TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 251
X X X X Extracts X X X X
X X X X Extracts X X X X
.... continued to occupy the property for which assessee filed a suit for possession and also sought relief of mesne profits for wrongful possession. The case of the assessee is that Hon'ble Delhi High Court hearing the suit of assessee granted interim relief to the assessee vide order dated 27.09.2013 & 19.09.2014. Thereafter on 08.04.2015 Hon'ble High Court provided final relief to the assessee and directed lessee SBI to vacate the property and pay a mesne profit of INR. 2,92,00,000/- to the assessee for the period 01.08.2010 to 30.09.2015. During the Assessment Year 2016-17 the assessee received Rs. 1,62,40,000/- as part of the mesne profits and remaining amount was received in earlier years. In the revised return filed by the assessee the aforesaid amount of mesne profits was claimed as non-taxable income, however, Assessing Officer made an addition of same observing that the mesne profit is received in lieu of deprivation of potential income and thus chargeable to tax and revenue receipts and this has been sustained by the CIT(A). 3. The ld. Counsel has relied the decision of Mumbai Tribunal in the case of ACIT Vs. Amrut Enterprises in ITA No. 1215/Mum/2020 and reliance in this....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ords, in this case, the assessee was not the true owner of the asset against which the compensation was received." The Court has also admitted the aforesaid distinction in its order. Refer relevant extract below: "8. Mr. K. Srinivasan, the learned counsel for the assessee, referred to a few reported cases dealing generally with payment of compensation for depriving taxpayers of their properties. Those cases are distinguishable on the ground that the deprivation suffered by the assessees therein was of capital assets of which the assessees were the true owners. In the present case, the award of mesne profits is an award of compensation for the true owner's deprivation of the yearly income from the property, which is a different thing altogether." Whereas, in the instant case, the Appellant is the true owner of the capital asset against which damages / mesne profit has been received by the Appellant. b. Hon'ble Delhi High Court in CIT v. Uberoi Sons (Machines) Ltd. [2012] 26 taxmann.com310 (Delhi) Ld. CIT(A) has predominantly relied upon the aforesaid decision stating that the jurisdictional high court has already held that mesne p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made by the person in wrongful possession." 6. We are of view that Mesne profit under Civil Law is a manner of restitution and based on principle of compensation for unjust enrichment. Mesne profit is claimed and granted by Civil Courts' where a person is found to be in wrongful possession of a property and this wrongful possession can be by way of over staying the possession received as a tenant or under a license or lease. At the same time this wrongful possession can be by way of encroachment or trespass where the person in wrongful possession gets into the possession without consent of the owner or landlord. 6.1 The distinction in these two concepts of wrongful possession is relevant to the issue before us only to understand that when the wrongful possession arises out of cases of initial entry in possession being out of any contract of tenancy etc. then the mesne profit are reasonably calculated on the basis of rent and charges but where the wrongful possession is by way of a illegal entry in the form of encroachment or trespass otherwise, and not under a contract of tenancy or lease etc., then the mesne profit are in the nature damages ascertained on the basis of loss ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sideration. "Whether in the facts and circumstances of the case and in law, the ITAT was right in taxing mesne profit and interest on mesne profit received at the discretion/ directions of Hon'ble Civil Court in suit No. 814/90 for unauthorized occupation of immovable property by Indian Overseas Bank, under Section 23(1) of Act." 9. We observe that the plea with regard to year of taxability was in fact a plea in the alternate because Hon'ble Delhi High Court observed in para 8 as follows: "8. The assessee also raised an alternate prayer before the CIT(A) that, even if the amount received in the form of mesne profits is treated as arrears of rent and income, the same could not be treated as income derived in the previous year in question merely because they had been realized in the previous year, because Section 25B was inserted into the Act subsequently." 10. Then in para 40 & 41 Hon'ble jurisdictional High Court had carved out the real issue as follows: "40. The real issue that needs consideration in the present appeal is whether the mesne profits, and interest on mesne profits, received by the appellant constituted revenue receipt, or capital ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of damages directly and intimately linked with the capital asset and the mesne profit in the form of compensation paid in deprivation of capital asset. 14. Thus, as observed by this Bench earlier, the case of present assessee has to understood in the form of claim which was filed in the Civil Court leading to decree of mesne profit. At the instance of this bench copy of plaint in suit for possession and of mesne profit filed by the ld. AR of assessee and after going through the pleading of assessee we find that the suit property was given to State Bank of India for banking activities for a period of 5 years w.e.f 16.11.2000 on monthly rental of Rs. 59,225/- vide registered lease deed on 03.10.2001 and after expiry of the said period of lease the landlord assessee before us filed a suit for possession of mesne profit bearing suit No. 63/2006 and during pendency of the suit as the matter was compromised pursuant to which the tenant enhanced 'rent' to the tune of Rs. 1,20,000/- w.e.f 16.11.2005 and the suit was withdrawn on 24.09.2007. 15. It was in the subsequent suit that plaintiff pleaded that vide letter dated 09.10.2008 had informed the defendant tenant that the occupation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eferred to order dated 27.11.2013 by which the tenant was directed to pay Rs. 2,40,000/- per month w.e.f 01.12.2011 up to 31.03.2013. The copy of the order dated 27.09.2013 is made available by the assessee in the paper book at page No. 1 to 3 and we find that while disposing off the matter 'as compromised' the Hon'ble High Court has taken into consideration the contention of the assessee who was respondent there that on the basis of letting value of the premises the mesne profit was claimed and for conclusiveness we reproduced para 11 to 19 herein below: "11. The counsel for the respondent states that the letting value of the premises which comprises of an area of 7652 sq.ft. spread over ground, first, second and third floors is at the rate of Rs. 5 lacs per month. 12. The counsel for the appellant/Bank states that the respondent has claimed mesne profits @ Rs. 3 lacs per month. 13. The counsel for the respondent rejoins by contending that the same would not limit the claim if the letting value is found to be more. 14. After considering all the facts and circumstances and being of the view that the appellant otherwise in law has no right to cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 19.09.2014 is made available at page 4 & 5 of the paper book and the relevant portion of the order is reproduced blow: "Learned counsel for the appellant submits that appellant is a nationalised bank and due to procedural hurdles it was not in a position to finalise and take on rent another suitable premises within a period of one year. It is further submitted that another property has been taken on rent, inasmuch as, possession thereof has also been taken, however, same is being renovated to suit the requirement of bank more particular, for shifting of the lockers. It is, thus, prayed that six months more time be granted to appellant to handover the possession, subject to payment of occupancy charges which may be acceptable to respondent. Learned counsel for the respondent submits that he has taken instructions from the respondent, who is willing to grant six months time to appellant, subject to, however, payment of occupancy charges @ 4.80 lacs per month besides service tax and also clearing the earlier service tax dues amounting to about ' 15 lacs. Counsel for the appellant, on instructions of Chief Manager of appellant, who is present in Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deposit of the TDS. The appellant shall file an undertaking in terms of this order within a period of two weeks. Subject to the appellant filing the aforesaid undertaking, the time period for handing over of the vacant and peaceful possession of the suit property by the appellant to the respondent is extended upto 30th September, 2015. 9. Upon receipt of the entire arrears of mesne profits in terms of this order, the respondent shall withdraw the suit before the Trial Court which is pending for adjudication of the mesne profits. 10. Learned counsel for the respondent submits that the respondent has a claim with respect to the misuser charges of the suit property after the termination of the tenancy. The claim of the misuser charges was admittedly not raised before the Trial Court and therefore, it is an independent cause of action. The respondent is therefore, at liberty to avail legal remedies available to him with respect to the claim of the misuser charges. 11. This application is disposed of. 12. Copy of this order be given dasti to counsel for the parties under the signature of the Court Master." 21. Further, we find that by order dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appellant/assessee, was a revenue receipt. The capital asset of the appellant i.e. the property in question was earning revenue for the appellant by way of rent till so long as the lease subsisted. After the termination of the lease, the erstwhile tenant continued to occupy the premises unauthorisedly. It is in lieu of the rent which the appellant would have otherwise derived from the tenant, that the mesne profits and interest thereon have been awarded. So far as the capital asset of the assessee is concerned, the same has remained intact. It is not the appellants case that there was any damage to the property/ capital asset inasmuch, as, the building structure was damaged by the bank, and that damages have been awarded by the Court on account of such physical damage. Even the title of the appellant in respect of the capital asset remained intact. Had it been a case where the capital asset would have been subjected to physical damage, or of diminution of the title to the capital asset, and damages would have been awarded under the head, there would have been merit in the appellant's claim that damages received for harm and injury to the capital asset, or on account of its diminu....