By Ajay R. Singh Advocate
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Mesne Profits- Not taxable- Amount received from a person in wrongful possession of its property, would be mesne profits and was capital in nature.
The assessee company received mense profit for unauthorised occupation of the premises (Novelty Chambers) from Central Bank of India who was in possession of the rented premise in the Novelty Chambers. The tenancy of Central Bank of India ended on 1.6.2000. As per the order of the Supreme Court in which the court directed the Bank to hand over the possession to the assessee company by 30/06/2003 due to which the Bank gave possession of Novelty Chambers to the assessee company on 30/09/2003. Hence a suit was filed by the assessee company for mesne profit for the aforesaid period. The Small Causes Court at Mumbai passed an order dated 28/03/2007 wherein the Mesne Profit was fixed at Rs.8,33,474/- per month for the period between 1/06/2000 to 30/09/2003 plus interest thereon. The period was decided on the basis of the fact that the tenancy of Central Bank of India was terminated on 1/06/2000 and it vacated the premises and gave peaceful possession to the assessee company on 30/09/2003. The total compensation was thus fixed at Rs.3,33,38,960/- plus interest thereon at the rate of 6%. Thereafter, Central Bank of India filed an Application to the Small Causes Court for staying execution and operation of the order dated 28/03/2007 which was disposed by directing the appellant to pay Rs.1,47,28,280/-. Central Bank of India had also preferred an appeal against the said determination of mesne profit which was admitted and was pending. Thus, in the mean time during AY 08-09, Central Bank of India paid Rs.1,47,18,280/- to the assessee company which the assessee company had directly taken to the capital reserve without crediting the profit and loss account holding it to be a capital receipt exempt from Income-tax. The appeal of the Central Bank of India was still pending for adjudication.
The Department did not accept the assessee’s contention that mesne profits of Rs.1,47,18,280/- received by it constituted a capital receipt not chargeable to tax, in spite of the decision of the Hon’ble Madras High Court in the case of CIT vs. P. Mariappa Gounder, 147 ITR 676, holding the same to be revenue in nature.
Assessee preferred appeal before the CIT(A). Since the mesne profit was capital in nature in view of the decision of the Special Bench, in case of Narang Overseas Pvt Ltd. therefore, they cannot be brought to tax under Section 115JB of the Act. Even the Explanation 2 to Section 115JB supports the case of the assessee. The CIT (A) allowed the appeal. The ITAT confirmed the order of CIT(A)
The Revenue filed an appeal before the High Court challenging the order of ITAT . Revenue had preferred an appeal against the decision of the Special Bench in Narang Overseas Pvt. Ltd. 100 ITD (Mum)(SB)
The Hon’ble COurt found that the issue before the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) was to determine the character of mesne profits being either capital or revenue in nature. The Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) held that the same is capital in nature. There was no doubt that the issue arising herein was also with regard to the character of mesne profits received by the Assessee. Accordingly, the appeal if the revenue was dismissed.
