TMI Blog2008 (2) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Hon'ble Judges G.E. Veerabhadrappa And K.P.T. Thangal, V.Ps., K.C. Singhal And Sushma Chowla, J.Ms. And O.K. Narayanan, A.M For the appellant : S. E. Dastur For the respondent : S. C. Gupta ORDER K. C. SINGHAL (JUDICIAL MEMBER) 1. The hon ble President, Income-tax Appellate Tribunal, vide order dated August 7, 2006, has constituted this Bench to adjudicate the following issue : Whether in the light of the decision in P. Mariappa Gounder v. CIT [1998] 232 ITR 2 (SC) it must be held that mesne profits received by the assessee is revenue income chargeable to tax ? as well as to dispose of the appeal of the assessee containing the following grounds : (1) The learned Commissioner of Income-tax (Appeals) ( the CIT(A) ) erred in holding that the mesne profits of Rs. 34,57,01,137 received by the appellant pursuant to the consent decree dated January 8, 2002, constitutes revenue receipt assessable to tax and consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as revenue receipt. However, learned counsel for the assessee contended before the Division Bench that the issue was not correctly decided by the Special Bench in the case of Sushil Kumar and Co. v. Joint. CIT [2004] 267 ITR (AT) 61 (Kolkata), inasmuch as the issue regarding the taxability of the mesne profits were neither raised before nor considered by the hon ble Supreme Court. The issue before the hon ble court was whether the mesne profit was assessable in the assessment year 1963-64 or the assessment year 1964-65. It was contended on behalf of the assessee that the hon ble Madras High Court had decided two issues (1) the issue regarding the taxability of the mesne profits and (2) the year of accessibility. The High Court decided both the issues against the assessee by holding that the mesne profit was taxable as revenue receipt in the assessment year 1963-64. However, the issue regarding taxability of the mesne profit was neither raised before nor considered by the hon ble Supreme Court since the assessee challenged only the issue regarding the year in which the mesne profit could be taxed. The apex court held that the High Court rightly held the same to be taxable in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1, wherein it was held that if a question which is neither raised nor argued before the Supreme Court, then the decision delivered by the Supreme Court cannot be said to be a decision in respect of such question. It was further contended by him that the theory of merger is not a doctrine of rigid and universal application and, therefore, it cannot be said that wherever there are two orders, one by the inferior authority and the other by the superior authority passed in an appeal or revision, there is a fusion or merger of two orders irrespective of the subject-matter of appeal or revisional order. Thus it has been contended that what is merged is the decision on the question considered and nothing else. In this connection he has relied on various decisions mentioned below : (1) CIT v. Amritlal Bhogilal and Co. [1958] 34 ITR 130 (SC) ; (2) S. Shanmugavel Nadar v. State of Tamil Nadu [2003] 263 ITR 658 (SC) ; (3) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC) ; and (4) State of Madras v. Madurai Mills Co. Ltd. 19 STC 144; AIR 1967 SC 681. 5. Proceeding further he drew our attention to the judgment of the Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Ltd. [1992] 198 ITR 297, wherein it has been held that the judgment of the Supreme Court should be understood in the context of the question under consideration and the judgment must be read as a whole. A decision of the court takes its colour from the question involved in the case in which it is rendered and while applying the decision to a later case the courts must carefully try to ascertain the true principle laid down by the decision. 7. The issue for our consideration is about the impact of the judgment of the hon ble Supreme Court in the case of P. Mariappa Gounder [1998] 232 ITR 2. In order to appreciate the controversy, it would be appropriate to refer the facts of the case as well as the questions which were referred to by the Tribunal for the esteemed opinion of the High Court. At the outset, it may be mentioned that there appeared to be some confusion in the facts as stated by the hon ble Supreme Court and as stated by the hon ble Madras High Court. In the Madras High Court judgment it is mentioned that as per the Income-tax Officer the mesne profit was chargeable to tax in the assessment year 1964-65 while as per the judgment of the Supreme Court it was charged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the courts referred to the facts relating to the different assessment proceedings. 9. Now, it would be appropriate to refer to the facts in detail relating to the case of P. Mariappa Gounder. In that case the assessee had agreed to purchase a tile factory, vide written agreement dated May 22, 1950. When the vendor did not convey the property as promised, the assessee filed a suit for specific performance which was ultimately decreed in appeal by the hon ble Supreme Court vide its judgment dated April 22, 1958. In the terms of the decree, the assessee was required to deposit a sum of Rs. 85,000 within 30 days of the decree and thereupon the title in the property was to be conveyed to the assessee. The hon ble court also passed a decree declaring that the assessee was entitled to mesne profits against the respondent which was to be quantified by the trial court after making due enquiry. The trial court determined the mesne profits at Rs. 57,093 vide order dated December 22, 1962, relevant to the assessment year 1963-64. However, the amount of mesne profit was received by the assessee in the following accounting year relevant to the assessment year 1964-65. The Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 12. In view of the above discussion, let us now peruse the judgment of the hon ble Supreme Court. The very first sentence of the judgment reads as under (page 3 of 232 ITR) : The question which arises for consideration in this appeal is as to in which assessment year the appellant is liable to be assessed in respect of mesne profits which were awarded in his favour. 13. After stating the facts of the case, their Lordships set out the questions, which were referred by the Tribunal to the hon ble High Court for its esteemed opinion. Those questions are mentioned below (page 4) : 1. Whether the mesne profits decreed by the Supreme Court accrued to the assessee earlier to the accounting year relevant to the assessment year 1963-64 ? 2. Whether, on the facts and in the circumstances of the case, the mesne profits received by the assessee is liable to be taxed in the assessment year 1964-65 ? 14. Proceeding further, their Lordships referred to the contentions of the parties. The contention on behalf of the assessee was noted as below (page 5) : It is contended by Shri Balakrishnan that the right to receive the mesne profits accrued to the appellant on April 22, 1958, when this court d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt was not before the court as is apparent from the question posed by the court for adjudication, the contentions raised by the respective parties as well as the operational part of the judgment. The decision given by the apex court is binding on all the subordinate courts as well as other authorities across the country in view of the provisions of article 141 of the Constitution of India. What is binding is the decision given by the court after considering the facts of the case, the question referred before it, the arguments made by the parties. Hence it cannot be said that the apex court gave any decision regarding the nature of the receipt by way of mesne profits. The decision of the Madras High Court regarding the nature of receipt remained unaffected by the judgment of the apex court. 18. The view taken by us is fortified by the decision of the apex court in the case of Rameshwarlal Sanwarmal v. CIT [1980] 122 ITR 1. In that case the assessee was a Hindu undivided family which was the beneficial owner of certain shares in a private limited company called Shams under Tea Company Pvt. Ltd. However, these shares stood in the name of S. N. Saharia, karta of the Hindu undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt decided the other issues against the assessee. Aggrieved by the same, the assessee preferred the appeal before the apex court. 21. On behalf of the assessee it was contended before the hon ble Supreme Court that amount of loans advanced to the three concerns of the assessee could not be regarded as deemed dividend within the meaning of section 2(6A)(e) since the assessee was not a registered shareholder of the company. This contention was sought to be supported by the earlier decision of the court in the case of CIT v. C. P. Sarathy Mudaliar [1972] 83 ITR 170 (SC). As against this, the argument, urged on behalf of the Revenue was that it was not open to the assessee to raise this contention since it was covered by the decision of the apex court in the assessee' s own case CIT v. Rameshwarlal Sanwarmal [1971] 82 ITR 628. However, the Revenue conceded that this contention was not specifically raised before the court but it was submitted that it must be held to have been impliedly decided against the assessee by the earlier decision of the court. The hon ble Supreme Court rejected the contention of the Revenue by observing as under (page 6 of 122 ITR) : . . . The most importa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to say that though this contention was not raised, not argued, not discussed and not decided, yet it must be held to have been impliedly decided because, through an error committed by this court, an answer was given in favour of the Revenue in ignorance of the true position. It would also not be right to hold that merely because this court erroneously answered the first question against the assessee without considering whether the view taken by the High Court on this point was incorrect, the assessee must be precluded from raising the contention that the assessee not being a registered shareholder, the amounts of loans advanced to the three business concerns of the assessee did not fall within the definition of ' deemed dividend' under section 2(6A)(e) . . . 22. The above judgment clearly lays down that any part of the judgment of the High Court which is not challenged before the apex court remains unaffected and to that extent it does not become part of the judgment of the apex court. It has been repeatedly observed by the hon ble Supreme Court that a decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability 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. 25. 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 of Rs. 34,57,01,137 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. Thus it will be appropriate to refer to the facts giving rise to this appeal. The same are being narrated as below : (a) The assessee is a company promoted by the members of Narang family. It owns various properties including shops Nos. 3, 3A and 4 to 7 on the ground floor in the building known as ' Beach View' at Warden Road, Mumbai. This property was given by the assessee on leave and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by this order, NIHPL carried the matter in appeal before the hon ble Bombay High Court and also applied for stay of the operation of the order and decree dated June 29, 1993, passed by the Bombay city civil court in Suit No. 8079 of 1990. The hon ble Bombay High Court passed the following interim order on the said appeal/ stay petition of NIHPL : Stay in terms of prayer 'a' till disposal of appeal on the appellant depositing Rs. 10,00,000 within 4 weeks towards arrears and continue to deposit of Rs. 1,25,000 per month with effect from August 1, 1993. The appellant to maintain the status quo and not to create third party rights. (f) Aggrieved by the above order, the assessee-company along with its director Shri Rajesh Narang filed a letters patent appeal praying for payment of arrears and commission as well as payment of the mesne profits. On the assessee' s prayer for permission to withdraw the amounts so paid by NIHPL, the hon ble High Court passed the following order on March 21, 1994 : Amount deposited by respondent in pursuance of the order dated August 24, 1993, in pursuance of the order of Chavan J. in first appeal No. 591 of 1993 be paid over to the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang before the Bombay High Court (Suit No. 3578/1994). Eventually, the hon ble Supreme Court vide order dated January 8, 2002, decreed all the suits, including the suit filed by Shri Rajesh Narang on July 2, 1994, i.e., Suit No. 3578 of 1994, in terms of the minutes of the consent order. In the meeting of the board of directors of NIHPL (to give effect to the minutes of the consent order and order of the hon ble Supreme Court), inter alia, the following resolution was passed : 12. Resolved that the licence created by Narang Overseas Private Limited in favour of the company in respect of premises being flat Nos. 3, 3A, 5, 6 and 7 on the ground floor of Beach View Co-operative Housing Society Limited, Warden Road, Bombay-400 007 stands can celled with effect from July 3, 1991, and that accordingly the said licence in favour of the company has come to an end from the said date . Further resolved that the company does agree and undertakes to handover quite, peaceful and vacant possession of the said premises to Narang Overseas Private Limited on or before January 1, 2002, and that the company agrees and undertakes to simultaneously pay to Narang Overseas Pvt. Ltd. Rs. 2,61,745 (rounded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and implementation of family settlement. The said amount being received as damages and mesne profits for wrongful use and occupation of the said premises shown as ' capital reserve' after adjusting the expenditure incurred to receive the same and in implementation of the family settlement. Date Amount receivable Total principal + O/S interest Interest for the year Total amount receivable (1) (2) (3) (4) (5) April 92 to March 93 12,000,000 12,000,000 1,365,000 13,365,000 April 93 to March 94 12,000,000 2,365,000 4,171,650 29,536,650 April 94 to March 95 12,000,000 41,536,650 7,567,697 49,104,347 April 95 to March 96 12,000,000 61,104,347 11,676,913 72,781,260 April 96 to March 97 12,000,000 84,781,259 16,679,064 101,095,692 April 97 to March 98 12,000,000 113,430,324 22,665,368 136,095,692 April 98 to March 99 12,000,000 148,095,692 29,945,095 178,040,787 April 99 to March 2000 12,000,000 190,040,787 38,753,565 228,794,352 April 2000 to March 2001 12,000,000 240,794,352 49,411,814 290,206,166 April to Dec. 2001 9,000,000 299,206,166 46,467,971 345,701,137 27. In the course of the assessment proceedings, the Assessing Officer asked the assessee to explain as to why the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s members of Narang family regarding owner ship, management and control of various properties of the family including business concerns. Such disputes had been finally settled by the family members themselves and the court had not passed any judgment resolving the dispute. 29. The Assessing Officer also considered the provision of section 2(12) of the Code of Civil Procedure as well as certain decisions of the various courts namely decision of the Privy Council in Girish Chunder Lahiri v. Shashi Shikhareshwar Roy [1900] 27 IA 110, the Supreme Court judgment in the case of P. Mariappa Gounder [1998] 232 ITR 2, the Kerala High Court judgment in the case of Smt. Annamma Alexander [1993] 199 ITR 303. Finally, it was held by him that the amount received by the assessee could not be treated as mesne profits. 30. The next question posed by the Assessing Officer was whether such receipts could be treated as revenue receipts or capital receipts. The Assessing Officer was of the view that the amount received by the assessee was in the nature of revenue. Such view was formed after considering the various decisions mentioned by him in his order from pages 19 to 25. 31. The order of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o terminate after 11 months. Clause 12 of the agreement required the licence to vacate the premises on termination of licence. Clause 13 provided that extension/renewal of licence would be at the sole discretion of the owner of the premises. The owner had expressly terminated the licence first through the supplemental family arrangement of July 3, 1991, and finally under the third family settlement of January 30, 1992. Under the later settlement, NIHPL was obliged to vacate the shops before March 31, 1992, and to pay arrears of commission till the time the shops were vacated. Based on these family arrangements, the Bombay city civil court vide its order dated June 29, 1993, has held that occupation of the shop premises by NIHPL after March 31, 1992, was illegal and unauthorised. This order as brought out by the appellant in paragraph 7.2.3 above, has indeed become final. Thus, the licence agreement having been terminated before March 31, 1992, there could be no question of the terms of the said licence agreement continuing to apply after the date of termination. As such, the amount of Rs. 10 lakhs per month cannot be referable to the compensation payable in terms of the licence agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant-company, lodged a Suit No. 3578 of 1994 in the Bombay High Court, inter alia, seeking specific performance and implementation of the family settlement. These facts, to my mind, do bear out the averment of the appellant that the co-operation it rendered to NIHPL for getting the statutory licences renewed was under the conditions specified by the hon ble High Court and that this was without prejudice to the claim of the appellant for eviction of NIHPL from the said shop premises and for mesne profits. Thus, the continued possession of NIHPL was not because of the acquiescence of the appellant but despite the best efforts of the appellant to evict NIHPL. The facts also do not indicate any collusiveness between the parties as suspected by the Assessing Officer. Actually, the facts show, quite to the contrary, that a bitter feud raged among the members of Rama Narang family over division/distribution of assets which manifested in various court battles. The litigation came to an end with Ramesh Narang charging his own father, Shri Rama Narang, for contempt of the court and actually getting him declared a contemnor by the hon ble Supreme Court. Surely, all this does not ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Narang before the hon ble Bombay High Court on July 2, 1994, claiming, inter alia, mesne profits at the rate of Rs. 10 lakhs p.m. was decreed in terms of the minutes of the consent order. The contention of the Assessing Officer is that the decree of the hon ble Supreme Court merely gave effect to the consent terms agreed to between the parties. Therefore, the same cannot be regarded as an award of damages by the order of a court which is essential for mesne profits. However, I do not find any merit in this contention of the Assessing Officer. Just because a suit is disposed of by a consent decree it will not be any less than an award in a contested suit. In law there is no real difference between the two. Even a vigorously con tested suit may eventually end up in an out of court settlement sub sequently decreed by the court. In this instant case what has been decreed by the hon ble Supreme Court is the Suit No. 3678 of 1994 of Shri Rajesh Narang before the hon ble Bombay High Court. In this suit Shri Rajesh Narang had, inter alia, claimed mesne profits at the rate of Rs. 10 lakhs p.m. This claim has been decreed by the hon ble Supreme Court. The effect of this decree is the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Commissioner of Income-tax (Appeals) was not justified in holding that the hon ble Supreme Court upheld the finding of the hon ble Madras High Court regarding taxability of mesne profits. According to him, the issue before the apex court was the year of taxability only as no appeal had been filed against the finding of the High Court that mesne profits constitutes revenue receipt chargeable to tax. It was also contended that decision of the Special Bench of the Tribunal in the case of Sushil Kumar and Co. is also incorrect in holding that the apex court decided the issue regarding the taxability of mesne profits. This contention of learned counsel for the assessee had resulted in constituting of larger Bench of five Members. The following question was referred to this Bench for adjudication : Whether in the light of the decision in 232 ITR page 2 it must be held that the mesne profits received by the assessee is revenue income chargeable to tax ? 35. The above question has already been answered by us in the earlier part of our order. It has been held by us that the issue regarding the taxability of mesne profit was not before the apex court in the case of P. Mariappa Gounder [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not change by the fact that the agreement was terminated and suit for possession was filed by the assessee against NIHPL. Reliance was placed on the decision of the Calcutta High Court in the case of Swaika Oil and Produce Co. P. Ltd. v. CIT [1993] 201 ITR 520 for the following proposition (page 522) : Merely because the assessee has filed an ejectment suit or the assessee is not collecting rent or occupation charges, as the case may be, which are being deposited by the tenant to the Rent Controller, it cannot be said that the annual value cannot be assessed. Whether the owner is in possession and enjoyment of the property or has let it out to a third person is not a relevant consideration for determination of the annual value of the property. The liability does not depend upon the right of the owner to enjoy or let out the property. 38. Proceeding further, it was submitted that it could not be a case of simple letting out since NIHPL never claimed itself as a statutory tenant or protection under the Rent Control Act. He also referred to pages 34 and 35 of the paper book to point out that the other flats owned by the assessee on the first and second floors were let out to Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness receipt, which is liable to be assessed as income. 39. Learned counsel for the assessee has strongly opposed such contention of the learned senior Departmental representative by submitting that at the time when the agreement was made, Rajesh Narang was not controlling the assessee-company. Rajesh Narang was to takeover the assessee-company but the agreement was not implemented. It was only in March, 1992 that shares of the assessee-company were vested in Rajesh group. Proceeding further, it was submitted that mesne profits of Rs. 34,57,01,137 did not arise from the agreement as it was terminated with effect from March 31, 1992. According to him, it arose only as a result of suit filed before the Bombay High Court in 1994 which has been upheld by the apex court. It was submitted by him that after the termination of the agreement, NIHPL was in unlawful possession of the property and therefore the amount received by the assessee cannot be attributed to the agreement. It has to be treated as mesne profit which accrued to the assessee as a result of the suit decreed by the High Court. It was also pointed out by him that the consideration received for the period ending March 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined by the court after considering various facts. The mere fact that a particular amount was claimed by the assessee as mesne profit in the suit filed before the court and the fact that the same has been accepted by the defendant would not make the compensation as mesne profit. We are unable to accept such contention in view of the judgment of the jurisdictional High Court in the case of Anant Chunilal Kate [2004] 267 ITR 482 wherein it has been held that consent decree has the same binding force as any other decree. This legal finding was given in view of the Supreme Court judgment in the case of Kumar Sudhendu Narain Deb v. Mrs. Renuka Biswas [1992] 1 SCC 206. Therefore, respectfully following the said judgments, the contention of the learned senior Departmental representative cannot be accepted. 42. The mesne profits has been defined in section 2(12) of the Code of Civil Procedure, 1908 as under : (12) '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 improve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Lucy Kochuvareed v. P. Mariappa Gounder, AIR 1979 SC 1214, were neither cited nor noticed by the Madras High Court. It was further observed that the decisions of the Patna and Kerala High Courts, mentioned above were also not cited or considered by the Madras High Court. Accordingly, it was submitted that in view of the above judgment, the mesne profits received by the assessee must be held as capital receipt. Alternatively, he relied on the preposition that where two views are possible then the view favourable to the assessee should be preferred. 46. On the other hand, the learned senior Departmental representative has strongly approved the submission of learned counsel for the assessee by contending that mesne profits received by the assessee is against deprivation of the use of the property and, therefore, the receipt is of revenue nature as rightly held by the hon ble Madras High Court in the case of P.Mariappa Gounder [1984] 147 ITR 676. The emphasis is on the fact that if a property is used by someone and consideration is paid for such use of the property, then such compensation is of revenue in character and, therefore, if the mesne profit is against use of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Lordships did not follow the above Kerala High Court decision. Similarly, the Bombay High Court did not follow the same in the case of Vishnudayal Dwarkadas [1980] 123 ITR 140. It was further submitted by him that the hon ble Orissa High Court in the case of Govinda Choudhury [1977] 109 ITR 497, decided that interest received, neither under the statute nor under a contract is not chargeable to tax as revenue receipt. This decision was rendered following the above Kerala High Court decision but on appeal, the apex court has decided the issue in favour of the Revenue by holding that such profit was taxable. Hence, it is pleaded that the decision of the Kerala High Court stand overruled. Further, it was contended by him that the decision of the hon ble Patna High Court in the case of Rani Prayag Kumari Debi [1940] 8 ITR 25 is no more good law since the hon ble Patna High Court itself has not followed, the same in subsequent judgments viz., Rai Bahadur H. P. Bannerji v. CIT [1951] 19 ITR 596, CIT v. Maharajadhiraj Sir Kameshwar Singh (No. 2) [1953] 23 ITR 212 (Patna) as well as by the hon ble Nagpur High Court in the case of Gopaldas Mohta v. CIT [1951] 20 ITR 516. Proceeding furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated May 22, 1950. The vendor, contrary to the agreement and in breach thereof, sold it to K and put him in possession. The assessee thereupon sued his vendor for specific performance. In the said suit, K impleaded himself and ultimately the trial court decreed the suit for specific performance. The hon ble Kerala High Court allowed the appeal of K but the hon ble Supreme Court reversed the said decision and restored the trial court' s decree for specific performance. The court also sustained the assessee' s claim for mesne profits payable and the amount of mesne profits was fixed by the trial court in the year ending March, 1963, and paid to the assessee some time during the financial year ending on March 31, 1964. The Income-tax Officer, the Appellate Assistant Commissioner as well as the Tribunal held that the mesne profits were taxable as income. On a reference, the High Court affirmed the view of the Tribunal and decided the issue against the assessee by observing as under (page 679) : We do not think it should take us long to find the correct answer. A claim for mesne profits is usually directed against one who has deprived the true owner of possession of his propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act, 1961 ( the Act ) and held that such sum was taxable in the hands of the assessee. On appeal, the Tribunal held that the aforesaid sum was not a revenue receipt since it was an interest paid otherwise than under the provisions of the statute. On a reference, the High Court held that interest was in the nature of damages for use and occupation or compensation for the deprivation of the use and possession of land and in either event could not be classified as a revenue receipt. 54. In the case of Smt. Lila Ghosh [1994] 205 ITR 9 (Cal), the facts were these. The assessee inherited, on the death of her husband in 1960, a property which was under a lease. The lease expired in 1970. However, the lessee did not give possession to the assessee. The assessee filed a suit for eviction and mesne profits. The suit was decreed in favour of the assessee in August, 1971. While the execution of the said decree and the quantification of the mesne profits were pending, the Government requisitioned the demised property on December 24, 1979. The requisition order was challenged and subsequently a settlement was arrived at. Under the terms of the settlement, the property in question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither cited or noticed by the learned judges of the Madras High Court. In fact, even the decision of the Patna High Court in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25, and that of the Kerala High Court in CIT v. Periyar Pareekanni Rubbers Ltd. [1973] 87 ITR 666, were neither noticed nor considered by the Madras High Court. 55. In the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 (Ker), the land of the assessee was acquired by the Government on the basis of an agreement between the assessee and the Government. Apart from the compensation, the assessee also received interest of Rs. 24,103 for the period commencing from the date of acquisition and the date of award. The question arose before the High Court was whether this interest could be treated as revenue receipt. The court held that such interest was in the nature of capital receipt not chargeable to tax. It may be pertinent to mention that the hon ble court pointed out the distinction between the possession of land assumed under the provisions of the Land Acquisition Act and possession otherwise taken. In the former case, sections 16 and 17 of the Act stipulated that on possession taken the property will ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1940] 8 ITR 25, of the hon ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666, the judgment of the hon ble Supreme Court in the case of Lucy Kochuvareed v. P. Mariappa Gounder, AIR 1979 SC 1214, as well as in the case of Mahant Narayana Dasjee Varu v. Board of Trustees, Tirumalai Tirupathi Devasthanam, AIR 1965 SC 1231, and dissented from the judgment of the hon ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676. 58. The above analysis 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 confli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be revenue in nature since it would be deprivation of use of money. 61. We are in agreement with the contention of learned counsel for the assessee. The hon ble Andhra Pradesh High Court as well as the Kerala High Court in the cases referred to by the assessee' s counsel have considered this issue. The judgment of the hon ble Supreme Court in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 was referred to and considered by the above High Courts. The hon ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 considered the situation where the interest was paid to the assessee up to the date of award under the Land Acquisition Act, 1894. Their Lordships held as under (page 668) : A distinction has been drawn in relation to possession assumed under the provisions of the Act and possession otherwise taken. In the former case, sections 16 and 17 of the Land Acquisition Act stipulate that on possession being taken, the property will vest in the Government. In the absence of any such statutory provision, even when possession is assumed by the Government, whether under some provision of law or by agreement or even sometimes unauthoris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit he might have made if he had had the use of the money in time, or, conversely, the loss he had suffered, because he had not had that use. If, on the other hand, the claim is for loss of property or loss of goods, or some other injury to capital and the element of interest comes in by way of estimating the compensation to be granted for such capital loss or capital injury, then, the receipt would be capital. 63. In view of the above, the High Court held that interest up to the date of award of mesne profits is nothing but damages for deprivation of use and occupation of the property and thus receipt is in the nature of capital not chargeable to tax. It may also be mentioned that their Lordships dissented from the view of the hon ble Madras High Court in the case of P. Mariappa Gounder [1984] 147 ITR 676 which has been relied upon by the Revenue. 64. The hon ble Andhra Pradesh High Court in the case of J. D. Italia [1983] 141 ITR 948 also held that interest awarded was in the nature of damages and therefore, capital receipt not chargeable to tax. The decision of the Supreme Court in the case of Dr. Shamlal Narula [1964] 53 ITR 151 was also considered by the court. 65. The judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons given hereafter. We have gone through the judgment of the hon ble Orissa High Court in the case of Govinda Choudhury and Sons [1977] 109 ITR 497 wherein their Lordships, following the judgment of the hon ble Supreme Court in the case of T. N. K. Govindaraju Chetty [1967] 66 ITR 465, held that where interest has been awarded under the statute or under the contract, the same is income exigible to tax and where it is not attributable either to the statute or to the contract but has been awarded on ex gratia basis it would partake the character of compensation. Then, it was observed that this principle has also been adopted by the hon ble Kerala High Court in the case of CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666. On appeal, the assessee conceded before the hon ble Supreme Court that interest income was a revenue receipt chargeable to income-tax. In view of such concession, the court did not adjudicate upon the nature of the interest receipt. Therefore, it cannot be contended that the decision of the hon ble Kerala High Court stood overruled by the judgment of the hon ble Supreme Court. A judgment can be said to be overruled only when a contrary proposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. Therefore, it cannot be said that the judgment of the hon ble Kerala High Court was commented upon by the hon ble Rajasthan High Court. On the contrary at page 924 it was held that award of interest was under statute and therefore, it was in the nature of revenue receipt. Even the said judgment of the hon ble Rajasthan High Court does not help the Revenue since in the present case before us interest was awarded neither under a statute nor under a contract. 69. The contention of the Revenue that the judgment of the hon ble Kerala High Court in the case of Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 was not accepted by the hon ble Bombay High Court in the case of CIT v. Vishnudayal Dwarkadas [1980] 123 ITR 140 is also without force. In that case, in pursuance of an agreement to sell, concluded on May 1, 1958, the assessee agreed to sell certain agricultural properties to one R for a price of Rs. 2,28,442. Since the vendee was not in a position to pay the price it was agreed that the assessee could carry out the agricultural operations on behalf of the vendee until the date of the execution of the sale deed. The assessee was also entitled to interest at the rate of 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on the dues recoverable from the other party. Similarly in the case of Gopaldas Mohta [1951] 20 ITR 516 the amount related to interest against non-payment of the principal amount. Therefore, in none of the cases, the compensation related to wrongful detention of the property. In the above cases the courts have distinguished the earlier decision and, therefore, the senior Departmental representative was not justified in contending the decision of the hon ble Patna High Court in the case of Rani Prayag Kumari Debi [1940] 8 ITR 25 had not been followed in subsequent cases. 71. Mr. Gupta on behalf of the Revenue has also contended that the judgment of the hon ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9 stands impliedly overruled by the judgment of the hon ble Bombay High Court in the case of Vijay Flexible Containers [1990] 186 ITR 693. It has been submitted by him that the hon ble Bombay High Court differed from the judgment of the hon ble Calcutta High Court in the case of Ashoka Marketing Ltd. [1987] 164 ITR 664 which relied upon by the hon ble Calcutta High Court in the case of Smt. Lila Ghosh [1994] 205 ITR 9. After going through the hon ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals). Since we have held that compensation received by the assessee is not chargeable to tax, this ground does not survive being infructuous. 75. Ground No. 6 challenging the levy of interest under sections 234B and 234C of the Act is consequential in nature and, therefore, does not require any comment of the Bench. The Assessing Officer is directed to recompute the same after giving effect to our order. Ground Nos. 7 and 8 are general in nature and, therefore, do not require any adjudication. 76. In view of the above discussion, the legal position is summarised below : (1) That the hon ble Supreme Court in the case of P. Mariappa Gounder [1998] 232 ITR 2 was not concerned with the issue whether the mesne profits received against the wrongful possession of the property is in the nature of revenue receipt or capital receipt. The only issue before the court related to the year of taxability. Hence it cannot be said that the hon ble Supreme Court adjudicated upon the issue relating to the nature and character of the receipt by way of mesne profits. (2) That the amount received against wrongful possession of the property amounts to mesne profits whether determined by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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