Income Tax Appellate Tribunal - Kolkata
Talwar Brothers Pvt. Ltd., Kolkata vs Ito, Ward-9(1), Kolkata, Kolkata on 9 August, 2019
आयकर अपील य अधीकरण, यायपीठ - "C" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "C" KOLKATA
Before Shri J.Sudhakar Reddy, Accountant Member and
Shri S.S.Godara, Judicial Member
ITA No.2260/Kol/2014
Assessment Years: 2010-11
Talwar Brothers Pvt. Ltd., बनाम / Income Tax Officer
EN-42, Salt Lake, Sector-5, V/s . Ward-9(1), Kolkata
Kolkata-700 091
[PAN No.AABCT 1261 C]
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Anil Kr. Duggar, Advocate
यथ क ओर से/By Respondent Shri A.K. Bandyopadhyay, JCIT, SR-DR
सुनवाई क तार ख/Date of Hearing 08-08-2019
घोषणा क तार ख/Date of Pronouncement 09-08-2019
आदे श /O R D E R
PER S.S.Godara, Judicial Member:-
This assessee's appeal for assessment year 2010-11 arises against the Commissioner of Income Tax (Appeals)-VIII, Kolkata's order dated 30.09.2014 passed in case No.12/CIT(A)-VIII/Kol/2013-14, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short 'the Act'.
Heard both the parties. Case file(s) perused.
2. The assessee's former substantive grievance pleaded in the instant appeal seeks to reverse both the lower authorities' action treating the amount in question of ₹56,83,006/- received form Punjab State Industrial Development Corporation ITA No.2260/Kol/2014 Assessment Year 2010-11 Talwar Brothers Pvt. Ltd. Vs ITO Wd-9(1), Kol. Page 2 "PSIDC" as income from house property. The CIT(A)'s detailed discussion to this effect reads as under:-
"Ground No. 1 ,2 & 3 are directed against treatment of Rs. 20,89,710/- received by the assessee income from house property and Rs. 35,93,2961-received as interest as income from other sources.
Brief fact of the case is that the appellant owned a property at A-1/26 Safdarjung Enclave, New Delhi-ll0029. The said property was given on Sub lease to Punjab State Industrial Development Corporation (PSIDC) for a period starting from 0 1.1 l .1993 to 31'.10.1996. (PSIDC) did not vacate the premises after determination of sublease. The matter was referred to arbitrator who passed an arbitration order on 28.04.1999. As per arbitration order the assessee received damage for unauthorized occupation of the property for the period November, 96 to May, 99 @ 97,410/- and interest @ 18% p.a. on amount, payable to the assessee. The . assessee therefore received a sum of Rs. 20,89,7101- as damage and Rs.35,93,296/- as interest during the financial year.
Instead of crediting the total receipts of Rs.56,83,006/- in profit & loss account the assessee chose to credit the same directly to reserve and surplus account. Thereby not paying the tax on the income of Rs. 56,83 006/- earned by him.
The A.O. held that the damage or:~. 20,89,7101- is nothing but unrealized rent and should be taxed as income from house property in the year of realization which is current Assessment Year by virtue of the provision of section 25AA of the Income Tax Act.
AO did not agree with the contention of the assessee that this receipt is capital receipt being manse profit. As per him mesne profit which consists of the amount awarded for occupation of the property is nothing but the amount which the property may fetch at that period. In the award itself the amount of compensation was arrived at after working out the gross fare market rent of the property, The amount of award was not difference of fair market rent of Rs.97,4101- per month minus actual rent of Rs.25000/- tent per month paid by (PSIDC) for the period Nov, to Dec, 98 and Rs.30,000/-paid from Jan. 99 to May, 99..
The A.O also held that interest receipt of Rs.35,93,296/- is nothing but revenue receipt and should !e taxed under the head income from other sources.
On the other hand the appellant has in grounds of appeal has mentioned that the money was received by way of a judicial order and the property was forcibly and illegally occupied and the relationship of land lord and tenant was not existing at that time and the receipt was manse profit and should be considered as Capital Receipt.
He also referred to the following case laws which he claimed that the A.O. ignored:
1. M/s Narang Overseas.Pvt. Ltd. Vs The C.LT. Central Circle 36 (AIT- 2008 67ITAT),
2. CIT vs Smt Lila Ghosh (IT-Reference No. 32 of 1991,18th January, 1993 133 CTR Calcutta.ITA No.2260/Kol/2014 Assessment Year 2010-11
Talwar Brothers Pvt. Ltd. Vs ITO Wd-9(1), Kol. Page 3 I have-gone-through-the assessment order and written submission of the appellant.
Matter to be decided-here is that whether amount so awarded is manse profit and if yes whether mense profit is a capital receipt or revenue receipt in the present case.
The term 'mesne profits' relates to the damages or compensation recoverable from a person who' has been in wrongful possession of immovable property. The mesne profits as per the definition in Code of Civil Procedure is the income which the person in wrongful possession derives from the property or might with due diligence have obtained from the property. In assesse's case though (PSIDC) carried with the occupation of the property much beyond the lease period i.e. Oct, 1996, they were paying rent @ 250001- per month for the period Nov, 96 to Dec, 98, and @ Rs. 30,0001- per month for the period from Jan, 99 to May, 99. Thus it is debatable whether they were. in wrongful possession of the property once the lessor was accepting-the Rent from them. Prima facie it appears to be a case of increase in Rent.
I reproduce hereunder clause (b) of the heading the claimant wants of arbitration award dated 28th April 1997:
" On failure to vacate and hand over possession of the leased premises by 31st October, 1996, the claimants in terms of clause 2(g) as per lease agreement be awarded damage equivalent to the unpaid arrears of the fair gross monthly market rate of rent as ascertained by the valuer at the beginning of each calendar year or part thereof."
Clause 2(g) of the lease agreement is reproduced hereunder:
" If there is no concluded lease agreement for a further period, it is clearly understood and expressly agreed by both parties, that handing over of vacant and peaceful possession on 31st October 1996 is the essence of this agreement.
If vacant possession of the demised premises is held up on 31st October, 1996 for any default, whatsoever, on the part of the Second Party, the Second Party shall pay the then prevailing fair market rate of rent, but not less than the gross rent fixed for the last month in clause 2 (h) hereinafter.
After 31st October 1996, the fair gross monthly market rate of rent for the demised premises as described in Schedule "C" shall be determined by a valuer at the beginning of each English Calendar year or part thereof, keeping in view the then prevalent rent paid by Government or public sector undertakings for comparable premises.
The valuer shall be appointed in the manner described in clause 2(e) hereinbefore, and his costs shall be paid in the first instance by the First Party, who will reimburse in toto by the Second Party.
Thus in the clause 2 (g) of the lease agreement the terms for payment have been provided in case the lease continue to occupy the property after the expiry of lease period property. Hence it cannot be said that (PSIDC) was in unlawful possession of property. They continue to occupy property beyond lease period and in terms of lease an arbitrator was appointed and amount of rent payable after lease period was decided b-y him. Since there was element of arrear rent the arbitrator awarded interest ITA No.2260/Kol/2014 Assessment Year 2010-11 Talwar Brothers Pvt. Ltd. Vs ITO Wd-9(1), Kol. Page 4 payment also on arrear amount of rent decided by him till the date of actual payment of the same.
Thus in no case the amount of rent of Rs. 20,89,7101- and interest of Rs. 35,93,296/- totaling Rs. 56,83,006/- cannot be termed as mesne profit in the hand of the assessee.
Even Hon'ble Delhi High Court in the appeal filed by the appellant company against deduction of TDS bye PSIDC) on payments made to the appellant has declined to determine the taxability of so called Mesne Profit, as claimed by the appellant.
From the facts of the case and also from the fact that the appellant was continuously receiving rent during the disputed period it is established that, the appellant never lost control of the property and (PSIDC) was never under unlawful occupation of the property. The money realized by him in terms of arbitration award is nothing but arrear rent which is taxable as per the provisions of section 25B of the Income Tax Act, 1961 Hon'ble Madras High Court in CIT vs Mariappa Gounder (P) (1471 ITR 676) has held that Mesne profit are liable to be assessed as income, Similarly The Patna High Court in Commissioner of Income-tax Vs. Maharajadhiraj Sir Kameshwar Singh (No. 2) (23ITR212) following this principle held that which reaches the hand of the recipient as interest upon a principal sum is income liable to income-tax, notwithstanding that it may come to him in a single sum and as the result of a hostile suit, Whereas The Calcutta High Court in Commissioner of Income-tax v : Lila Ghosh (Smt.) (205 ITR
9) held that mesne profits are in the nature of damages and, therefore, a capital receipt not chargeable to tax. However in the case of CIT vs Lila Ghosh the Land was acquired by Government of West Bengal and the damage paid to her was in a the nature for payment for acquisition of property and not as a rent. Thus the case law is distinguishable from the case of the assessee. The Case law of M/s Narang Overseas Pvt. Ltd. vs the ACIT ITA No.4623/Mum/05 is distinguishable from the case of the appellant in the sense that tenant in the case was family owned company and as per family settlement peaceful and vacant possession was to be handed over by tenant to M/s Narang Overseas Private Limited. The dispute was regarding the property among various family members and not regarding rent amount. Hence it is distinguishable from the facts of the present case. Aforesaid case laws are not applicable to the present case, as the receipt is not mesne profit.
However with the introduction of Section 25AA in the Income Tax Act by Finance Act, 2000 the subject matter regarding taxability of Unrealised rent has been put to rest, which specifically provides that, where the assessee cannot realize rent from a property let to a tenant and subsequently the assessee has realized any amount of such rent, the amount so realized shall deemed to be income chargeable under the head "Income from house property," in the previous year in which the income is so realized, whether or not the assessee is the owner of the property in that year.
Regarding taxability of interest amount of Rs.35,93,296/- is concerned it is nothing but an award for delayed payment of rent and is taxable as income from other sources. I therefore find that the act of the assessee to credit the sum of Rs. 56,83,006/- directly to Reserve and Surplus account instead of crediting the same in profit & Loss account is not acceptable. The amount received by the appellant is not a mesne profit as he ITA No.2260/Kol/2014 Assessment Year 2010-11 Talwar Brothers Pvt. Ltd. Vs ITO Wd-9(1), Kol. Page 5 never lost charge of the property, as he was 'receiving rent, the amount of Rs. 20,89,7101- received by him is nothing but arrear rent and has rightly been charged to tax under the head "income from house property". Similarly interest income of Rs. 35,93,296/- has rightly been charged to tax under the head, " Income from, other sources." I, therefore, confirm the additions made by the A.O. Therefore ground No. 1,2 and 3 of the appeal are dismissed."
3. We have given our thoughtful consideration to rival contentions. Learned counsel invites our attention to the assessee's detailed paper book comprising of its lease agreement dated 28.10.2003 with the above stated tenant, arbitration award dated 28.04.1997, auditor's report, balance-sheet and profit and loss account of the relevant accounting period, hon'ble jurisdictional high court's in the case of Commissioner of Income Tax vs. Smt. Lila Ghosh (1994)205 ITR 9 (Cal), order of ITAT Special Bench in the case of Narang Overseas Pvt. Ltd. vs. ACIT 36 AIT-2008- 67-ITAT], hon'ble apex court's order as Civil Appeal No. 4226 of 2002 dated 13.03.2008 in Punjab State Industrial Dev. Corp. Ltd. vs. Talwar Brothers (P) Ltd., & hon'ble Delhi high court judgment dated 01.07.2009 regarding its dispute with the above stated tenant; running into 93 pages. The assessee's case accordingly is that it had received the impugned mesne profits not in the nature of rent but damages assessable to tax neither as income "from house property" regarding principal amount or income from other sources in relation to consequential interest awarded thereon. The Revenue's case on the other hand is that the impugned arbitration award granting relief to the assessee / landlord is in the nature of rent only as righty assessed by both the learned lower authorities u/s. 25A of the Act.
4. After giving our thoughtful consideration to rival contentions we find no merit in Revenue's stand. Case record suggests first of all that the assessee had entered into the lease agreement with the PSIDC on 28.10.1993 for a period of three years upto 31.10.1996. The said lease agreement sufficiently indicates that no landlord / tenant existed between two parties after 31.10.1996. We further find from the arbitration award to this effect dated 28.04.1997 that the assessee had been awarded damages with interst than rental amount of the property in issue. This arbitration award forms part of case record in pages 17 to 25 of the paper book. All this leads to irresistible conclusion that assessee has not received any rent from this lessee / tenant but ITA No.2260/Kol/2014 Assessment Year 2010-11 Talwar Brothers Pvt. Ltd. Vs ITO Wd-9(1), Kol. Page 6 damages amounting to ₹56,83,006/- neither assessable under the head "house property income" nor " income from other sources" going by the various case law discussed in the CIT(A)'s order (supra). We reiterate that hon'ble jurisdictional high court's in Smt. Lila Ghosh (supra) has already settled the law that mense profits are in the nature of damages which are not chargeable to tax being in the nature of a capital receipt. We apply the very analogy in the case of damages as well to conclude that both the lower authorities have erred in treating the assessee's damages amount as chargeable to tax. The assessee therefore succeeds in its former substantive ground.
5. Learned counsel thereafter invites our attention to assessee's second substantive grievance claiming disallowance of TDS claim of ₹17,807/-. He submits that assessee no more wishes to press for the same keeping in mind smallness of amount. We therefore decline this substantive ground as not pressed.
6. This assessee's appeal is partly allowed in above terms.
Order pronounced in open court on 09/08/2019
Sd/- Sd/-
(लेखा सद&य) ( या(यक सद&य)
(J.Sudhakar Reddy) (S.S.Godara)
Accountant Member Judicial Member
*Dkp-Sr.PS
)दनांकः- 09/08/2019 कोलकाता / Kolkata
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Talwar Brothers Pvt. Ltd., EN-42, Salt Lake, Sector-5, Kol-91
2. यथ /Respondent-ITO Ward, Ward-9(1), Kolkata
3. संबं,धत आयकर आयु-त / Concerned CIT
4. आयकर आय-
ु त- अपील / CIT (A)
5. .वभागीय (त(न,ध, आयकर अपील य अ,धकरण कोलकाता/DR, ITAT, Kolkata
6. गाड2 फाइल / Guard file.
By order/आदे श से, /True Copy/ सहायक पंजीकार आयकर अपील य अ,धकरण, कोलकाता ।