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2008 (2) TMI 817 - AT - Income TaxMesne profits - revenue receipt or capital receipt - Whether in the light of the decision in P. Mariappa Gounder v. CIT [1979 (2) TMI 200 - SUPREME COURT], it must be held that mesne profits received by the assessee is revenue income chargeable to tax ? - HELD THAT:- The above discussion clearly reveals that the judgment of the hon'ble Supreme Court in the case of P. Mariappa Gounder [1979 (2) TMI 200 - SUPREME COURT] only decides the issue regarding the year of taxability of the mesne profits. That judgment, therefore, cannot be said to be an authority for the proposition that nature of mesne profits is revenue receipts chargeable to tax. Accordingly, the contention of the Revenue that the issue regarding the nature of mesne profits is covered by the aforesaid decision of the hon'ble Supreme Court cannot be accepted. Having answered the question referred to by the hon'ble President in the present case, we now proceed to dispose of the appeal. The first issue arising in this appeal from ground Nos. 1, 2, 3 and 5 is whether the sum received by the assessee under the consent decree passed by the hon'ble Supreme Court is in the nature of capital receipt not chargeable to tax or is in the nature of revenue receipt chargeable to tax. The analysis of cases, clearly reveals that there is cleavage of opinion between the High Courts. The hon' ble Madras High Court has held that mesne profits is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to tax. On the other hand the hon'ble High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. In our view, such conflict can be resolved only by the hon'ble Supreme Court in some appropriate case. In the absence of the judgment of the highest court of land or of the jurisdictional High Court, the legal position is that where there are two views then the view favourable to the subject should be preferred. Reference can be made to various judgments of the apex court : CIT v. Vegetable Products [1973 (1) TMI 1 - SUPREME COURT], CIT v. Naga Hills Tea Co. Ltd. [1973 (2) TMI 6 - SUPREME COURT], CIT v. J. K. Hosiery Factory[1986 (3) TMI 4 - SUPREME COURT], Smt. Shashi Gupta v. Life Insurance Corporation of India [1995 (2) TMI 450 - SUPREME COURT], therefore, following the same, it has to be held that mesne profit received for deprivation of use and occupation of property would be capital receipt not chargeable to tax. We hold accordingly. Consequently, the decision of the Special Bench of the Tribunal in the case of Sushil Kumar and Co.[2003 (8) TMI 168 - ITAT CALCUTTA-C], holding to the extent that mesne profit is taxable as revenue receipt is overruled. In the present case, after the termination of lease, NIHPL was occupying and using the property unauthorisedly and thus the assessee was deprived of the use and occupation of the property and therefore, the mesne profits received by the assessee under the consent decree awarded by the apex court at the rate of Rs. 10 lakhs p.m. was on account of damages for deprivation of use and occupation of the profits and therefore, the sum so received was capital in nature not chargeable to tax. Whether interest awarded from the date of termination of lease agreement till the date of consent decree can be said to be capital in nature - If the interest is paid for deprivation of use of money fallen due to them it is revenue receipt chargeable to tax. On the other hand, if the interest is paid on account of the injury to the capital i.e., deprivation of use and occupation of the property then it is capital receipt not chargeable to tax. In the present case, it has already been held by us that the mesne profits were for deprivation of use and occupation of the property. The interest received by the assessee is also for the same period as it is awarded up to the date of decree. The money has become due on the date of decree. Accordingly, it is held that interest from the date of termination of lease till the date of decree would be capital receipt not chargeable to tax. However, if any interest is received by the assessee beyond that period then, it would be revenue receipt chargeable to tax. Thus, grounds Nos. 1, 2, 3 and 5 raised by the assessee are allowed. The order of the CIT(A) confirming the addition is hereby set aside and consequently, the addition sustained by him is hereby deleted. In the result, the appeal of the assessee is allowed.
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