TMI Blog1991 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... eferences arise out of the common appellate order passed by the Appellate Tribunal dated March 14, 1983, in I. T. A. No. 390(Coch) of 1980 (appeal filed by the assessee) and I. T. A. No. 391 (Coch) of 1980 (appeal filed by the Revenue). The Appellate Tribunal allowed the appeal filed by the assessee (I. T. A. No. 390(Coch) of 1980), but dismissed the appeal filed by the Revenue (I. T. A. No. 391 (Coch) of 1980). That resulted in the Revenue filing two different applications for referring certain questions of law for the decision of this court. It is in pursuance of the said two applications (R. A. Nos. 1.60 and 161(Coch) of 1983) that the above three questions have been referred for the decision of this court in the two referred cases at the instance of the Revenue. The original assessee in this case was one of the legal heirs of late Rev. Fr. k. C. Alexander. Before the Appellate Tribunal and in the reference proceedings, one of the legal heirs, Mrs. Annamma Alexander alone contested the proceedings. After the hearing of the referred cases was over, Mrs. Annamma Alexander died on January 3, 1991. The sisters and brother of the deceased, Mrs. Annamma Alexander, who are the legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits at six per cent. per annum from the date of its accrual. On item No. (4) a sum of Rs. 2,06,423 for compensation for waste with interest at six per cent. per annum on that sum from the date of the judgment, i.e., December 23, 1965, was decreed. The question that arises is whether the interest awarded under item No. (2) that the assessee is entitled to mesne profits calculated with interest on each year's mesne profits is a revenue receipt in the hands of the assessee. The actual amount so treated as income for the assessment year 1966-67 is Rs. 3,29,160. The Income-tax Officer did not seek to assess the mesne profits that were allowed in item No. (2) at the rate of Rs. 5,000 per annum for the subsequent period up to the date of the judgment. The dispute was only with regard to the interest part on item No. (2). Relying on the decision of this court in CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 and certain observations in the Law and Practice of Income Tax by Kanga and Palkhivala, Seventh Edition, Volume I, page 142, the assessee contended that the interest part in item No. (2) cannot be treated as a revenue receipt in the hands of the assessee. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the hands of the assessee. To come to the said conclusion, the Tribunal relied on the decision of this court in CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 and the decision of the Patna High Court in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25. The Tribunal held that the decision of the Patna High Court aforesaid squarely applies to the facts of this case. The Tribunal held that the sum of Rs. 3,29,160 cannot be assessed as the income of the assessee for the assessment year 1966-67. Since the Tribunal held that this is not income assessable to tax, the other point raised by the assessee, that if it is income, it is agricultural income, was not considered by the Tribunal. It is thereafter, at the instance of the Revenue, that the Income-tax Appellate Tribunal has referred the above three questions of law for the decision of this court. We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the respondent/legal heirs of the deceased assessee, Mr. P. Balachandran. Counsel for the Revenue stressed that mesne profits themselves is income and so the interest the assessee was entitled to realise on mesne profits is also income. A few decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Edition, Volume I, page 518, the distinction between "interest proper" and "damages by way of interest" for the purpose of income-tax has been succinctly stated. It is thus: "If the quality of the claim for interest is compensation, for the reason that the claimant has been deprived of the use of the money and has not had his money at the due date, it would be income in his hands. It may be regarded either as representing the profit 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." Therefore, we have no hesitation to hold that mesne profits awarded by the decree are only damages for loss of property or goods and are only capital receipt and not a revenue receipt. In this case, the Appellate Tribunal has stated that the Income-tax Officer did not assess the mesne profits proper on the ground that they would represent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the Government. The amount of Rs. 24,106.33 awarded represented the interest on the amount of compensation awarded for the period from November 29 , 1961, to September 6, 1962, the date of payment. The Appellate Tribunal held that the bulk of the amount awarded represented compensation for deprivation of property and so a receipt in the nature of capital. The said view was endorsed by Bench of this court. At page 668 of the report, the court observed thus: "....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 unauthorisedly, the view is that there has been deprivation of property and the interest paid by the Government is merely compensation for deprivation of such property. The fact that compensation that is payable for such deprivation is calculated at a percentage of interest on that amount does not affect the question. It is still compensation for deprivation of property. This is the distinction that has been drawn by the Supreme Court in the decision in Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 referred to by the Tribunal. That this distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be assessed as income. The discussion is contained on page 681 of the reports. With great respect to the learned judges who rendered the said decision, we are of the view that the said decision fails to give due effect to the decision of the Judicial Committee of the Privy Council reported in Girish Chunder Lohiri v. Shoshi Shikhareswari Roy [1900] 27 IA 110, and the decision of the Supreme Court of India in Lucy Kochuvareed v. Mariappa Gounder, AIR 1979 SC 1214; [1979] 3 SCC 150, 158, para 24. It is also not in accord with the earlier Bench decision of this court in CIT v. Periyar and Pareekanni Rubbers Ltd. [1973] 87 ITR 666 and the decision of the Patna High Court in CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25. To the extent the said decision of the Madras High Court holds that mesne profits awarded by the court for wrongful possession are liable to be assessed as income, we express our respectful dissent, in view of the clear character of the receipt - mesne profits - as a capital receipt. In the light of our above discussion, we are of the view that the Appellate Tribunal was justified in holding that the amount of interest received on mesne profits in the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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