court in P. Mariappa Gounder case in the following manner :- "The decision of the Madras High Court in P Mariappa Gounder's case (supra) at p. 681 prima facie supports the plea of the revenue that mesne profits awarded by the Court for wrongful possession are liable to be assessed as income. The discussion is contained in p. 681 With great respect to the learned Judges, who rendered the said decision, we are of the view that the said decision fails to give due effect to the decision of the Judicial Committee of the Privy Council in Girish Chunder Lahiri's case (supra) and the decision of the Supreme Court in Lucy Kochuvareed's case (supra) at p. 158, para 24. It is also not in accord with the earlier Bench decision of this Court in Periyar & Pareekanni Rubbers Lid's case (supra) and the decision of the Patna High Court in Rani Prayag Kumari Debi's case (supra). To the extent the said decision of the Madras High Court holds that mesne profits awarded by the Court for wrongful possession are liable to be assessed as income, we express our respectful dissent, in view ....
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....the person who is in wrongful possession is to compensate the true owner by paying either the actual income from the property or a reasonable estimate of that income. Consequently, the mesne profits are also a species of taxable income. 18. With great respect to the learned Judges, we could not persuade ourselves to agree with the views expressed by the Madras High Court in the aforesaid decision so far as it holds that mesne profits awarded by the Court for wrongful possession are liable to be assessed as income. Neither the decision of the Privy Council in Girish Chunder Lahiri's case (supra) nor the decision of the Supreme Court in Lucy Kochuvareed's case (supra) was either cited or noticed by the learned Judges of the Madras High Court. In fact, even the decision of the Patna High Court in Rani Prayag Kumari Debi's case (supra) and that of the Kerala High Court in Perriyar & Pareekanni Rubbers Ltd.'s case (supra) were neither noticed nor considered by the Madras High Court. In our view, on the facts of this case, the Tribunal was justified in holding that the mesne profits of Rs. 2 lakhs received by the assessee in this case were in the nature ....