TMI Blog2003 (8) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... ng' 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 otthe 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 and regularly pays the monthly compensation and other dues as referred therein, the licensee if so desires, may renew the agreement with the assessee for a further period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either 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 Gounder's case. The Assessing Officer has further pointed out that no mesne profit accrued to the assessee after the date of the order of the Small Causes Court at Mumbai d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 26-10-1989 is not a mesne profit, but compensation received for use and enjoyment of the property. The Ld.Departmental Representative pointed out that the assessee had entered into an agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 terms for which a decree was issued and the department is justified to consider the actual nature of the receipt and determine its taxability according to law. In support of the proposition that the agreement between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [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 pleaded that the issue may accordingly be decided in favour of the assessee. 10. We have given our thoughtful consideration to the rival contentions and the material on record proceed to consider the issue involved herein. Sum and substance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1999 with any three defaults, the execution of the decree be stayed till 30-11-1999. 3. In the event of default in payment of the balance deposit amount of Rs. 22,80,000 by 1-11-1989 and/or in the event of default of payment of Rs. 1,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 ordered that decree in terms of consent terms vide Ex-A, copy attached herewith. Two-third court fee return to the plaintiffs. No order as to cost." 14. Certain facts coming out from the consent terms and the decree passed, which are of vital importance, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eunder 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 lease on 30-11-1994, the appellants would not be required to file a fresh suit for eviction, if necessary. The crux of the consent terms and Court decree is that the terms and conditions of the leave and licence agreement of 1-9-1989 have been incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 falls within the ambit of mesne profits. In this context we have to consider the material on record. The copy of the plaint which could be of some help is not on record. During the course of hearing of the appeal, the assessee's representative was asked by the Bench to furnish a copy of the plaint file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. There is no evidence on record for the appellant having issued any notice to the licensee/lessee for termination of the agreement or for complying with the specific condition in the agreement of making a deposit of Rs. 24,00,000. For the lack of information or evidence on record, one cannot ascertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Radhanath v. Chandi 36 C 66 FB, it was held that three years is to be computed from the date of the appellate decree. 22. Thus the following position emerges from the aforementioned discussions: (i) Firstly, mesne profit is to be granted for the period of wrongful possession. (ii) Secondly, mes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms 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 nature of the grant in a suit on the facts and in the circumstances of the case. 26. As rightly argued by the Ld. Departmental Representative, the parties by mutual agreement cannot bind third parties by their agreement or conduct. This view is supported by the decision of Calcutta High Court in the case of Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the decision of the Hon'ble Supreme Court in the case of P. Mariappa Gounder. This decision was rendered by the Supreme Court on .an appeal against the decision of the Madras High Court in the case of P. Mariappa Gounder. The facts of this case are that the assessee had agreed to purchase a tile factory under an agreement dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 is the effect of the decision of the Hn'ble Supreme Court in the case of P. Mariappa Gounder. The general principle is that the decision of the court is a binding precedence on the issue which has been raised and decided by the Court. In this case, as already pointed out, the issue as to whether the mesne profit was liable to tax at all was not de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 Jagannath v. CIT [1955] 27 ITR 225 (Pat), a land belonging to the family of the assessee at Gaya was taken possession of by the Aviation Division of the Central Public Works Department for a number of years. A sum of Rs. 8,272 was paid by that Department as and for their use and occupation of the lands. The question was whether that amount was income taxable in the hands of the famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed 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 law rather it shall be deemed that the Supreme Court has simply held that it is not a fit case where special leave petition should be granted. The same principle will not apply in a case where civil appeal is dismissed by the Supreme Court holding that the appeal has no merit. When once civil appeal is dismissed after hearing the parties by the Supreme Court holding that the appeal has no merit then su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 challenged and subsequently a settlement was arrived at. Under the terms of the settlement, the property in question was to be acquired by the State under the Land Acquisition Act, 1894 and the 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 Rs. 2lakhs from the State on account of mesne profits for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 only, obiter dicta, even then it is well-settled that the obiter dicta of the Supreme Court is also binding on the lower courts and the Tribunal and the decision of the Supreme Court dismissing the appeal against the decision of the Madras High Court would thus be binding. The decisions cited in para-8 of this order support this view. 39. Taking the totality of the facts and circumstances of the case into consideration, we in ..... 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