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Facts
The assessee leased out a property which was subsequently occupied by the lessee beyond the lease period. The assessee filed a suit for possession and mesne profits, which was eventually decreed by the High Court. The assessee received Rs. 1,62,40,000/- in Assessment Year 2016-17 as part of these mesne profits and claimed it as non-taxable income in their revised return.
Held
The Tribunal held that the mesne profits received by the assessee constitute revenue receipt and are thus chargeable to tax. They distinguished several cited cases, emphasizing that the mesne profits in this instance were compensation for the deprivation of rental income from the property, not for damage to the capital asset itself.
Key Issues
Whether the mesne profits received by the assessee are to be treated as capital receipt or revenue receipt for the purpose of taxation.
Sections Cited
143(3), 23(1), 106
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Income Tax Appellate Tribunal, “A” BENCH, DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
This appeal is preferred by the assessee against the order dated 10.08.2023 of the Ld. National Faceless Appeal Centre (NFAC) (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN
P a g e | Archna Chadha (AY: 2016-17) &Order No : ITBA/NFAC/S/250/2023-24/1055036940(1) arising out of the order dated 28.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the AO, Circle 52(1) for AY: 2016- 17.
Heard and perused the record and as admitted fact it comes up that during the financial year the appellant owned several immovable properties one of which A-5, Friends Colony, New Delhi was leased out by the assessee to State Bank of India since 2001 till 15.11.2005 and thereafter tenancy was extended till July 2010. Lessee, SBI however, 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
P a g e | Archna Chadha (AY: 2016-17) 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).
The ld. Counsel has relied the decision of Mumbai Tribunal in the case of ACIT Vs. Amrut Enterprises in and reliance in this regard was also placed on the decision in the case of Col. Jaspal Singh Vs. ITO in and of Hon’ble High Court of Andhra Pradesh in the case of CIT Vs. J.D. Italia [1983] 12 Taxman 60 (AP) and Hon’ble High Court of Kerala in the case of CIT Vs. Mrs.
Annamma Alexander (1991) 58 Taxman 47 (Kerala) and Hon’ble High Court of Calcutta in the case of CIT Vs. Smt. Lila Ghosh (1993) 71 Taxman 72 (Calcutta)to contended that in similar facts and circumstances Coordinate Bench at Mumbai and other Hon’ble non-jurisdictional high courts have held that mesne profit is a capital receipts not chargeable to tax. It was submitted that mesne profit is compensation for deprivation of use of occupation of property and not for deprivation of potential income as for this P a g e | Archna Chadha (AY: 2016-17) reliance was placed on the Hon’ble Supreme Court decisions i.eNazir Mohamed V. J. Kamala AndOrs. (Civil Appeal Nos. 2843-2844 of 2010 & Lucy Kochuvareed V. P. Mariappa Gounder (1979) 3 Supreme Court Cases 150 and Nawab Sir Mir Osman Ali Khan V. CIT (1986) 28 Taxman 641 (SC). It was submitted that tax authorities have fallen error in considering the mesne profit as an income as the mesne profit was computed on the basis of rental value. It was submitted that manner of determination of amounts of mesne profit cannot determine the nature of its taxability. Further ld. Counsel has submitted that tax authorities had relied case law which are distinguishable and in the written submissions filed by ld. AR following distinguishing facts were pleaded;
“a. Hon'ble Apex Court in P. MariappaGounder v. CIT [1998] 232 ITR 2 (SC):
“Firstly, in the aforesaid judgement, the Apex Court was only concerned with the issue pertaining to year of taxability of mesne profit (and not taxability itself). In other words, the issue whether mesne profit constituted revenue receipt or capital receipt was neither placed before the court nor adjudicated by the court. This distinction has also been considered and upheld by the Mumbai special bench in Narang Overseas (P.) Ltd. v. ACIT (supra).”
P a g e | Archna Chadha (AY: 2016-17) Secondly, the decision of Hon'ble Madras High Court in P. MariappaGounder v. CIT [1984]17 Taxman 292 (Mad.), that mesne profit is taxable was held in the circumstance where the compensation was awarded to the taxpayer due to non-fulfilment of agreement for transfer of asset by the seller. In other words, 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)
P a g e | Archna Chadha (AY: 2016-17) Ld. CIT(A) has predominantly relied upon the aforesaid decision stating that the jurisdictional high court has already held that mesne profit is taxable as revenue receipt.
However, it is noteworthy that moot question in the case referred above was also on the determination of year of taxability (and not the taxability itself). c. Hon'ble Delhi High Court in Skyland Builders (P.) Ltd. v. ITO [2020] 121 taxmann.com251 (Delhi)
In the aforesaid case, the Hon'ble High Court has held that mesne profit is taxable by placing heavy reliance on the decision of Apex Court in P. MariappaGounder v. CIT (supra) and Hon'ble Delhi High Court in CIT v. Uberoi Sons (Machines) Ltd. As already discussed above, the issue before the courts in the aforesaid decisions was the determination of the year of taxability. Thus, the conclusion drawn in this decision should also not be followed. d. Hon'ble Kolkata Special Bench (comprising of 3 members) in Sushil Kumar & Co. v. JCIT[2004] 88 ITD 35 (KOL.)(SB)
In the aforesaid case, the compensation was payable to the taxpayer even for the period after the restoration of wrongful possession. Whereas, in the case of the Appellant the P a g e | Archna Chadha (AY: 2016-17) compensation is granted only for the period of wrongful possession.
Also, in the aforesaid case, the adverse inference was drawn on account of deliberative non-filing of relevant evidence by the taxpayer before the tax authorities. In the instant case, the Appellant had fully co-operated with the Ld. AO and Ld. CIT(A) and has furnished all the requisite information / documents to substantiate her claim.”
Ld. DR and revenue authority have primarily assumed it to be taxable for the reason that TDS was deducted by the assessee. However, the assessee submits that TDS deducted at the instance directions of Hon’ble High Court.
Ld. DR submitted that mesne profits are merely rents in disguise so are taxable.
We have given a thoughtful consideration to the material on record and the submissions and what is relevant is that ‘mesne profit’ is not deifned in the Act for the purpose of any form of income and its definatin can be found u/s 2(12) of the Code of Civil Procedure, 1908, which is as follow:
“Mesne Profits of Property means those profits which the person in wrongful possession of such property actually received or might with P a g e | Archna Chadha (AY: 2016-17) 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.”
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
P a g e | Archna Chadha (AY: 2016-17) damages ascertained on the basis of loss to the estate and for deprivation of the rights of ownership and possession of the property which are bundle of valuable rights.
The question to be thus, determined is the receipt of mesne profits, in the case of present assesse, cannot be treated as revenue receipt and must be considered to be a capital receipt not exigible to tax and we find that the decision which ld. Counsel has relied in the case of Amrut Enterprises (supra) of Mumbai Bench was though passed in similar facts and circumstances. However, the decision of jurisdictional Delhi High Court in the case of Skyland Builders Pvt. Ltd. (supra) was not followed for the following reasons:
In so far as the decision of Hon‟ble Delhi High Court in the case of Sky Land Builders P. Ltd. (supra) vs. ITO, the Hon‟ble High Court referred to the decision of Supreme Court in P. MariappaGounder and held that, since Madras High Court decision has been confirmed, therefore the Calcutta High Court and Kerala High Court cannot be followed. But that in case before the Hon‟ble Supreme Court the only issue was year of taxability and nowhere there was any issue raised, whether the mesne profit receipts for illegal occupation of property is revenue receipt or capital receipt. Thus, the decision of Hon‟ble Delhi High Court is not being followed for this reason and accordingly, we are following the decision of M/s. Annamma Alexander 191 ITR 551 Kerala High Court; judgment
P a g e | Archna Chadha (AY: 2016-17) of Calcutta High Court in the case of Smt. Leela Ghosh 205 ITR 9; and more importantly the judgement of Hon‟ble Jurisdictional High Court in the case of CIT vs. Good Will Creators P. Ltd (Supra). Thus, we hold that entire receipts of Rs. 6,31,49,000/- is capital receipts is not chargeable to tax”
Ld. Counsel in his contentions has submitted that the decision of Hon’ble Jurisdictional Delhi High Court is distinguishable for the reason that the issue before Hon’ble Delhi High Court was merely to determine year of taxability and not as to if mesne profit is taxable as income.
8.1 However, when we go through the order of Hon’ble jurisdictional Delhi High Court in the case of Skyland Builder Ltd. (2020) 121 taxman.com 251 (Delhi), we find that Hon’ble Delhi High Court in para 2 had admitted following question:
“2. The appeal was admitted on 15.04.2005 when the following question of law was framed by the Court for its consideration.
“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.”
P a g e | Archna Chadha (AY: 2016-17)
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 assesse 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.”
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 receipt, in the hands of the appellant/assessee, in the facts and circumstances of the case.”
Further, having considered the contentions raised on the basis of various decisions, which are relied by Mumbai bench too in case of Amrut Enterprises (supra), in para 41 has held the mesne profit to constitute revenue receipt and relevant para 41 is reproduced as under:
P a g e | Archna Chadha (AY: 2016-17)
“41. Having heard the submissions of learned counsels for the parties and having given our due consideration to them in the light of the decisions relied upon by the learned counsels, we are of the view that the mesne profits, and interest on mesne profits, received by the appellant in pursuance of the court decree, in the facts of the present case, constitute revenue receipt.”
Now as we find the factual matrix of the decision of Hon’ble jurisdiction High Court and in contrast to the case before us we find that there is no marketable difference as the factual position has been summarized by the Hon’ble jurisdictional High Court in para 44 as follows:
The factual position before us is markedly different. The tenant, namely, Indian Overseas Bank, did not surrender the tenancy premises despite termination of the tenancy. It is not the Indian Overseas Bank, which received any consideration for surrender of its tenancy. On the contrary, Indian Overseas Bank suffered a decree for its continued use and occupation of the premises of the appellant/assessee, even after the termination of the contractual tenancy. The Indian Overseas Bank was saddled with mesne profits and interest thereon under the courts decree. The income was generated in the hands of the landlord/assessee, and not in the hands of the tenant/ Indian Overseas Bank. Thus, reliance placed by Mr. Jagia on Girish Bansal (supra), which refers to Cadell Weaving Mill Co. Pvt. Ltd. (supra), is misplaced.”
Then Hon’ble High Court placing reliance on the decision in Saurashtra Cement Limited case 325 ITR 422 (SC) has observed that the P a g e | Archna Chadha (AY: 2016-17) issue whether a receipt/income is a capital receipt or a revenue receipt must be ultimately defend on the facts of a particular case, and the authorities bearing on the question are valuable only as indicating the matters that has to be take into account in reaching to a conclusion. Hon’ble jurisdictional High Court has distinguished between the cases of mesne profit in the form 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.
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
P a g e | Archna Chadha (AY: 2016-17) 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.
It was in the subsequent suit that plaintiff pleaded that vide letter dated 09.10.2008 had informed the defendant tenant that the occupation of the suit premises beyond 15.11.2008 shall be unauthorized and illegal and further requested that if defendant shall to retain the possession, “the same shall be permissible only subject to enhancement of rent by at least 25% over and above Rs.1,20,000/- with liabilities of service tax after June, 2007.Meanng thereby that the dispute was with regard to enhancement of rent only.
It was further pleaded that however as there was no registered lease deed left after the earlier litigation the plaintiff claimed that the ‘tenancy was thus, month to month tenancy”and thus, the plaintiff assessee rejected the assertion of tenant bank that after the first round of litigation the premises was on rent for period of 6 years w.e.f 16.11.2005 at a rental of Rs.1,20,000/-
per month. Accordingly, the assessee in the second Civil Suit had claimed termination of tenancy by invoking the provisions of Section 106 of Transfer of Property Act, by serving a notice dated 09.03.2009 and seeking possession
P a g e | Archna Chadha (AY: 2016-17) of the premises in 15 days of the receipt of the notice and that plaintiff shall be entitle to claim ‘charges’ @ Rs.1,00,00/- per day along with interest @ 18
per annum till the date of delivery of vacant position. Accordingly, on this cause of action the suit was filed and while claiming the relief it was pleaded that plaintiff is claiming damages @ 10,000 per day on account of unauthorized occupation of the premises by the tenant w.e.f 01.08.2010.
Now when these facts arising out of plaint of assessee are considered it leaves no doubt in the mind of this Bench that once assessee has claimed enhancement of rent which was denied by the tenant and the assessee as landlord pleaded that in the absence of lease deed the tenancy is nothing but a month to month tenancy which was terminated by notice u/s 106 of the Transfer of Property Act, on 16.06.2010 then the mesne profit granted in the civil suit decree, is not by way of any damages to the capital asset or restitution to the property, but by way of compensation of benefit derived by the tenant bank, by over staying the tenancy, on lower rent, as against higher claimed by the landlord assesse.
P a g e | Archna Chadha (AY: 2016-17)
In this context if the order dated 08.04.2015 of Hon’ble Delhi High Court, civil suit proceedings is considered wherein assessee was contesting the regular first appeal. We find that that the Hon’ble High Court has referred 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.
The counsel for the appellant/Bank states that the respondent has claimed mesne profits @ Rs.3 lacs per month.
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.
After considering all the facts and circumstances and being of the view that the appellant otherwise in law has no right to continue in occupation of the premises for another one year and for the reason that if ultimately in the enquiry the mesne profits are determined at a lesser rate, the excess amount if any received by the respondent at this stage can always be adjusted/restituted, it is deemed expedient to grant time as sought by the appellant/Bank subject to payment of double the rate of the last paid rent w.e.f. 1st December, 2011 till which date it is the claim of the P a g e | Archna Chadha (AY: 2016-17)
appellant/Bank that the respondent is not entitled to mesne profits at any rate higher than the rate of the last paid rent.
The counsel for the appellant/Bank on behalf of the appellant/Bank undertakes to this Court to:- (a). deliver vacant peaceful physical possession of the entire property bearing no.A-5, Friends Colony, New Delhi in its occupation to the respondent on or before 30th September, 2014. (b). clear all electricity, water and service charges as earlier being paid for the property till the date of vacation. (c). not to cause any damage to the premises. (d). within six weeks pay the arrears w.e.f.1st December, 2011 till 31st October, 2013 at the rate of Rs.2,40,000/- per month less the amount already paid to the respondent. (e). with effect from the month of November, 2013 and till the date of vacation of the premises pay to the respondent a sum of Rs.2,40,000/- per month in advance for each month by the 10th of the succeeding English calendar month; 16. The aforesaid undertaking of the appellant/Bank is accepted and the appellant/Bank is ordered to be bound thereby and cautioned of consequences of breach thereof.
It is clarified that the aforesaid payments are without prejudice to the respective rights and contentions of the parties in the proceedings still pending before the learned Addl. District Judge and are subject to adjustment/restitution depending upon the outcome thereof.
In view of the aforesaid, the appeal is dismissed. However the decree is made inexecutable till 30th September, 2014.
Since the matter has been compromised, no costs. Decree sheet be drawn up.”
We find that thereafter, as Bank was not able to vacant the premises, by order dated 19.09.2014 the Bank was directed to pay occupancy charges @ Rs.14,80,000/- per month till 31.03.2015and the copy of order dated 19.09.2014 is made available at page 4 & 5 of the paper book and the relevant portion of the order is reproduced blow:
P a g e | Archna Chadha (AY: 2016-17)
“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 Court, submits that appellant is agreeable to pay occupancy charges as claimed by the respondent besides service tax.
With the consent of parties, appellant is granted time to vacate the suit premises by 31st March, 2015, subject to payment of occupancy charges @ 4.80 lacs per month. Appellant shall also pay service tax, inasmuch as, clear arrears of service tax within two months. Appellant shall file an affidavit of undertaking of the Chief Manager with the Registrar General of this Court within three weeks categorically stating therein that appellant shall vacate the suit premises by 31st March, 2015; appellant shall pay occupancy charges @ 4.80 lacs per month; appellant shall also clear arrears of service tax within two months and shall continue to pay service tax regularly.
P a g e | Archna Chadha (AY: 2016-17)
It is made clear that no further extension of time shall be granted to appellant on any ground.
Application is disposed of in the above terms.”
In the light of aforesaid orders on 27.09.2013 and 19.09.2014by order dated 08.04.2015Hon’ble High Court had disposed off the application of the tenant in regular first appeal matter with following directions:
“8. In the facts and circumstances of this case, this Court is of the view that the appellant should pay the mesne profits @ Rs.3,60,000/- for the period 1" August, 2010 to 30th November, 2011, Rs.4,60,000/- per month w.e.f. 1" December, 2011 to 30*h September, 2014, Rs.5,80,000/- per month w.e.f. 1" October, 2014 to 31" March, 2015 and Rs.7,20,000/- per month w.e.f. 1 April, 2015 to 30* September, 2015. The appellant would be entitled to deduct the permissible TDS. The appellant would further be liable to reimburse the Service tax to be paid/paid by the respondent. The arrears of mesne profits upto 315 March 2015 shall be cleared by the appellant within three months from today after deduction of amounts already paid to respondent till 31" March, 2015. The mesne profits for the month of April 2015 be paid within a period of one week. The mesne profits w.e.f. 1st May, 2015 shall be paid in advance by the 7*h of each English calendar month. The entire Service tax/arrears shall be paid within two weeks by the appellant on handing over of the receipts of the payment of Service tax by the respondent. The TDS certificates shall be handed over by appellant within a period of four weeks of the 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 P a g e | Archna Chadha (AY: 2016-17) vacant and peaceful possession of the suit property by the appellant to the respondent is extended upto 30th September, 2015.
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.
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.
This application is disposed of.
Copy of this order be given dasti to counsel for the parties under the signature of the Court Master.”
Further, we find that by order dated 17.05.2017 copy of which is available at page 10-11 of the paper book Hon’ble High Court has also dealt with the question of assessee seeking clarification that in spite of deduction of tax assessee is not liable to pay tax and Hon’ble High Court had left the issue undecided with the following observations:
P a g e | Archna Chadha (AY: 2016-17)
“1. The appellant has handed over the vacant and peaceful possession of the suit property to the respondent in terms of order dated 8th April, 2015. The appellant has also paid mesne profits upto the date of handing over of the possession after deducting the TDS and the TDS certificates have also been handed over to the respondent. As such, the respondent has no dispute/claim against the appellant.
Learned counsel for the respondent submits that the respondent has to seek the refund of the TDS from the Income Tax Authorities as the mesne profits are not taxable. The respondent is seeking clarification of para 8 to the extent that the deduction of TDS should not be construed as the liability to pay the tax.
Para 8 of the order dated 8th April, 2015 is clarified to the extent that the appellant was directed to deduct the TDS in accordance with law and whether the TDS was deductable or not, was not considered by the Court at that stage.
The application is disposed of in the above terms.
Copy of this order be given dasti to learned counsel for the parties under the signature of the Court Master.”
In the light of the aforesaid facts and discussion of law we are of the considered view that reliance of ld. Counsel on the decision of Mumbai Bench in the case of ACIT Vs. Amrut Enterprisesand M/s Trans Freight Containers Ltd. in ITA 3262/Mum/2019 dated 07.02.2020and Mumbai
P a g e | Archna Chadha (AY: 2016-17) Bench decision in the case of Ville Parle Prarthna Co-op. Hsg. Vs. ACIT in 1411/Mum/2018 are not applicable in the case of assessee and Hon’ble jurisdictional High Court decision in the case of Skyland Builder (P) Ltd.(supra) being the binding precedent has to be relied and for completeness we reproduce the conclusion of Hon’ble Jurisdictional High Court, which will nail the issue completely against the assesse, as Hon’ble conclude as follows;
“46. When we apply the said test to the facts of the present case, the only conclusion that we can draw is that the receipt of mesne profits and interest thereon by the 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 assesse 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 P a g e | Archna Chadha (AY: 2016-17) 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 diminution, would be a capital receipt.
Reliance placed by Mr. Jagia on Smt. Leela Ghosh (supra) is of no avail for two reasons. Firstly, when Smt. Leela Ghosh (supra) was decided and the Calcutta High Court dissented from the view of the Madras High Court in P. MariappaGounder (supra), the decision of the Supreme Court in P. MariappaGounder (supra), was not available. P. MariappaGounder (supra), was decided by the Supreme Court much later i.e. 21.01.1998, whereas Smt. Leela Ghosh (supra) was decided on 18.01.1993. In the light of the Supreme Court having affirmed the decision of the Madras High Court in P. MariappaGounder (supra), the dissent in Smt. Leela Ghosh (supra) loses its force. Secondly, this Court has already followed the decision of the Madras High Court in P. MariappaGounder (supra), and taken note of that decision being affirmed by the Supreme Court, while deciding Uberoi Sons (Machines) Limited (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).
P a g e | Archna Chadha (AY: 2016-17) 51. Reliance placed on Narang Overseas Pvt. Ltd. (supra) - a decision of the Mumbai Bench of the ITAT, is also misplaced. That is a decision rendered on 28.02.2007. The decision of this Court in Uberoi Sons (Machines) Limited (supra) was rendered on 31.08.2012. The ITAT did not had the benefit of the decision of this Court. Even otherwise, the Tribunal proceeded on the basis that since there was cleavage of opinion between High Courts, where there are two views, the one favourable to the subject should be preferred. That cannot be said to be the position so far as this Court is concerned. We, therefore, reject the reliance placed by Mr. Jagia on Narang Overseas Pvt. Ltd. (supra).
Accordingly, we answer the question of law set out in paragraph 2 hereinabove in favour of the revenue, and against the appellant. We hold that the ITAT was right in holding that mesne profits and interest on mesne profits received under the direction of the Civil Court for unauthorised occupation of the immovable property of the assessee by Indian Overseas Bank - the erstwhile tenant of the appellant, was liable to tax under Section 23(1) of the Act, since mesne profits, and interest on mesne profits, in the facts of the present case constitute revenue receipt.”
Thus we hold that in the case of assesse the receipt in the nature of mesne profits are rightly held to be not of capital nature but revenue.The
P a g e | Archna Chadha (AY: 2016-17) ground raised have lack substance and the appeal of the assessee is dismissed.
Order pronounced in the open court on 16.01.2026
Sd/- Sd/- (S. Rifaur Rahman) (Anubhav Sharma) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 16.01.2026 Rohit, Sr. PS