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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal for assessment year 2011-12 arises against the Commissioner of Income Tax-12, Kolkata’s order dated 09.11.2016 passed in case No.377/CIT(A)-12/Kol/Wd-40(1)/2014-15, involving proceedings u/s 143(3) r.w.s. 147 r.w.s 148 of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.
The Revenue’s instant appeal raises the following substantive grounds:- “1. On the facts and circumstances of the case, the CIT(A) erred in allowing the entire impugned disallowance amount of Rs.82,37,470/- on account of undisclosed receipts, without verifying whether the alleged receipt was shown in the return of income of the assessee.
ITA No.255/Kol/2017 A.Y. 2011-12 ITO Wd-40(1) Kol. Vs. Sh. Amal Kr. Ghosh Page 2 2. On the facts and circumstances of the case, the CIT(A) erred in allowing the entire impugned disallowance amount of Rs.82,37,470/- on account of undisclosed receipts, without verifying whether the alleged receipt was taxable income or not.
On the facts and circumstances of the case, the CIT(A) erred in allowing the entire impugned disallowance amount of Rs.90,00,000/-, without considering that the alleged receipt was earned from surrendering illegal possession of property.”
3. It transpires during the course of hearing that the Revenue / appellant had filed a similar appeal raising identical substantive grievance in case of the deceased assessee (Shri Kamal Kumar Ghosh a predecessor in interest of the of the respondent heir) against the CIT(A)’s order of even date. This tribunal’s co-ordinate bench’s order dated 20.06.2018 affirmed the CIT(A)’s action deleting the impugned identical addition(s) vide the following detailed discussion. “4.1. The assessee submitted the summary of aforesaid details as under:- a) Only bank interest and rent received are taxable income. b) Rs 1,80,00,000/- received by both the assessee for surrendering wrongful possession of land as mentioned above, being in nature of ‘Mesne profit’, hence not taxable . c) Proceeds received from several mutual funds either on maturity or redemption, question of capital gains do not arise because all are in long term nature. d) Income distribution received from several mutual funds are in nature of dividend hence not taxable. e) Money received from Birla Sunlife Insurance Company is not taxable. f) Drawings, contra entries, mistake by ld AO, deposit of cash in hand, encashment of fixed deposit and contra double deposit on account of car purchase etc as mentioned hereinabove, are self explanatory, hence not taxable. 4.2. The ld CITA forwarded the same to the ld AO for examination and remand report. The ld AO in his remand report stated that the assessee had not submitted any details in the remand proceedings and accordingly observed that the addition of Rs 82,64,770/- was rightly made in his hands. Similarly, he reiterated the findings of the ld AO in the assessment order with regard to taxability of surrender of lease hold rights in the sum of Rs 90,00,000/-. A.Y. 2011-12 ITO Wd-40(1) Kol. Vs. Sh. Amal Kr. Ghosh Page 3 4.3. The assessee submitted that no extension was applied for the lease agreement, neither landlord filed any eviction suit against the assessee and his brother after the expiry of the lease period nor possession of the property was returned by the assessee even after the expiry of the lease period. The developer who negotiated the title through sale, did not get the possession of the land of said transaction of sale, but actual possession was retained by the assessee and the same was delivered to landlord / developer by assessee only after receiving Rs.1,80,00,000/- i.e Rs.90,00,000/- each to Amal Kr Ghosh and Kamal Kr Ghosh, by surrendering the possession of the land which should be treated as ‘Mesne Profit’ under section 2(12) of Code of Civil Procedure. The assessee placed his reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs Smt Lila Ghosh reported in 205 ITR 9 (Cal). It was pleaded that in that case, following the court order, Smt Ghosh surrendered the right over the property to State of West Bengal under the Land Acquisition Act 1894 and the assessee Smt Ghosh received the said Rs.2,00,000/- on account of Mesne profit for the use and occupation of the said land by the erstwhile tenants who were in illegal possession of the land. In addition to it, Smt Ghosh received Rs.11,00,000/- as compensation for surrendering the right over property. The ld AO in his remand report stated that this case is not at all applicable to the facts of the instant case before the ld CIT(A). 4.4. The ld CIT(A) observed that 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. On the other hand, where the sums are awarded by the court in the nature of restitution of interest, dividend or any other yield, out of the property is contrast to awarding compensation, the sum awarded is on the nature of income. The ld CIT(A) discussed the facts and principles laid down in various decisions of High Courts and held that the amount of Rs.90,00,000/- received in lieu of total and final surrender of leasehold rights can only be treated as mesne profit which was received for deprivation of use and occupation of property and would thus be capital receipt and not chargeable to tax. 4.5. With regard to the addition made in the sum of Rs 82,34,770/- towards remaining credits in the various bank accounts, the ld CIT(A) observed that the assessee had filed all details of the credit entries in various bank accounts. He stated that these details were sought to be examined by the ld AO in the remand proceedings. But the ld AO instead of giving a specific finding about the nature of each credit and its taxability, simply sent a vague report by stating that no details were furnished by the assessee. In this scenario, the ld CIT(A) went into the details submitted by the assessee and accepted the same and accordingly deleted the addition in the sum of Rs 82,34,770/-. A.Y. 2011-12 ITO Wd-40(1) Kol. Vs. Sh. Amal Kr. Ghosh Page 4 5. Aggrieved, the revenue is in appeal against the deletion of two additions by the ld CIT(A).
None appeared on behalf of the assessee. We have heard the ld DR. It is not in dispute that the amount received in the sum of Rs 90,00,000/- (assessee’s share of 50%) was only for surrendering his leasehold rights. The assessee treated the same as mesne profits and hence capital receipt whereas the ld AO treated the same as revenue receipt. Now the short question is whether the said mesne profits would be liable for tax in the hands of the assessee. We find that the definition of mesne profits is provided in section 2(12) of Code of Civil Procedure 1908 as under:- “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.” We find that the Special Bench of Mumbai Tribunal in the case of Narang Overseas Pvt Ltd vs ACIT reported in 111 ITD 1 (Mum ITAT ) (SB) had held that mesne profits received by assessee for wrongful deprivation of use and occupation of property constitutes capital receipt and hence not chargeable to tax. Respectfully following the same, we hold that the ld CIT(A) had rightly granted relief to the assessee by holding that the receipt of Rs 90 lacs by the assessee is a capital receipt not chargeable to tax. Accordingly, the grounds raised in this regard by the revenue are dismissed. 6.1. With regard to the other addition of Rs.82,34,770/-, we find that the assessee had explained the each and every credit of various bank accounts and the nature of receipts are very much visible from the bank statements itself for most of the transactions. When the remand report was called for from the ld AO in this regard, the ld AO, instead of verifying the nature of credits and give a finding with regard to taxability thereon, ignored to do the same and chose to just send a vague report by stating that no details were furnished by the assessee. In these circumstances, the ld CIT(A) chose to accept the contentions of the assessee and found that the entire credits in the bank account were duly explained by the assessee. Accordingly, he deleted the addition of Rs.82,34,770/-. We find no infirmity in the order of the ld CIT(A) in this regard. Accordingly, the grounds raised in this regard by the revenue are dismissed.”
The Revenue thereafter filed its miscellaneous application No.225/Kol/2018 seeking to re-call the tribunal’s above extracted order. This tribunal’s co-ordinate bench’s order accepted its miscellaneous application on 04.10.2019 as under:- A.Y. 2011-12 ITO Wd-40(1) Kol. Vs. Sh. Amal Kr. Ghosh Page 5 “2. We now advert to the Revenue’s sole grievance raised in the instant miscellaneous application. It transpires during the curse of hearing that the assessee and his brother had received an amount of Rs.1,80,00000/- to the extent half share each coming to Rs.90,000/-. He claimed the same as Mesne profit in the nature of a capital receipt not liable to be taxed. The Assessing Officer declined its explanation to add the said sum of Rs.90,00,000/- as undisclosed receipts. The CIT(A) reversed the Assessing Officer’s action and treated the said amount as Mesne Profits not assessable to tax. In this backdrop the Revenue filed its instant miscellaneous application. 3. We have given our thoughtful consideration to rival contentions. Case file suggest that the assessee and his brother had enjoyed lease rights on the two properties i.e. 36B Garcha 1st Lane and 44/11, Garcha Road, Kolkata and 36B,Garcha 1st Lane, Garcha Road, Kolkata. The lease period had admittedly expired on 24.08.1986 and 25.08.2006; respectively. These two brothers continued in possession of the property upto the year 2010. The payer concerned Shri Anup Jash made the impugned total payment of Rs.1,80,00,000/- to both of them in equal shares in FY 2010-11. We find in this backdrop of facts that the assessee had not enjoyed any right or title on either of the two properties upto the relevant previous year since the lease period had expired way back in the year 1986 and 2006; respectively. The assessee’s case is that the impugned sum is liable to be treated as Mesne Profit goes contrary to the relevant definition clause to this effect u/s 2(12) of the Code of Civil Procedure that “Mense Profits of property defines those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received”. The same sufficiently indicates that the person is wrongful person has to pay and not to receive the Mesne Profit. Our order in question appears to have followed this tribunal’s co-ordinate bench decision in Narang Overseas Pvt. Ltd. vs. ACIT 111 ITD 1 (Mum ITAT) SB) that mesne profits constitute a capital receipt not chargeable to tax and also hon'ble jurisdictional high court’s decision in CIT vs. Smt. Lila Ghosh 205 ITR 9 (Cal) as relied upon by the CIT(A). Ld. Authorized Representative fails to dispute that none of the said two assessees had continued in possession of the respective properties beyond the specified tenure of their respective rights or possession or tenancy; as the case may be. Contrary to this, we reiterate that the instant assessee’s status on the two properties is that of an illegal occupant only after expiry of the lease period (supra). we observe in this backdrop of fact that our findings affirming the CIT(A)’;s action deleting the impugned addition of Rs.90,00,000/- to this effect is instance of apparent error on the face of record since a person having continued in wrongful possession of a property is supposed to pay Mesne Profits than to receive the same from the title holder of the property(ies). We accordingly recall our order to this limited extent and accept the Revenue’s grievance raised in the instant Miscellaneous Application M.A. No.225/Kol/2018 as well as in the former substantive ground pleaded in the main case. We therefore order that the Revenue’s former substantive grievance in the main appeal seeking to revived the impugned addition of Rs.90,00,000/- would stand accepted henceforth as an necessary corollary. Ordered accordingly.” A.Y. 2011-12 ITO Wd-40(1) Kol. Vs. Sh. Amal Kr. Ghosh Page 6 5. When we confronted learned authorized representative about all these connected developments on the very issue, he submitted that the tribunal’s foregoing latter order in Revenue’s miscellaneous application is a patently illegal one since not based on correct assumption of law and on facts. We find no merit in assessee’s plea since tribunal’s co-ordinate bench’s order has already held that his predecessor-in- interest’s identical receipt has been held as taxable. We therefore adopt the very reasoning mutatis mutandis herein as well and accept the Revenue’s sole substantive grievance. Ordered accordingly. The Assessing Officer shall finalize consequential computation as per law.