04 November 2020

Mesne profits and interest thereon received under the direction of the Civil Court is revenue receipt and is liable to tax u/s. 23(1) of the Income Tax Act

The real issue that needs consideration in the present appeal is whether the mesne profits, and interest on mesne profits, received by the appellant constituted revenue receipt, or capital receipt, in the hands of the appellant/assessee, in the facts and circumstances of the case.[Para No.40]

    Having heard the submissions of learned counsels for the parties and having given our due consideration to them in the light of the decisions relied upon by the learned counsels,
Mesne profits and interest thereon received under the direction of the Civil Court is revenue receipt and is liable to tax u/s. 23(1) of the Income Ta
we are of the view that the mesne profits, and interest on mesne profits, received by the appellant in pursuance of the court decree, in the facts of the present case, constitute revenue receipt.[Para No.41]

    When we apply the said test to the facts of the present case, the only conclusion that we can draw is that the receipt of mesne profits and interest thereon by the appellant/assessee, was a revenue receipt. The capital asset of the appellant i.e. the property in question was earning revenue for the appellant by way of rent till so long as the lease subsisted. After the termination of the lease, the erstwhile tenant continued to occupy the premises unauthorisedly. It is in lieu of the rent which the appellant would have otherwise derived from the tenant, that the mesne profits and interest thereon have been awarded. So far as the capital asset of the assesse is concerned, the same has remained intact. It is not the appellants case that there was any damage to the property/ capital asset inasmuch, as, the building structure was damaged by the bank, and that damages have been awarded by the Court on account of such physical damage. Even the title of the appellant in respect of the capital asset remained intact. Had it been a case where the capital asset would have been subjected to physical damage, or of diminution of the title to the capital asset, and damages would have been awarded under the head, there would have been merit in the appellant's claim that damages received for harm and injury to the capital asset, or on account of its diminution, would be a capital receipt.[Para No.46]

..........

    Accordingly, we answer the question of law set out in paragraph 2 hereinabove in favour of the revenue, and against the appellant. We hold that the ITAT was right in holding that mesne profits and interest on mesne profits received under the direction of the Civil Court for unauthorised occupation of the immovable property of the assessee by Indian Overseas Bank - the erstwhile tenant of the appellant, was liable to tax under Section 23(1) of the Act, since mesne profits, and interest on mesne profits, in the facts of the present case constitute revenue receipt.[Para No.52]


Delhi High Court

M/S Skyland Builders P. Ltd.
Vs.
Income Tax Officer

Decided on 03/11/2020


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