TMI Blog2005 (1) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... the request for adjournment and proceed to decide the appeal on merits. 2. The first three grounds of appeal in ITA No. 2333/Del./01 and ground Nos. 1, 2 and 4 in appeal No. 2334/Del./01 reads as follows: ITA No. : 2333/Del./04 : "1. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 91,94,850 being enhanced rent. 2. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 4,21,475 on account of interest on enhance rent. 3. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 6,60,000 for alleged services provided to Ministry of Defence." ITA No.: 2334/Del./04 : "1. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 5,12,00,000 made on account of rent and interest thereupon. 2. On the facts and circumstances of the case, the CIT(A) erred in allowing expenses of Rs. 6,60,000 for alleged services provided to Ministry of Defence. 3. On the facts and circumstances of the case, the CIT(A) erred in deleting an addition of Rs. 3.94 lakhs on account of arrears receivable as per lease deed dated 27-11-1998." 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rent due Rent paid Rent Interest sq. ft. difference thereon 16-9-1989 to 8.50 61,38,468 21,70,224 39,68,244 - 15-9-1990 18-9-1990 to 9.75 53,78,679 16,57,810 37,20,869 - 20-6-1991 Interest on Rs. 76,89,113 = (amount due from 6-9-1989 to 21-6-1991) @ 9% from 21-6-1991 to 20-7-1992 and @ 12% from 21-7-1992 to 31-3-1997 53,90,963 21-6-1991 to 9.75 37,16,178 11,45,396 25,70,782 17,31,878 31-12-1991 1-1-1992 to 9.75 70,41,180 21,70,224 48,70,956 29,28,164 31-12-1992 1-1-1993 to 9.75 70,41,180 21,70,224 48,70,956 23,62,407 31-12-1993 1-1-1994 to 9.75 70,41,180 21,70,224 48,70,956 17,77,894 31-12-1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,099 fixed under the lease deed dated 27-11-1998 Rs. 70,24,591 Interest @ 12% of average outstandings of arrears accrued but not disclosed Rs. 4,21,475 ( b ) Interest income as disclosed Rs. 10,527 Total income Rs. 91,93,970 As far as assessment year 1998-99 is concerned the Assessing Officer brought to tax the entire sum of Rs. 5,12,29,215 received by the assessee towards arrears of enhanced rent and interest of arrears of enhanced rent to tax. As already stated there was an agreement between the parties dated 27-11-1998 where by the monthly rent was again enhanced to Rs. 11,34,000 per month with retrospective effect from 3-12-1996. There is nothing in the order of assessment to indicate that in respect of this enhanced agreed rent also there was an agreement to pay interest @ 12%. The Assessing Officer nevertheless was of the view that this arrears of rent for 1-4-1997 to 31-3-1998 would also carry interest @ 12% and he brought a sum of Rs. 3,94,009 representing interest on these arrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ander [1991] 191 ITR 551 2 . Similar submissions were made with regard to taxability of interest on of arrears of rent (enhanced). Reliance was also placed on the decision of Orissa High Court in Govinda Choudhury Sons v. CIT [1977] 109 ITR 497 and CIT v. B.N. Agarwala Co. [1996] 200 ITR 246. On such submissions the CIT(A) held as follows : "I have carefully perused and considered both the arguments given by the Assessing Officer as also the submissions and documents furnished by the assessee in the form of lease deed, the arbitration award and the subsequent decisions of the courts ultimately upholding the arbitration award. I find that the entire thrust of the Assessing Officer s argument in reopening the assessment and bringing to tax the award amounts have proceeded from his conviction that acceptance of the rent fixed as per the original lease deed and the continuance by the MoD in occupation of property No. A-33, Kailash Colony, New Delhi beyond the lease period and the fact that the appellant did not file a suit for eviction of the tenant on expiry of the lease agreement was a tacit acknowledgement of the occupant as its tenant. In this anxiety to treat the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule of court by the single bench of the Delhi High Court. Thereafter, the Hon ble Supreme Court also dismissed the special leave petition filed by MoD vide order dated 28-7-1997 and finally vide order dated 13-10-1997, the Delhi High Court passed an order upholding the decree passed on 6-12-1996 as final. In the back ground of the above facts, it is amply clear that what was received by the appellant was compensation for illegal occupation of the disputed premises by MoD w.e.f. 16-9-1988 and since the award was made rule of the court vide order of the Delhi High Court on 6-12-1996, basically the liability can be held to have accrued in the accounting period relevant to the assessment year under dispute. With regard to the nature of damages received, the same constituted mesne profits. It has been held in the case CIT v. Annamma Alexander [1991] 191 ITR 551 (Ker.) that mesne profits are awarded for wrongful possession/occupation of property and that it is in the nature of damages not liable to tax. Further, the interest thereon which is an integral part of the mesne profits is also not a revenue receipt. In a subsequent decision reported at 199 ITR 303 (Ker.) in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi by adopting the revised rent fixed under the terms of the new lease deed dated 27-11-1998." 8. As far as assessment year 1997-98 is concerned the CIT(A) followed the decision in assessment year 1997-98 and deleted the addition made by the Assessing Officer. 8.1 As far as the addition of Rs. 6,60,000 paid to M/s. Amrit Properties is concerned, it was contended before the CIT(A) by the assessee that the tenant wanted various additions and alterations to be done to the premises which would cost the assessee Rs. 12,00,000. Instead of carrying out these additions the assessee asked M/s. Amrit Properties to carry out this work and also maintain fittings at its cost. The assessee relied on an agreement dated 16-9-1995 whereunder the service of M/s. Amrit Properties were utilized by the tenant. The tenant also accepted to make payments to M/s. Amrit Properties and had in fact paid the amounts to M/s. Amrit Properties and the balance was paid for the building to the assessee. On such submissions the CIT(A) held as follows : "On a consideration of the submissions made and the material on record I find that the MoD had desired certain modifications to the A-33, Kailash Colony, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 5,003 to the vendor under a written agreement dated May 22, 1950. The vendor, however, did not convey the property as promised, but in breach of the agreement, sold it to a third party by name Kochu Vareed and put him in possession. The assessee then sued his vendor for specific performance. Kochu Vareed impleaded himself in the suit and contested the assessee s claim. The trial court decreed specific performance. Kochu Vareed, however, appealed against the decree. The Kerala High Court allowed his appeal. The assessee took the matter in further appeal to the Supreme Court. By judgment dated April 22, 1958, the Supreme Court allowed the assessee s appeal and restored the trial court s decree for specific performance. The court also sustained the assessee s claim for mesne profits against Kochu Vareed, and remitted the case to the trial court for inquiry and determination of the mesne profits. The trial court went into the matter and determined the quantum of mesne profits by order dated October 22, 1962. The mesne profits fixed by the court, after certain adjustments, came to Rs. 67,093. This amount actually reached the assessee s hands some time during the next financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as taxable income in the hands of the present assessee. 12. With regard to the question as to the year in which the same is taxable, the court held as follows : "The other issue for our consideration is which is the account year to which the mesne profits should be related for the purpose of assessment in the present case. According to the Tribunal, since the assessee maintains his accounts under the mercantile system, mesne profits, as income, have got to be assessed in the year of accrual. Passing on this part of the Tribunal s reasoning, we must say the assessment of a given income on the accrual basis has nothing whatever to do with any method of accounting of the concerned assessee. Section 5 of the Income-tax Act, 1961, defines the scope of total income which is lent another name for taxable income as including all income which is either received by the assessee or which accrues to the assessee, or is deemed to be received or deemed to accrue under the Act. This section does not say anything about the method of accounting. Section 145 which deals with the method of accounting only refers to income chargeable under the head "Profits and gains of business or profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to the income. But when it comes to a question of deciding about the accrual of mesne profits, which is concrete conception, it could not be said that they had accrued at any point of time earlier to its actual determination by the trial court in terms of rupees and paise. For, at that point of time, and at no earlier point, mesne profits as a tangible amount, became known, and only when it became known as a sum certain it accrued to the assessee as income. 14. It is the aforesaid decision of the Honourable Madras High Court that was confirmed by the Honourable Supreme Court in the case of P. Mariappa Gounder v. CIT [1998] 232 ITR 2. Thus the decision of the Honourable Supreme Court is an authority for both the questions which arise for consideration in the present appeals. 15. As far as the decision of the Honourable Calcutta High Court in the case of Smt. Leela Ghosh ( supra ) is concerned, that was a case where the assessee was the owner of a premises which was tenanted and after determination of the tenancy and even after the decree was passed for ejectment by the trial court and affirmed by the appellate courts including the Supreme Court, the tenant continued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of Rs. 5,12,29,215 has to be brought to tax in the assessment year 1997-98. Since this sum is already brought to tax in the assessment year 1997-98 same cannot be brought to tax in 1998-99, therefore the addition made in assessment year 1998-99 is directed to be deleted. In the assessment year 1997-98 the Assessing Officer has brought to tax the interest on arrears of rent received by the assessee pursuant to the award of the arbitrator. Since the entire enhanced rent and interest payable on enhanced rent is brought to tax, this addition will have to be duly given credit. In other words this sum of Rs. 4,21,475 forms part of the sum of Rs. 5,12,29,215 and this aspect has to be duly taken note of. Thus ground No. 1 in ITA No. 2333/Del./01 is allowed. 18. Ground No. 2 in the said appeal is also allowed. 19. Ground No. 1 in ITA No. 2334/Del./01 is dismissed. 20. As far as ground No. 4 in ITA No. 2334/Del./01 is concerned there is nothing on record to indicate that interest at the rate of 12 per cent was agreed to be paid by the tenant to the assessee on arrears of rent for the period from 1-4-1997 to 31-3-1998 fixed under the lease deed dated 27-11-1998. Even in the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 7475, Scindia House. This property has been leased out by the assessee to one M/s. A-One Travels and Tours Pvt. Ltd. which was its sister concern. The monthly rent payable by the tenant was at the rate of Rs. 3,000 per month. The assessee-company had disclosed receipt of rental income of Rs. 36,000 during the previous year in both the assessment years. The Assessing Officer obtained information from the Assessing Officer in-charge of assessment of the tenant M/s. A-One Travels and Tours Pvt. Ltd. and it transpired from such information that this tenant had sub-let the property to M/s. DLH World Wide Express for Rs. 1,60,000 per month. The Assessing Officer was of the view that since the assessee-company and the tenant form part of the same group having common shareholders the rental receipts shown by the assessee was very low compared to the annual value/market value of the property. The Assessing Officer thereafter made a reference to the decision of the ITAT, Bangalore Bench in the case of Sidney Moses v. CIT [1987] 21 ITD 76 and held that the annual value of the property has to be adopted by taking the monthly rent of Rs. 1,60,000. Aggrieved by the order of the Assessing ..... 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