Income Tax Appellate Tribunal - Kolkata
Smt. Lila Ghosh vs Income-Tax Officer on 11 March, 1986
Equivalent citations: [1986]18ITD213(KOL)
ORDER
S.N. Rotho, Accountant Member
1. This appeal has been filed by the assessee against the order dated 24-1-1984 of the Commissioner (Appeals) relating to the assessment year 1980-81, the previous year of which ended on 31-3-1980.
2. The assessee inherited a property which was under lease, on the death of her husband in 1960. That lease expired in 1970. However, the lessee did not give possession to the assessee. The assessee filed a suit for eviction and mesne profit. The suit was decreed in favour of the assessee on 11-8-1971. The decree was affirmed on 19-5-1979 by the Additional District Judge, by the Calcutta High Court on 6-5-1976 and by the Supreme Court on 19-9-1977. The assessee then applied for the execution of the decree. The Court appointed a Commissioner to determine the claim of quantum of mesne profit. While the execution of the said decree and the determination of the quantum of mesne profit were pending, the Government of West Bengal acquired the demised property on 24-12-1979. A settlement was arrived at between the assessee and the Government of West Bengal. On the basis of the said settlement, the High Court passed an order dated 28-2-1980. By this order, the Government of West Bengal was to pay Rs.11 lakhs to the assessee towards compensation for the acquisition of the property. Secondly, the Government had also to pay another sum of Rs.2 lakhs to the assessee in consideration of the assignment of the decree for mesne profit and eviction. Thus, by virtue of the order of the High Court dated 28-2-1980, a sum of Rs.2 lakhs became payable by the Government of West Bengal to the assessee towards mesne profit.
3. The assessee considered the aforesaid sum of Rs.2 lakhs as rent receivable by her. Another order dated 6-9-1985 of the High Court clarified their earlier order dated 28-2-1980 by saying that the mesne profit related to the period from May 1970 to February 1980. The assessee calculated the proportionate sum relevant to the assessment year 1980-81 at Rs.22,570. The assessee offered the above sum to tax as income from property relating to the previous year under consideration. The ITO did not agree with the stand of the assessee. The ITO held that the entire sum of Rs.2 lakhs was assessable during the assessment year 1980-81 under the head 'Income from other sources'. After obtaining the approval of the IAC under Section 144B of the Income-tax Act, 1961, he made the assessment on a total income of Rs.2 lakhs under the head 'Income from other sources'. It may be mentioned in this connection that the assessee had urged before the IAC in course of the proceedings under Section 144B that the sum of Rs.2 lakhs was a capital receipt as it was in the nature of a damage for wrongful retention of the assessee's property. Hence, the assessee had contended that the amount was not taxable at all notwithstanding the fact that a return was wrongly filed showing an income of Rs.22,570 which was a portion of the aforesaid sum of Rs.2 lakhs. The IAC did not agree with the above contention on the ground that the mesne profit of Rs.2 lakhs was not in the nature of damage or compensation but was in the nature of additional rent receivable by the assessee. It was on the basis of these directions of the IAC that the assessment was made by the ITO as above.
4. The assessee appealed to the Commissioner (Appeals) and contended : (1) that the amount was not taxable because it was capital receipt ; (2) in the alternative, the entire income was not taxable during the single assessment year under consideration ; and (3) that the amount was assessable under the head 'Income from house property'. Various case laws were cited before him. The Commissioner (Appeals) considered the contentions of the assessee. He analysed the case laws cited before him and found them to be distinguishable from the facts of the instant case. On the other hand, he found certain case laws to support the stand taken by the ITO. Relying on those cases, he upheld the order of the ITO on all the three grounds taken before him and dismissed the appeal.
5. Aggrieved by the above order of the Commissioner (Appeals) the assessee is in appeal before us. Shri N.K. Poddar, the learned representative for the assessee, urged before us that the Commissioner (Appeals) erred in his decision. His line of attack was that the aforesaid sum of Rs.2 lakhs was a capital receipt as it was mesne profit which is essentially in the nature of damages. In support of this contention he referred to Mulla's commentary on the Code of Civil Procedure, Thirteenth edn., p. 929 for the proposition that mesne profit is virtually a claim for damages and that wrongful possession is the very essence of a claim for mesne profit. In order to support this argument, Shri N.K. Poddar relied on the following cases:
(1) CIT v. Rani Prayag Kumari Debi [1940] 8 ITR 25 (Pat.) :
In this case, the assessee was deprived of certain movable and immovable properties. She filed a suit and obtained a decree for the recovery of the movables and immovables and also damages for wrongful detention of the properties. It was held that the damages received by the assessee for wrongful-detention of her properties was not a revenue receipt as it was not paid under any contract to pay any interest.
(2) CIT v. J.D. Italia [1983] 141 ITR 948 (AP) :
In this case the land of the assessee was unauthorisedly occupied and the civil suit instituted by the assessee for recovery of possession was decreed in 1 is favour. During the pendency of the appeal the parties arrived at a compromise where under the assessee was paid a sum of Rs.40,000 described as interest. It was held that the receipt was essentially in the nature of damages for wrongful use and occupation of the assessee's land and so it was a capital receipt.
(3) CIT v. Periyar and Pareekami Pubbers Ltd. [1973] 87 ITR 666 (Ker) :
In this case, it was held that the interest paid on compensation payable under the Land Acquisition Act, 1894, up to the date of award is a revenue receipt. However, the interest paid for the period from the date of acquisition till the date of award is a capital receipt. The decision in this case rested upon the distinction between the possession assumed under the provisions of the Land Acquisition Act and the possession otherwise taken.
(4) P.L.M. Firm v. CIT [1968] 68 ITR 856 (Mad.) :
In this case, there was a contract of lease of certain mines belonging to the assessee with another party. There was a breach of the contract by the other party. The assessee invoked the arbitration Clause of the contract and got an award of a sum as damages. It was held that the amount received as damages was not income but of a capital nature.
(5) CIT v. National Insurance Co. Ltd. [1978] 113 ITR 37 (Cal.) :
In this case, the asseessee was permanently deprived of its right to manage its life insurance business by the Central Government and was awarded compensation for such deprivation. It was held that the said compensation was a capital receipt.
At this stage, we enquired from Shri N.K. Poddar as to whether his case was that the sum of Rs.2 lakhs was received as a consideration for transferring a capital asset as he was urging that the same was a capital receipt. He replied in the affirmative. To cut further query as to whether the transfer would not attract capital gains tax, he stated there would be no capital gains tax in view of the decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC). In this case, it was held that no capital gains tax is leviable on the surplus arising out of the transfer of an asset whose cost of acquisition or date of acquisition could not be definitely ascertained. According to Shri N.K. Poddar, the asset. transferred by the assessee for which she received the sum of Rs.2 lakhs had no cost of acquisition.
6. Shri N.K. Poddar, then proceeded to his alternative contention. He urged that even if the said sum of Rs.2 lakhs is held to be a revenue receipt the whole of the said amount could not be taxed in one year because of the clarification dated 6-9-1985 of the High Court stating that the mesne profit related to a period of about 10 years, viz., from May 1970 to February 1980. In this connection, he referred to the decisions in the cases of CIT v. Sachindramohan Nandy [1984] 146 ITR 597 (Cal.) and CIT v. Deoki Nandan & Sons [1982] 138 ITR 225 (Delhi). In the former case, it was held that where the assessee does not indicate the method of accounting followed by him, in the ordinary course, the receipt cannot be assessed to tax on the basis of cash system of accounting. In the latter case, it was held that interest awarded by the Court under the Land Acquisition Act accrued day by day throughout the years from the date of taking over possession till the payment of compensation. Finally, he urged that the income had to be assessed under the head 'Income from house property' because it was in the nature of additional rent.
7. Shri S. Dasgupta, the learned representative for the department, on the other hand, supported the order of the authorities below on the grounds stated in their orders. Then, he referred to the decision in the case of CIT v. Siewart & Dholakia (P.) Ltd. [1974] 95 ITR 573 (Cal.). In this case, there was a breach of contract to render services and damages were awarded on the basis of a consent decree. It was held that the amount was revenue receipt as the loss of one customer out of many could not be said to be a loss to the capital structure of the assessee. Next, he referred to the decision in the case of Ramachandra Dhonde Datar v. CIT [1961] 43 ITR 22 (Bom.). In this case, the amount awarded under a decree was held to be taxab'e because it was not compensation for loss of employment. In this connection, he also referred to the decision in the case of Dr. Shamlal Narula v. CIT [1964] 53 ITR 151 (SC). In this case it was held that statutory interest payable by the Government on the amount of compensation for acquiring the land is taxable as revenue receipt. Hence, he urged that the order of the Commissioner (Appeals) deserved to be upheld.
8. We have considered the contentions of both the parties as well as the facts on record. In our considered opinion none of the cases cited by either side is on all fours with the facts of the instant case. One such of cases related to the interest payable on the compensation amount payable on the acquisition of land. Another such case relates to damages paid on the breach of a contract for service. Ahother case relates to the breach of contract for running a mine on commercial lines. We find that all these cases are distinguishable on facts from the case before us. The undisputed facts in the case before us are that the assessee became entitled to receive the sum of Rs.2 lakhs on 28-2-1980 as consideration for transferring the decree to recover the mesne profit. In other words, instead of waiting till the determination of the quantum of mesne profit by the Commissioner appointed by the Court and recovering the same from the lessee, the assessee compromised to receive a down payment of Rs.2 lakhs from the Government of West Bengal in full and final settlement of her claims to mesne profit against the lessee. 'Mesne profit' has been defined in Rule 12, Order 20 of the Civil Procedure Code in Mulla's commentary, Fourteenth edn., pp. 1304 to 1306. It has been stated that the claim for mesne profit is virtually a claim for damages. This has been held so in the case of Girish Chunder [1900] 27 Cal. 951. Again in the case of Dakshina v. Saroda [1894] 21 Cal. 142, it has been held that mesne profit is in the nature of damage which the Court may mould according to the justice of the case. In the case of Gopal Das Khetry 59 CWN 229, it has been held that wrongful possession of the defendant is the very essence of a claim of mesne profit. In the case before us, the assessee received the sum of Rs. 2 lakhs by transferring her right to receive mesne profit. That right, in our opinion, was a capital asset. It accrued in full on 28-2-1980. The excess of Rs.2 lakhs over the cost of acquisition plus improvement, if any, would give rise to a surplus which is, in our opinion, assessable under the head 'Capital gains'. After considering all the relevant facts and circumstances of the case and the case laws cited before us, we come to the conclusion that the sum of Rs. 2 lakhs was received in full on 28-2-1980 on the transfer of a capital asset. Thus, the surplus, if any, arising out of the transfer is assessable under the head 'Capital gains'. Hence, we do not agree with the revenue authorities that it is a revenue receipt. Similarly, we do not agree with the assessee that it did not accrue in full during the previous year under consideration. We do not agree with both the parties regarding the head of income under which it is assessable because we hold that it is assessable under the head 'Capital gains'.
9. We now come to the argument raised by the learned representative for the assessee that no capital gain is chargeable on the surplus arising out of the aforesaid transfer because there was no cost of acquisition. We do not agree. We have gone through the aforesaid decision in the case of B.C. Srinivasa Setty (supra). That was a case of transfer of goodwill. The Court held that there was no cost of acquisition of goodwill as it grows slowly day by day without any specific expense incurred to acquire the same. The person starting a new business cannot buy the goodwill of the new business from the market in the same way as he can purchase machinery or stock-in-trade. Besides, it cannot be said as to what is the exact date on which the goodwill was acquired. The decision in the case of B.C. Srinivasa Setty (supra) in respect of goodwill rested on these two points. In the instant case, the facts are entirely different. Firstly, it is not a case of transfer of goodwill. The capital asset transferred was a decree representing a right to receive money stipulated in the decree. This asset is assignable and it has been so assigned on a definite date. It is possible to determine the exact date on which the transfer took place. Again, it is also possible to determine the cost of acquisition of the asset. The cost of asset of a decree evidently consists of the amount spent towards stamp duty and other legal expenses incurred for obtaining the decree. It cannot be said that this amount is indefinite or not determinable. Hence, we hold that the case of B.C. Srinivasa Setty (supra) does not stand in the way of computing the capital gains arising out of the aforesaid transfer. Hence, we vacate the orders of the ITO as well as the Commissioner (Appeals) and restore the matter to the file of the ITO for making the assessment afresh in accordance with law and our observations above after giving a reasonable opportunity of being heard to the assessee.
10. In the result, the appeal is allowed in part as above.