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TMI Blog2003 (8) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ain shares of Shree Nirmal Commercial Ltd. By virtue of its shareholdings, it had acquired the occupancy rights in respect of 21st Floor of 'Nirmal Building' at Mumbai along with car parking space No. 32 in the basement of the building. The appellant had entered into a Leave & Licence agreement in respect of the said premises on 1-9-1989 with M/s. Imkemex India Ltd. a company registered under the Indian Companies Act, 1956 (hereinafter referred to as 'the licensee'). Under the said agreement, the licensee agreed to make interest-free deposit of Rs. 24,00,000 within seven days from the date of the agreement. It was also agreed that the licensee would pay to the assessee during the months of September, October and November, 1989 the amount on account of use of the space for the above premises @ Rs. 41,500 per month and from 1st December, 1989 till 30th November, 1990 @ Rs. 90,000 per month and, thereafter, i.e., from 1st December, 1990 till 30th November, 1994 @ Rs. 1,10,000 per month. It was also agreed under the said agreement that if the licensee complied with all the terms and conditions mentioned in the said Leave and Licence agreement dated 1st September, 1989 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53/C/94, 1413/C/97, 709/C/99, 710/C/99 & 711/C/99 vide order dated 28-3-2000 held that the amounts received by the assessee were in the nature of mesne profits and are neither taxable as revenue receipt nor as capital gains. The Bench relied upon the. decision of the Hon'ble Calcutta High Court in the case of CIT v. Smt. Lila Ghosh [1994] 205 ITR 9 and expressed the view that the judgment of the Supreme Court in the case of P. Mariappa Gounder v. CIT [1998] 232 ITR 2 was distinguishable on facts. 5. In assessment years 1996-97 and 1997-98, the assessee received a sum of Rs. 14,40,000 per annum from the lessee/licensee in consideration of occupation of the building and claimed the said amount as not liable to tax on the ground that it was in the nature of mesne profit. The Assessing Officer held that the amount received by the assessee is nothing but licence fee mutually agreed upon between the parties and not & mesne. profit. The Assessing Officer relied upon the decision of the Madras High Court in the case of CIT v. P. Mariappa Gounder [1984] 147 ITR 676 and has pointed out that the said decision of the Madras High Court has been affirmed by the Supreme Court in P. Mariappa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a Bench of the Tribunal has considered an issue, it is not open to the another Bench of the Tribunal to take a different view on the same issue. It was, accordingly, contended that the view expressed by the Tribunal in the assessee's own case for earlier years may be followed. 7. On the other hand, the Ld. Departmental Representative sought to support of the orders of the Revenue authorities. It was submitted that the order passed by the Tribunal dated 28-3-2000 in assessee's own case is not an order in accordance with law. It was further submitted that the larger Bench of the Tribunal having been constituted, it was the duty of the Bench to consider the issue referred to it in accordance with law. The Ld. Departmental Representative placed reliance on the decision of the Supreme Court in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 in support of his submissions. It was pointed out that the decision of the Division Bench of the Tribunal for assessment years 1990-91 to 1995-96 is not in accordance with law as the amount received by the assessee from the licensee pursuant to the consent decree passed by the Small Causes Court on 26-10-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rongful possession of the property after the passing of the consent decree by the Small Causes Court. The licensee continued the occupation of the premises from 26-10-1989 onwards on the terms and conditions settled by the parties themselves. Since the period for which the assessee has received monthly compensation as per mutual terms and conditions settled by the parties is beyond the period of wrongful possession, it cannot be said that the amount received by the assessee was for wrongful possession of the premises. It was, accordingly, submitted that the amount received by the assessee does not fall within the definition of 'mesne profit' as defined under section 2(12) of C.P.C. and that the amount received is in the nature of income liable to tax as revenue receipt. 8. In regard to the terms of 'mesne profit' used in the consent decree, the Ld. Departmental Representative contended that it is settled law that the interest of third party cannot be adversely affected by the terms and conditions mutually agreed by the parties themselves. The interest of the department cannot be adversely affected merely by the use of term 'mesne profit' in the consent term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts is considered to be only an obiter dicta, the same is binding on any lower court or Tribunal. In support of this submission, the Ld. Departmental Representative relied upon the following authorities: (i) L.B. Kharawala v. ITO [1984] 147 ITR 67 (Guj.) (ii) CIT v. Andhra Pradesh Riding Club [1987] 168 ITR 393 (AP) (iii) CIT v. Smt. Asrafi Devi Rajgharia [1983] 142 ITR 380 (Cal.) and (iv) Mahendralal Choudhari v. CIT [1949] 17 ITR 454 (Nag.) It was accordingly pleaded that the issue may be decided in favour of the Revenue. 9. In counter reply, the learned counsel for the assessee submitted that the Small Causes Court had used the term 'mesne profit' while passing the consent decree and as such it is not open to the department to question the wisdom of the Small Causes Court in awarding the mesne profit till 1999. It was submitted that the Assessing Officer is not competent to ignore the term of 'mesne profit' used in the decree issued by the Small Causes Court. It was further contended that the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh is an authority for the proposition that the mesne profit is not taxable receipt. It was pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the above, on admission, a decree against the defendants to vacate the suit premises by 30th November, 1989. It is further agreed between the parties hereto that if the defendants pay to the plaintiffs a sum of Rs. 22,80,000 by way of deposit by 1-11-1989 and also pay to the plaintiffs Rs. 1,25,700 as and by way of mesne profits, from 1st September, 1989 till 30th November, 1989 at Rs. 41,900 per month by 10-11-1989 and further pay to plaintiffs as and by way of mesne profits a sum of Rs. 1,10,000 per month regularly in advance by 10th of the month for which the same is payable, commencing from 1st day of December, 1989 up to 30th November 1990, with any three defaults and further pay a sum of Rs. 1,20,000 per month plus Municipal taxes as applicable on 1-11-1994 minus the Municipal taxes as applicable on 1-11-1989 on intimation in respect thereof with xerox copies of the relevant Municipal tax bills for the purposes of ascertaining the increase being sent by plaintiffs to defendants by Registered A.D. post at Bombay, in advance by the 10th of the month for which the said mesne profits and Municipal taxes are payable commencing from 1st December, 1994 up to 30th November, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding situated at Nariman Point, Bombay-400021; (b) that the Defendants be decreed and ordered to pay to the plaintiffs mesne profits from the date of the filing of the suit till the said office premises are vacated by the Defendants at such rate as this Hon'ble Court may deem fit and proper; (c) that the Defendants be restrained by a permanent injunction and order of this Hon'ble Court from carrying out in the said premises any alterations, additions, constructions, demolitions or other changes whatsoever and/or from dealing with transferring induction any other person or persons or firm into the said premises and from allowing anyone else to use and occupy the same on any terms whatsoever: (d) for interim and ad interim injunction and order in terms of prayer (c) above; (e) for costs of the suit; and (f) for such further and other reliefs as to this Hon'ble Court may deem fit and proper This suit coming on this 26th day of October, 1989 for hearing and final disposal before Ld. Judge Shri P.V. Ghodkhande presiding in Court Room No.8 in presence of Shri H.H. Lashkari, Advocate for the Plaintiff and S.P. Sabnis, Advocate for the Defendant. Order: It is or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid, the licensee was not required, till 30-11-1989 to vacate the premises. The licensee/lessee were allowed to occupy the premises from 1-12-1989 on the terms and conditions of the consent terms/decree. Para-10 of the consent terms may be reproduced hereunder even at the cost of repetition:-- "4. It is agreed and declared by both the parties herein that the agreement dated 1st September, 1989 stands terminated and that the defendants are not and will hereafter continue to be in occupation and user of the suit premises entirely on the basis of these consent terms and not under the said agreement dated 1st September, 1989. It is however further agreed and declared by the parties hereto that the liabilities and undertakings of the defendants and plaintiffs as contained in clauses 4, 6, 7, 8, 9, 10, 13, 15 and 16 of the agreement dated 1st September, 1989 shall continue to apply to the plaintiffs and defendants during the period of these terms." 15. It is evident from the sequence of events in this case that by using the process of the Court, the parties have merely revived the agreement executed on 1-9-1989 with slight modifications and with an assurance that on expiry of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court in respect of a. wrongful possession of the property on the basis of the amount actually received by the wrongful possessor or the amount which the wrongful processor might with ordinary diligence have received therefrom in the period of wrongful possession is known as mesne profits. In other words, the mesne profits as awarded by the Court to the plaintiff against the defendant is to compensate what the plaintiff or the appellant has lost by the reason of the wrongful alienation of the property by the other person. Moreover, the court determines the mesne profits not on the basis what the plaintiff has lost by his exclusion but what the defendant i.e., the other party has or might reasonably have made by his wrongful possession. Thus the pre-requistite for qualifying any amount granted by the Court to be mesne profit is wrongful possession of property for which the compensation is awarded by the Court in accordance with provisions of section 2(12) of the C.P.C. read with Order XX, Rule 12 of First Schedule. 19. Let us now proceed to consider as to whether the amount received by the assessee herein from the licensee under the consent decree dated 26th October, 1989 fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agreement that up to 30-11-1989 M/s. Imkemex India Ltd. would carry out painting and small repairs in the premises and the actual lease would commence w.e.f. 1-11-1989 only. This fact is indicated in the order of the CIT(A) with reference to the terms of the agreement. The suit was filed by the assessee sometime in Sept./Oct., 1989. The filing of the suit and grant of decree by Court of Small Causes is before the actual commencement of the lease, i.e., before 1-11-1989. There was a breach in the terms and conditions of the agreement insofar as M/s. Imkemex India Ltd. had failed to pay a sum of Rs. 22,80,000 out of Rs. 24,00,000 within a week of the execution of the agreement. Thus the appellant had the right to terminate the lease on account of breach of terms of the contract. There does not appear to be any condition in the leave and license agreement providing for automatic termination of the lease on breach of condition. Assuming that there was a condition in the agreement for automatic termination of the agreement on breach of any condition, the licensee/lessee can at best be said to be in the wrongful possession of the property after the termination of the agreement. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee chose to file a suit for possession of the property and for mesne profit. It is also observed from Rule 12 quoted above that the Court has the power to grant mesne profit for the period of wrongful possession not more than three years after the date of decree. In the case of Bhagwati v. Chandramaul A 1966 SC 735, their Lordships have held that the mesne profits have to be calculated from the date the defendant has come into wrong possession and that as per Order XX, Rule 12, the power of the Court to grant mesne profit is restricted to the period of three years from the date of decree. In the case of Bhagwant v. Radhakisan A 1959 B 536, it was held that where decree is for payment of mesne profits until delivery of possession, it is implied that mesne profits are not to be allowed for more than three years in any case. In the case of Lucy v. P. Mariappa A 1979 SC 1214, it was held that Rule 12, Order XX does not empower a Court to pass a final decree with respect to mesne profits for a period exceeding three years from the date of decree. The decree must be construed in conformity with requirements of all the alternatives mentioned in Rule 12(1)(c). In the case of Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h consent of both parties to the suit, is not required to act strictly and follow the procedure of the court. It was pointed out that the decision resembles an award, but it is a judgment and a decree can be drawn up on agreed basis though such a decree or order is not appealable. 25. When the consent terms and the decree passed by the Court are carefully perused, it is not difficult to hold that the decree is not based on any grounds or reasoning, but is solely based on the terms and conditions as mutually agreed upon between the plaintiffs and the defendants. Their Lordships of the Supreme Court in the case of Lakahmi Shanker Srivastava v. State (Delhi Administration) AIR 1979 SC 451 held that the decisions based on concession of the parties do not constitute binding precedence. Since in this case, the parties to the suit have utilized the process of the Court to obtain a decree on the mutual terms and conditions, the term 'mesne profit' used in the consent decree, which has become part of the consent decree, does not become binding for the Revenue authorities or the appellate authorities and it would, in our view, be open to the taxing authorities to consider the real n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat from 2610-1989 the amount payable to the appellants monthly for user of the property is nothing but a compensation for lawful user of the property not falling within the ambit of mesne profits. We, accordingly, uphold the assessment of Rs. 14,40,000 received by the assessee in each of the assessment years 1996-97 and 1997-98 as revenue receipt. 28. In the light of our above finding, it would not be necessary for us to deal with the rival contentions in regard to the applicability of the decision of the jurisdictional High Court in the case of Smt. Lila Ghosh or the decision of the Supreme Court in the case of P. Mariappa Gounder. So, however, the matter having been vehemently argued by the counsels of both sides, we without prejudice to our above finding deal with this aspect of the matter also. This exercise, we consider, is also necessary in view of the fact that in the event of our decision being reversed by any superior authority it would be necessary to consider as to whether the amount received by the assessee even as mesne profit is liable to tax on the facts and in the circumstances of this case either as revenue receipt or capital receipt. 29. We may first refer to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual determination by the trial court because it was only at the time the amount became a certain tangible amount, it can be said to accrue to the assessee as income. The Court pointed out that the trial court has fixed the quantum of mesne profit only 22-12-1962, i.e., during the accounting year ending on 31-3-1963 and, consequently, the same was assessable to tax in assessment year 1963-64. 30. Against the said decision of the High Court, an appeal was filed to the Hon'ble Supreme Court. Their Lordships of the Supreme Court affirmed the decision of the Hon'ble High Court. A perusal of the judgment of the Supreme Court reveals that the issue as to whether the mesne profit is liable to tax was not specifically considered and decided by the Hon'ble Supreme Court. It seems that the assessee had challenged the order of the Madras High Court mainly on the ground of year of assessabiIity. Their Lordships ultimately held "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." 31. The issue that arises for consideration is as to what i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are, therefore, a substitute for actual returns from investment. In this category must be included any sum awarded by a court in restitution of interest, dividends or any other yield out of property, in contract to awarding compensation, recompense or damages for any loss, sterilisation or damage to capital assets as such. As illustration of courts upholding the assessment of compensation for deprivation of the taxpayer's income, may be cited a decision or two. In Spence v. IRC [1941] 24 TC 311 (C Sess), a seller of shares obtained a decree against the purchaser. The decree set aside the sale on the ground of fraudulent misrepresentation by the purchaser. Under the decree, the shares were retransferred to the seller. The purchaser was also directed to pay to the seller a lump sum which included the amount of the dividends received by the purchaser while the shares stood in his name. It was held that the amount of dividends recovered from the purchaser was assessable as income of the decree-holder. It was pointed out that the decree for compensation was relatable to the dividends which the decree-holder had been deprived of by the fraudulent purchaser. In Gobardhandas Jagann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this connection, reference to the decision of the Hon'ble Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 245 ITR 360 is relevant. In this case their Lordships of the Supreme Court have laid down that once special leave to appeal from an order has been granted by the Supreme Court, the order impugned before" the Supreme Court becomes an order appealed against. Any order passed by the Supreme Court on appeal would be an appellate order and would attract the applicability of doctrine' of merger. It would not make any difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is speaking or non-speaking one. 34. On this issue, their Lordships of Patna High Court (FB) in the case of Smt. Tej Kumari v. CIT [2000] 164 CTR (Pat.)(FB) 201 following the judgment of Hon'ble Supreme Court in the case of v. M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 243 ITR 383 held as under:-- "It is well-settled principle of law that when a special leave petition is summarily dismissed under Article 136 of the Constitution, such dismissal does not lay down any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier that the decision of the Calcutta High Court in the case of Smt. Lila Ghosh is not an authority for the proposition that mesne profits are not liable to tax under all the circumstances. The nature of mesne profits shall have to be determined with reference to the claim made by the plaintiff and granted by the Court. When mesne profit is determined for depriving the taxpayers of their properties, the compensation awarded would be deprivation of entire assets of which the assessee was the true owner, However, when the award of mesne profit is compensation of the true owners and deprivation of the yearly income of the property, the same may have the character of the revenue nature. In the case of Smt. Lila Ghosh, the assessee was the owner of land which was in possession of the lessee. Though the lease had expired in 1970, the lessee did not give possession to the assessee. The assessee filed a suit for eviction of the lessee. The suit was decreed in favour of the assessee in August 1979. While the execution of the said decree and the quantification of the mesne profit was pending, the Government requisitioned the demised property on 24-12-1979. The requisition order was chall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of mesne profits would depend on the nature of deprivation etc. It may also be pertinent to refer to the decision of the Madras High Court in the case of S. Kempadevamma v. CIT [2001] 251 ITR 871. In this case, their Lordships held - "that the money payable for the period subsequent to the date of termination of the lease termed as damages for use and occupation did not on that ground alone render that amount a capital receipt in the hands of the owner. The amount received was an yield from the property and was a revenue receipt. Therefore, the damages awarded to the assessee were in the nature of compensation for loss of profits and hence revenue income." Thus the amount received by the assessee in assessment years 1996-97 and 1997-98 from the licensee is assessable to tax as revenue receipt even if the said amount is said to be mesne profits. 38. We may also consider another aspect of the matter. Assuming for argument sake that the ratio decidendi of the decision of the Supreme Court in the case of P. Mariappa Gounder is only in regard to the year of assessability and the confirmation of the decision of the Madras High Court by dismissal of the appeal may be considered to be o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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