TMI Blog2007 (2) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. (3) He further erred in this connection in holding that paragraphs 28 to 31 of the Tribunal's order dated 16.12.2004 pertaining to block assessment were not the operative parts of the Tribunal's order and therefore, can only be construed as obiter dicta and not ratio decidendi. (4) The learned CIT(A) further erred in this connection in enhancing the assessed income by ₹ 1,18,75,000/-. (5) The Appellant prays that the impugned addition of ₹ 34,57,01,137/- be demolished as unlawful, illegal and invalid and consequently, held to be null and void. (6) The learned CIT(A) erred in sustaining the levy of interest under Sections 234B and 234C of ₹ 4,49,59,291/- and ₹ 43,302/- respectively. (7) The Appellant craves leave to add to and/or amend and/or delete and/or modify and/or alter the aforesaid grounds of appeal as when the occasion demands. (8) All the aforesaid grounds of appeal are independent, in the alternative without prejudice to one another. 2. At the outset, it would be appropriate to narrate the circumstances in which this Bench has been constituted. The dispute before the Division Bench was whether the mesne profit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivision Bench considering the above judgement observed it is difficult for us to concur with the view expressed by the Hon'ble Special Bench in the case of Sushil Kumar Co. . Consequently, reference Under Section 255(3) of the Act was made to the Hon'ble President, ITAT, for constituting the Special Bench to resolve the controversy. In pursuance of the recommendation of the Division Bench, the Hon'ble President vide order dated 7th August, 2006, constituted a Special Bench of three Members to resolve the Controversy referred to in the question mentioned earlier by us. 3. The Special Bench, constituted by three Members, heard the matter. Vide order dated 13th April, 2007, it was of the view that the correctness of the decision of the Special Bench in the case of Susheel Kumar Co., can be decided only by a larger Bench of five Members. In view of such recommendation, the Hon'ble President has constituted this Special Bench comprising of five Members to resolve the controversy as well as to dispose off the appeal. 4. Let us first proceed to consider the impact of the judgement of Hon'ble Supreme Court in the case of P. Mariappa Gounder, 232 ITR 2, so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instance of revenue it was held that income was chargeable to tax in assessment year 1963-64. Thus, the issue arising from the revenue's references was also decided against the assessee. However, the appeal by the assessee was preferred only in reaped of the year of taxability and the Hon'ble Supreme court decided the issue against the assessee by holding that mesne profit accrued in assessment year 1963-64 as is apparent from the judgement of the apex court. On these facts it was vehemently pleaded by Mr. Dastur that the nature of mesne profit was not the subject matter of consideration by the Hon'ble Supreme Court and, therefore, the decision of the Hon'ble Supreme Court cannot be construed as decision on the taxability of mesne profit. What has been merged in the order of Supreme Court is the decision of Hon'ble Madras High Court in respect of the question relating to the year of taxability and not in respect of the nature of character of mesne profit. On the other hand the learned senior DR has relied on the decision of Supreme Court in the case of Kunhayammed and Ors. v. State of Kerala 245 ITR 360 in support of the contention that entire judgement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e against the order relating to assessment year 1964-65 which was the initial order of assessment and the second appeal against the order of assessment for assessment year 1963-64 which was the reassessment proceedings Under Section 147 of the Act as the ITO had reopened the assessment on the basis of the order of AAC relating to assessment year 1964-65. In order to clarify the same, the learned Counsel for the assessee has furnished the copy of the order of the Tribunal dated 29th July, 1975, delivered in the case of P. Mariappa Gounder. The very first para on the said order says that order of assessment for 1963-64, arose out of reassessment proceedings Under Section 147 of the Act. Para 6 of the said order also shows that the mesne profit was initially brought to tax in assessment year 1964-65 but the AAC held the same to be taxable in assessment year 1963-64. which has resulted in reopening of the assessment for assessment year 1963-64. Considering the order of the Tribunal mentioned above, it is clear that the issue arose in two proceedings i.e., one against the original assessment proceedings for assessment year 1964-65 and the other against the reassessment proceedings for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same in A.Y. 1963-64. On appeal, the AAC held it to taxable in A.Y. 1964-65. On further appeal, the tribunal held it to be taxable in A.Y. 1963-64. Aggrieved by the said decisions of the Tribunal, the assessee as well as the Revenue sought reference Under Section 256 of the Act for the esteemed opinion of the Hon'ble High Court. At the instance of the assessee, the following question was referred to: Whether the mesne profits decreed by the Supreme Court is of an income nature? However, at the instance of the Revenue the following questions were referred to: (1) Whether mean profits decreed by the Supreme Court accrued to the assessee earlier to the accounting year relevant to assessment year 1963-64? (2) Whether on the facts and circumstances of the case, the mesne profits received by the assessee is liable to be taxed in the assessment year 1964-65? 10. The Hon'ble Madras High Court vide its judgement dated 17th January, 1983 held that mesne profit decreed by the Supreme Court was a revenue receipt. Thus the question referred to at. the instance of the assessee was answered in favour of the Revenue and against the assessee. Further, it was held that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement of its own court in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. 161 ITR 524 held as under: Applying the ratio of the aforesaid decisions, it appears to us that the decree dated April 22, 1958, passed by this Court only created an inchoate right in favour of the appellant. It is only when the trial court determined the amount of mesne profits that the right to receive the same accrued in favour of the appellant. In other words, the liability became ascertained only with the order of the trial court on December 22,1962, and not earlier. Following the mercantile system of accounting, the mesne profits awarded by order dated December 22, 1962, were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was in fact realised by the assessee. In our opinion, therefore, the High Court was right in deciding the reference in favour of the Department. We accordingly dismiss the appeals but in the circumstances of this case award no costs. 16. The above discussion clearly shows that the Hon'ble Supreme Court was only concerned with one issue relating to the year of taxability of mesne profit, i.e., wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two findings - 1) that the loans advanced to the three business concerns of the assessee could not be regarded as deemed dividend within the meaning of Section 2(6A)(e) inasmuch as the word 'shareholder' in Section 2(6A)(e) meant a registered shareholder i.e., a shareholder whose name is recorded in the register of the company. Since the assessee was not the registered shareholder, such loans could not be treated as deemed dividend, and 2) even if it be assumed that advance was liable to be regarded as deemed dividend Under Section 2(6A)(e), it could be taxed only in the hands of registered shareholder and not of the assessee. 19. Aggrieved by the decision of the High Court, the Revenue preferred an appeal before the apex court. However, inadvertently, the Revenue challenged only the latter finding of the High Court. The correctness of the first finding given by the High Court remained unchallenged. After considering the contentions of the parties, the Hon'ble Supreme Court decided the issue in favour of the Revenue. Since the High Court had not answered the other questions, the Supreme Court remanded the matter to the High Court. On remand, the High Court decided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. Now, it is true that this Court could not have answered the first question against the assessee without overruling this part of the decision of the High Court, but through sortie unfortunate error, this Court set aside the answer given by the High Court in favour of the assessee without considering whether this part of the decision of the High Court was right or wrong. When no contention was raised on behalf of the revenue before this Court the decision of the High Court on this point was wrong and that even though the assessee was not a registered shareholder, the amounts of loans advanced to the three business concerns of the assessee were still liable to be regarded as deemed dividend under Section 2(6A)(e) and no such contention formed the subject-matter of discussion before this Court and this Court had, therefore, no occasion to consider this question, it is difficult to see how it can be said merely from the answer given by this Court in favour of the revenue that this contention was impliedly decided in favour of the revenue. It would be straining logic to an absurd limit to say that though this contention was not raised, no argued, not discussed and not decided, yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the apex court, the decision of the High Court is confirmed and the doctrine of merger applies. It is not necessary for us to adjudicate such contention in the present case since there was no appeal by the assessee against the opinion of the High Court expressed in the Reference Application at the instance of the assessee. As already mentioned by us in earlier part of the order that there were three Reference Applications before the High Court - one by the assessee and two by the Revenue. Only two appeals were filed before the apex court with reference to the opinion expressed by the High Court on the questions referred at the instance of the Revenue. Since no appeal was filed against the opinion expressed by the High Court on the question referred at the instance of the assessee, the question of applying the theory of merger does not arise. 23. The above discussion clearly reveals that judgement of the Hon'ble Supreme Court in the case of P. Mariappa Gounder (supra) only decides the issue, regarding the year of taxability of the mesne profits. That judgement, therefore cannot be said to be an authority for the proposition that nature of mesne profits is revenue receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided that all the assets of assessee company shall vest in and belong to Rajesh Narang. Further it was provided that the license created in favour of NIHPL in respect of the premises at Warden Road has bee mutually cancelled and terminated. However, this settlement also could not be implemented. d. Subsequently, third family settlement was arrived at on 30th January, 1992 which, inter-alia, provided that NOPL shall belong exclusively to Rajesh Narang and for his nominees. Further, NIHPL shall pay the arrears of commission to NOPL for the premises occupied by them and they shall continue to pay the commission until the said premises are vacated. It was also agreed that NIHPL shall vacate the said premises on or before 31st March, 1992. However this family settlement also could not be implemented. e. Vide order dated 29th June, 1993, the Bombay Civil Court took cognisance of the family settlement dated 30th January, 1992 and, inter-alia, decreed that. NIHPL shall hand over the possession of the shops at Warden Road, Mumbai to NOPL. Aggrieved by this order, NIHPL carried the matter in appeal before the Hon'ble Bombay High Court and also applied for stay of the operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL. a. to hand over forthwith quite, peaceful and vacant possession of the shop; b. To pay arrears of commission with interest; c. To pay the appellant mesne profits/damages of ₹ 10 lacs per month along with interest thereon for use and occupation of the shop premises; and d. To withdraw forthwith the first appeal number 591/1993 filed before the Bombay High Court arising out of Bombay City Civil Court's Order in suit number 8079 of 1990. h. Besides the above litigation, several other proceedings were pending before various other authorities and courts. Litigations reached a stage where Shri Rajesh Narang and Shri Ramesh Narang had to bring suit of contempt of court against their father Shri Rama Narang. As a result of the contempt petition, the Hon'ble Supreme Court considered Shri Rama Narang' as contemnor and issued a notice for award of punishment. However, soon after being held as contemnor, Shri Rama Narang decided to implement the Family Settlements and also to have all suits decreed by a consent decree, including the suit filed by Rajesh Narang before the Bombay High court (Suit No. 35.78/1.994). Eventually, the Hon'ble Supreme Court vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of shop at Beach View was to be handed over on or before 31s1 March, 1992 arrears of commission to be paid to Company by Narang International Hotels Pvt. Ltd. However, due to dispute and litigation the same were pending since 1992. The matter has been finally resolved in terms of settlement before Supreme Court vide order dated 12th December, 2001 8th January, 2002 and accordingly Company received ₹ 2,61,745/- being arrears of commission for occupation of the said premises till 31 March, 1992 along with interest @ 21% p.a. till 31st December, 2001 amounting to ₹ 16,84,487/-. The aforesaid receipt is accounted for in Profit Loss Account. 2. In terms of settlement before Supreme Court vide order dated 12th December, 2001 8th January, 2002 the Company has also received damages arid mesne profit for wrongful use and occupation of the said premises from 1st April, 1992 till 31st December, 2001 along with interest @ 21% p.a. amounting to ₹ 34,57,01,137/- (less amount already received through the Court of ₹ 1,10,00,000/-) and implementation of Family Settlement. The said amount being received as damages mesne profits for wrongful use and occu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of running business against pre-determined rate of commission calculated on the sales effected by NIHPL. d) The dispute between the parties was on account of lack of agreement between the various members of Narang family regarding ownership, 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. The Assessing Officer also considered the provisions of Section 2(12) of the Code of Civil Procedure as well as certain decisions of various courts namely - decision of the Privy Council in Gishchandan Lahari v. Shashi Shikhareshwar Roy, the Supreme Court judgment in the case of Mariappa Gounder, Kerala High Court judgment in the case of Annamma Alexander. Finally, it was held by him that the amount received by the assessee could not be treated as mesne profits. 28. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very clear that the license was to terminate after 11 months. Clause 12 of the agreement required the license to vacate the premises on termination of license. Clause 13 provided that extension/ renewal of license would be at the sole discretion of the owner of the premises. The owner had expressly terminated the license first through the Supplemental Family Arrangement of 3.7.1991 and finally under the Third Family Settlement of 30.1.1992. Under the later Settlement, NIHPL was obliged to vacate the shops before 31/3/1992 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 29/6/1993 has held that occupation of the shop premises by NIHPL after 31.3.1992 was illegal and unauthorised. This order as brought out by the appellant in para 7.2.3 above, has indeed, become final Thus, the license agreement having been terminated before 31.3.1992, there could be no question of the terms of the said license agreement continuing to apply after the date of termination. As such, the amount of ₹ 10 lakhs per month can not be referable to the compensation payable in terms of the license ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it number 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 licenses 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 a head 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 indicate collusiveness bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits @₹ 10 lakh 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 off 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 contested suit may eventually end up in an out of court settlement subsequently 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 @ ₹ 10 lakh p.m. This claim has been decreed by the Hon'ble Supreme Court. The effect of this decree is the same as that of any other binding order of the court. As has been pointed out by the appellant, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that mesne profits constitutes revenue receipt chargeable to tax. It was also contended that decision of Special Bench of the Tribunal in the case of Sushil Kumar Co. is also incorrect in holding that Apex court decided the issue regarding the taxability of mesne profits. This contention of the learned Counsel for the assessee had resulted in constituting of larger Bench of 5 members. The following question was referred to this bench for adjudication: Whether in the light of decision in 232 ITR page 2 it must be held that the mesne profit received by the assessee is revenue income chargeable to tax? 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 (supra) and therefore, the judgment of the Supreme Court is not an authority for the preposition that mesne profit constitute revenue receipt chargeable to tax. Consequently, it is held that learned CIT(A) was not justified in holding that the apex court impliedly upheld the finding of the Hon'ble Madras High Court that mesne profits tantamount to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. Proceeding further, it was submitted that it could not be a case of simple letting out since NIHPL never claimed itself as statutory tenant or protection under Rent Control Act. He also referred to page 34 35 of the paper book to point out that other flats owned by the assessee on first and second floor were let out to Manu Narang and in such cases the agreements referred to the terms 'monthly tenants or standard rent' etc. which are absent in the agreement between the assessee and NIHPL. This fact shows that agreement could not be considered as lease agreement. It could only be considered as business agreement. It was submitted by him that reading of the agreement as a whole would reveal that all the attributes of business are present in this case. It was pointed out that prior to the agreement, the flats were not used for commercial purpose. As per clause 4 of the agreement, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding 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 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 31.3.1992 had already been offered as business income and is not in dispute before the Tribunal. 35. After considering the submission of both the parties, we are unable to accept the submissions made by the learned Sr. D.R. There is no dispute to the preposition that consideration received under the leave and license agreement amounts to revenue receipt chargeable to tax. The assessee itself has offered the same in assessment year 1991-92 and 1992-93 as business income as is apparent from the chart given at page 119 of the paper book. As per this chart, the assessee had shown the income of ₹ 21,23,911/- and ₹ 13,87,833/- in assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 improvements made by the person in wrongful possession. In view of the above statutory definition, it is not necessary for us to look into any other definition. The above definition clearly takes within its scope any receipt against wrongful possession of property. In the present case, the amount received under the decree of the court is related to the wrongful or unlawful possession of the property by NIHPL from 1.4.92 till handing over the property to the assessee. Therefore, in our opinion, the same has to be treated as mesne profits. 38. Now the only question which survives in the appeal of the assessee and requires our adjudication is whether the mesne profits received by the assessee under the consent decree granted by the Apex court is Revenue receipt chargeable to tax or Capital receipt not chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Madras High Court in the case of P. Mariappa Gounder 147 ITR 676. The emphasis is on the fact that if a property is used by some one and consideration is paid for such use of the property, then such compensation is of revenue character and therefore, if mesne profit is against use of the property, even unlawfully, then it will assume the same character. Reliance was placed by him on the following decisions: 1. Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraj Sir Kameshwar Singh No. 2 23 ITR 212 (Pat.] 2. Rai Bahadur H.P. Bannerji v. Commissioner of Income-Tax, Bihar and Orissa 19 ITR 596 [Pat] 3. Gopaldas Mohta v. Commissioner of Income-Tax, C.P. and Berar 20 ITR 516 [Nag.] 4. Income-Tax Officer v. Hazari Lal Marwah And Sons 41 ITD 1 : ITAT Del. 'C Bench. 5. Kailash Narain Gupta v. Commissioner of Income-Tax 225 ITR 921 (Raj.) 6. Commissioner-of Income-Tax, Bombay v. Vishnukantham Chetty 123 ITR 140 [Bom.] 7. Govinda Choudhury and Sons v. Commissioner of Income-Tax, Orissa 109 ITR 497 [Orissa]. 8. Commissioner of Income-Tax v. Govinda Choudhury and Sons 203 ITR 881 [Supreme Court] It is contended by him that the words 'profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT 19 ITR 596, CIT v. Kameshwar Singh 23 ITR 212 as well as by the Hon'ble Nagpur High Court in the of Gopaldas Mohta v. CIT 20 ITR 517. Proceeding further, it was rated that the judgement of Hon'ble Calcutta High Court in the case of Lila Ghosh (supra) cannot be applied to the present case since the same stands impliedly overruled by the judgement of Hon'ble Bombay High Court in the case of CIT v. Vijaykumar Ajitkumar 186 ITR 693. It has been submitted by him that in the above judgement, the Hon'ble Bombay High Court differed from the Hon'ble Calcutta High Court judgement in the case of Ashoka Marketing Ltd., 164 ITR 664 which was relied upon by the Hon'ble Calcutta High Court in the case of Lila Ghosh. In view of the above submissions, it has been prayed by him that the judgement of Hon'ble Madras High Court in the case of P. Mariappa Gounder (supra) should be followed. 41. Rival submissions of the parties have been considered carefully in the light of case-law referred to by both the parties. The question for our consideration is whether mesne profits inclusive of interest received by the assessee under the consent decree awarded by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner from enjoying the income or usufruct of the property. When, in such a suit or proceeding, the court awards mesne profits to the true owner, that represents a just recompense to him for the deprivation of the income which ought properly to have come into his hands but far the interference of the person in wrongful possession of the properly. 43. In the case of Rani Prayag Kumari Devi 8 ITR 25 (Patna), the facts were these. The assessee who was the widow of the deceased holder of an impartible Raj instituted a suit for recovery of all the movables and immovables left by the deceased holder against a collateral of the latter, who had taken possession of them; and a decree was passed in 1933 awarding to the assessee (i) a number of movables, (ii) the value of such movables as could not be returned, and (iii) damages to the extent of ₹ 22 lacs for wrongful detention of them. After some part-payments, a compromise was arrived at to the effect that all payments which will be paid should be credited in the proportion of 6 annas towards the balance of principal amount (₹ 7,16,463) and 10 annas towards the balance of damages (₹ 10,83,536). In the accounting year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the Land Acquisition Act, 1894, and compensation for such acquisition was to be paid to the assessee. Apart from the compensation for acquisition of the said premises, the assessee received a sum of ₹ 2 lakhs from the State on account of mesne profits for the use and occupation of the said premises by the erstwhile tenant. While making the assessment, the Income-tax Officer assessed the said sum of ₹ 2 lakhs representing mesne profits as a revenue receipt in the hands of the assessee under the head Income from other sources . The Tribunal held that the mesne profits of ₹ 2 lakhs arose as a result of transfer of a capital asset and the same was assessable under the head Capital gains . The Tribunal held that it was also possible to determine the cost of acquisition of the asset in question which according to the Tribunal, consisted of the amount spent by the assessee towards stamp duty and other legal expenses incurred for obtaining the decree. On reference, it was held by the High Court that the mesne profits of ₹ 2 lakhs received by the assessee was in the nature of damages and therefore, a capital receipt not chargeable to tax. This conclusion wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any such statutory provisions of law or by agreement or unauthorisedly, there is deprivation of property and therefore, interest paid by the Government is merely compensation for deprivation of property. The fact that such compensation is calculated as a percentage of interest of that amount does not affect the question. It is still compensation for deprivation of property. 47. In a later decision, the Hon'ble Kerala High Court in the case of Mrs. Annamma Alexander and Ors. 191 ITR 551 and 199 ITR 303 again made out a distinction between the interest proper and damages by way of interest by observing as under: There is a difference between interest proper and damages by way of interest . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgements of the apex court : CIT v. Vegetable Products 88 ITR 192 (SC), CIT v. Naga Hills Ten Co. Ltd. 89 ITR 236 (SC), CIT v. Madho Prasad Jatia 105 ITR 179 (SC), CIT v. J.K. Hosiery Factory 159 ITR 85, Shashi Gupta v. LIC 84 Comp. Cases 436. 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 fit Co. (supra), holding to the extent that mesne profit is taxable as revenue receipt is overruled. 49. 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 profit received by the assessee under the consent decree awarded by the apex court @ ₹ 10 lakhs P.M. was on account of damages for deprivation of use an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation for deprivation of property. This is the distinction that has been drawn by the Supreme Court in the decision of Dr. Shamlal Narula v. Commissioner of Income-tax referred to by the Tribunal That this distinction is real, cannot be disputed and in a later decision of the Supreme Court in T.N.K. Gvindarajulu Chetty v. Commissioner of Income tax the earlier decision is referred to and approved. In the nature and in the circumstances of this case, we are unable to hold that the amount paid to the assessee and allowed by the Tribunal as a deduction represented anything other' than compensation for deprivation of property. The property was not vested in the Government till the award was passed on August 31, 1962. The nature of the possession changed from that date and, we think, the Tribunal refused to allow deduction of interest payable from that date till September 6, 1962, rightly. But, as regards the payment of interest for the anterior period, the view taken is in consonance with the Supreme Court decision. The principle is that slated by the Privy Council in Vallabhdas Naranji v. Development Officer, Bandra and in Jnglewood Pulp and Paper Co. Ltd. v. New Brunswick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Thus the money by way of compensation becomes due on the date of possession taken by the Government and thus interest is for deprivation of use of use of money and therefore, character of such receipt is revenue in nature. After considering this judgement of Hon'ble Supreme Court, the Hon'ble Kerala High Court and Hon'ble Andhra Pradesh High Court in the cases mentioned in the preceding paragraphs held that interest for the period up to the date of decree was capital in nature since till such date, the interest was by way of damages for deprivation of use and occupation of property. 55. The above discussion clearly reveals that 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 mesne profit was 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 and 34 of the Land Acquisition Act, 1894 i.e., interest from the date of award till the payment of compensation. Their Lordships considered the earlier decision in the case of Dr. Shamlal Narula wherein it was held that after the possession of land was taken by the Collector, the ownership in the land vested in the Government and therefore, subsequent to such event, the compensation had become due and therefore, interest was for deprivation for the use of money and not of the land and consequently, the interest income was of revenue in nature. Following the earlier decision, the court held that interest awarded Under Section 28 and 34 of the Land Acquisition Act was income chargeable to tax. Those decisions are distinguishable since in those cases the court was concerned with the interest after the ownership in the land had vested in the Government. On the other hand, in the present case, the assessee was deprived of the possession and enjoyment of the immovable property and the mesne profits had not fallen due till the consent decree was passed by the Hon'ble Supreme Court. Thus the decisions of the Hon'ble Supreme Court in the case of Dr. Shamlal Narula as well as Govi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore them were different inasmuch as they were not concerned with the case dealing with the rights of the parties to receive the compensation under the Land Acquisition Act. On the contrary, they were concerned with the mutual rights between the parties under the agreement of sale. Thus the judgment of Hon'ble : Kerala High Court was distinguished by the Hon'ble Bombay High Court and therefore it cannot be said that the Hon'ble Bombay High Court did not accept the judgment of Hon'ble Kerala High Court. Even otherwise the judgment of Hon'ble Bombay High Court does not help the Revenue since the interest was under a contract which is not the case before us. 59. Another contention of the Revenue is that the decision of Hon'ble Patna High Court in the case of Rani Prayag Kumari Devi (supra) has not been followed by the said court itself in subsequent cases viz., H.P. Banerjee v. CFT 19 ITR 596, CIT v. Kameshwar Singh 23 FTR 212 as well as by the Hon'ble Nagpur High Court in the case of Gopaldas Mohta v. CIT 20 ITR 517. After going through the said decisions, we are unable to accept this contention of the Revenue. Nowhere in these judgements the courts had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the capital gain. The perusal of the said judgement shows that the amount received by the assessee was held to be capital receipt. Regarding the second question, the High Court held that the sum of ₹ 17,500/- could be considered as cost of acquisition of the capital asset acquired. It is in the context of the second question, that the judgement of Hon'ble Calcutta High Court in the case of Ashoku Marketing Ltd., was referred to. Therefore, the reference in the judgement of Hon'ble Calcutta High Court judgement had no relevance in deciding the issue whether the compensation related to capital receipt or not. Accordingly, the Hon'ble Bombay High Court judgement relied upon by the learned DR does not help the Revenue. 61. Certain more judgements were also referred to by the learned Senior DR Mr. Gupta in support of the proposition that the amount received by the assessee constitutes revenue receipt. Since we have referred to the conflict between the opinions of the High Courts and since we have preferred the majority of the High Courts, it is not necessary to burden the order with the other authorities. 62. In view of the above discussion, Ground Nos. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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