Income Tax Appellate Tribunal - Mumbai
Seth Properties, Mumbai vs Ito 12(1)(3), Mumbai on 4 October, 2017
आयकर अपील य अ धकरण, मुंबई यायपीठ, ' ई',मुंबई।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "E", MUMBAI ी जो ग दर संह, या यक सद य एवं ी जी. मंजूनाथ, लेखा सद य, के सम Before Shri JOGINDER SINGH, Judicial Member, and Shri G. MANJUNATHA, Accountant Member ITA NOs.2991 & 2992/Mum/2013 Assessment Years: 2007-08 & 2008-09 M/s Seth Properties, Income Tax Officer-12(1)(3), Room No.208, बनाम/ Room No.134, EMCA House, 02nd Floor, Aayakar Bhavan, 289 Shahid Bhagat Singh, Vs. M.K. Road, Road, Fort, Mumbai-400020 Mumbai-400001 ( नधा!रती /Assessee) (राज व /Revenue) P.A. No.ABIFS2476F नधा!रती क ओर से / Assessee by Shri Salil Kapoor, Shri Girish S. Pikale, Ms. Soumya Singh राज व क ओर से / Revenue by Shri V. Justin -DR ु वाई क% तार&ख / Date of Hearing :
सन 13/09/2017
घोषणा क% तार&ख/Date of Pronouncement 04/10/2017
2 ITA Nos. 2991 & 2992/Mum/2013
Seth Properties
आदे श / O R D E R
Per Joginder Singh (Judicial Member)
Both these appeal are by the assessee for Assessment Year 2007-08 and 2008-09 challenging the impugned orders both dated 01/01/2013 of the First Appellate Authority, Mumbai.
2. During hearing, the Ld. counsel for the assessee, Shri Salil Kapoor along with Girish S. Pikale and Ms. Saumya Singh, did not press ground no. 1 to 1.3 of the ground raised. The Ld. DR Shri V. Justin, had no objection to the prayer of the assessee, therefore, grounds no.1 to 1.3 are dismissed as not pressed.
3. The only ground agitated by the Ld. counsel for the assessee, is with respect to confirmation of the amount of ` 78,33,360/- (Assessment Year 2007-08) and `49,86,226/- (Assessment Year 2008-09) received in respect of Unit L/40 in possession of M/s Hemkund Chemicals Pvt.
Ltd. It was claimed that the impugned issue is covered by the decision of the Tribunal in the case of Narang Overseas Pvt. Ltd. vs ACIT (111 ITD 1)(Mum. Trib.)(SB)(pages 23-53 of 3 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties the paper book); ITA No.4623/Mum/2005, order dated 20/02/2008 and another decision of the Mumbai Bench of the Tribunal in the case of M/s Goodwill Theaters Pvt. Ltd.
(ITA No.8185/Mum/2011) dated 09/06/2013, which was affirmed by Hon'ble jurisdictional High Court in ITA No.2356 of 2013, order dated 06/06/2016. This assertion of the Ld. counsel for the assessee was not controverted by the Ld. DR.
3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that for Assessment Year 2007-08, the assessee declared total income of `1,75,879/- on 27/03/2008, showing income from house property out of other units apart from L/40. The rental income of `78,33,360/- in respect of unit L/40 in the possession of M/s Hemkund was considered as compensation and claimed exempt. This income was received by the assessee, consequent to order passed by Addl. Rent Control Tribunal, New Delhi. The said premises was in possession of M/s Hemkund, which was subsequently parted/sub-leted to Bank of Punjab. The amount so determined by Addl. Rent Control Tribunal, New Delhi was in respect of the premises in the possession of 4 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties M/s Hemkund Chemicals Pvt. Ltd.(HCPL) and Bank of India (BOP). As per the Revenue, it was nothing but arrears of rental income. Thus, it was held to be/deemed to be income chargeable under the head income from house property. The Ld. Assessing Officer noted that the assessee did not furnish the copy of rent deed, lease deed, documents, agreement, confirmation, etc in respect of all the units situated Cannaught Circle, New Delhi. Thus the receipt of `78,33,360/- was treated as rent from the said premises and accordingly treated as income from house property and was brought to tax.
3.2. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the submissions of the assessee were considered and the First Appellate Authority discussed the decision from Hon'ble Madas High Court in CIT vs P. Mariappa Gounder (1983) 147 ITR 676 (Mad.), Hon'ble Apex Court in P. Mariappaa Gounder vs CIT (1998) 232 ITR 2(SC), Hon'ble Delhi High Court in CIT vs Oberoi Sons (Machined Ltd.(Appeal Nos.166,168,243 and 778 of 2006 dated 31/08/2012 and also the decision in Narang Overseas Pvt.
Ltd. of the Tribunal and thereafter held that the amount so 5 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties received is taxable as revenue receipt and decided against the assessee. The assessee is in further appeal before this Tribunal.
3.3. We have considered the rival submissions and perused the material available on record. Before adverting further, we are usefully reproducing hereunder the relevant portion from the order of the Special Bench of the Tribunal in the case of Narang Overseas Pvt. Ltd., 111 ITD 1 (Mum.)(SB) for ready reference:-
The Supreme Court in the case of P Mariappa Gounder was only concerned with one issue relating to the year of taxability of mesne profit, i.e., whether it was taxable in asst. yr. 1963-64 or asst. yr. 1964-65. The issue whether mesne profit constituted revenue receipt or capital receipt was not before the Court as is apparent from the question posed by the Court for adjudication, the contentions raised by the respective parties as well as the operational part of the judgment. It cannot be said that the apex Court gave any decision regarding the nature of the receipt by way of mesne profit. The decision of the Madras High Court regarding the nature of receipt remained unaffected by the judgment of the apex Court. Accordingly, the contention of Revenue that the issue regarding the nature of mesne profits is covered by the decision of the Supreme Court cannot be accepted.
(Paras 16 & 23) The only issue which arises from the appeal of the assessee and requires adjudication is whether the mesne profits received by the assessee is revenue receipt or capital receipt inasmuch as the finding of the CIT(A) that amount of Rs. 34,57,01,137 received by the assessee amounts to mesne profits has not been challenged by the Department either by filing cross-appeals or cross-objection. However, in the course of hearing, the Departmental Representative 6 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties invoked the provisions of r. 27 of ITAT Rules, 1963 and contended that the aforesaid amount cannot be treated as mesne profits since such receipts originate from the agreement between assessee and NIHPL. Counsel for the assessee has not objected to the right of Revenue for invoking r. 27 of ITAT Rules, 1963.
(Para 32) There is no dispute to the proposition that consideration received under the leave and license agreement amounts to revenue receipt chargeable to tax. The assessee itself has offered the same in asst. yrs. 1991-92 and 1992-93 as business income. The assessee had shown the income of Rs. 21,23,911 and Rs. 13,87,833 in asst. yrs. 1991-92 and 1992-93 respectively as business income. Therefore, it is not necessary to adjudicate about the nature of receipt under the agreement. The dispute relates to the amount received by the assessee @ Rs. 10 lakhs per month along with interest @ 21 per cent for the period commencing from 1st April, 1992 till the date of possession handed over to the assessee in terms of the decree awarded by the apex Court. There is no dispute to the fact that leave and licence agreement between the parties was concluded and terminated and NIHPL was required to vacate the said premises on or before 31st March, 1992. This agreement was taken cognisance by the city Civil Court in its order dt. 29th June, 1993. Accordingly, the agreement was no more in existence. After the termination of the said agreement, neither the assessee could legally recover from NIHPL nor the NIHPL was liable to pay any amount to the assessee under the terms of the said agreement. What the assessee was entitled to was the compensation as per civil law against unlawful possession by NIHPL. Since the agreement ceased to exist, no part of the sum of Rs. 34,57,01,137 can be said to arise from the said agreement. Consequently, the contention of the Departmental Representative that the aforesaid disputed amount received by assessee represented business receipt chargeable to tax under the terms of the agreement cannot be accepted. Further contention that consent decree does not make the compensation as mesne profit and the mere fact that a particular amount was claimed by the assessee as mesne profit in the suit filed before the Court and the fact that the same has been accepted by the defendant would not make the compensation as mesne profit, is also not sustainable. Consent decree has the same binding force as any other decree. The mesne profits have been defined in s. 2(12) of the CPC, 1908 as those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include 7 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties profits due to improvements made by the person in wrongful possession. In view of this statutory definition, it is not necessary to look into any other definition. The above definition clearly takes within its scope any receipt against wrongful possession of property. In the present case, the amount received under the decree of the Court is related to the wrongful or unlawful possession of the property by NIHPL from 1st April, 1992 till handing over the property to the assessee. Therefore, the same has to be treated as mesne profits.--Anant Chunilal Kate vs. ITO (2004) 187 CTR (Bom) 93 : (2004) 267 ITR 482 (Bom) and Kumar Sudhenden Naran Deb vs. Mrs. Renuka Biswas (1992) 1 SCC 206 followed.
(Paras 35 to 37) There is cleavage of opinion between High Courts. The Madras High Court has held that mesne profit is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to tax. On the other hand the High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. Such conflict can be resolved only by the Supreme Court in some appropriate case. In the absence of the judgment of the highest Court of land or of the jurisdictional High Court, the legal position is that where there are two views then the view favourable to the subject should be preferred. Therefore, it has to be held that mesne profit received for deprivation of use and occupation of property would be capital receipt not chargeable to tax. In the present case, after the termination of lease, NIHPL was occupying and using the property unauthorisedly and thus the assessee was deprived of the use and occupation of the property and therefore, the mesne profit received by the assessee under the consent decree awarded by the apex Court @ Rs. 10 lakhs per month was on account of damages for deprivation of use and occupation of the profits and therefore, the sum so received was capital in nature not chargeable to tax.--Sushil Kumar & Co. vs. Jt. CIT (2003) 81 TTJ (Kol)(SB) 864 : (2004) 88 ITD 35 (Kol)(SB) overruled; CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC), CIT vs. Naga Hills Tea Co. Ltd. 1973 CTR (SC) 329 : (1973) 89 ITR 236 (SC), CIT vs. Madho Pd. Jatia 1976 CTR (SC) 438 : (1976) 105 ITR 179 (SC), CIT vs. J.K. Hosiery Factory (1986) 52 CTR (SC) 142 : (1986) 159 ITR 85 (SC) and Shashi Gupta vs. LIC 84 Comp Cas 436 applied.
8 ITA Nos. 2991 & 2992/Mum/2013Seth Properties (Paras 48 & 49) Conclusion:
Mesne profits awarded under decree of Court by way of compensation for wrongful possession of property after termination of leave and licence agreement is capital receipt not chargeable to tax."
3.4. It is also noted that the Mumbai Bench of the tribunal, the case of the assessee for AYs 2004-05 and 2006-07 (ITA No.6701/Mum/2011) and ITA No.1190 to 1192/Mum/2013, order dated 04/03/2015 held as under.
"This bunch of four appeals is by the Revenue challenging the respective impugned orders dated 08/07/2011(Assessment Year 2003-04) and 19/11/2012(Assessment Years 2004-05 to 2006-07) of the ld. First Appellate Authority, Mumbai, on the ground in deleting the addition of Rs.3,00,31,873/- being rental income from the property. The crux of argument advanced by Shri Vijay Kumar Bora, ld. DR, is that the ld. Commissioner of Income tax (Appeals) while granting the relief did not appreciate the facts, as the assessee suppressed its income from house property by not offering true and correct rental income from all tenants in its return of income for Assessment Year 2003-04, identical assertions were made for remaining assessment years, by submitting that the ld. First Appellate Authority wrongly deleted the addition of Rs. 3,67,96,393/- (Assessment Year 2004-05), Rs.3,95,69,419/- (Assessment Year 2005-06) and Rs.4,26,06,757/- (Assessment Year 2006-07).
2. Since identical grounds are raised in all the appeals, these can be disposed off by a common and consolidated order for the sake of brevity. The fact, in brief, are that the assessee is owner of shops in Cannaught Place, New Delhi and declared Rs.33,19,541/- as rental income from the shops, whereas the ld. Assessing Officer calculated the income at Rs. 31,56,251/-. The assessee claimed it a typographical error/calculation mistake. However, the matter travelled to the Hon'ble High Court, wherein, the rent was determined at the rate of Rs.1,42,200/- per month, payable by bank of Punjab. However, the assessee claimed Rs.7,331/- per month, as rent received. The Assessing Officer calculated the deemed rental income from these properties and thus the market value was adopted at Rs.15,64,201/- for determining the rental income in respect of other units apart from L-40. Fact remains that the entire amount was received in A. Y. 2007-08 and 2008-09 for the period commencing from 9 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties August, 2003, the rent for prior period of four months, i.e. April 2003, May 2003, June 2003 and July 2003 was determined at the rate of Rs.1,42,2001 - only. Accordingly, the Assessing Officer worked out rental income of Hemkunt IBOP as under:
Details of Office/ As per assessee rent As per Hon'ble High Deemed value per
shops (Rs) per Month court per month (Rs.) month (in Rs.)
for F.Y.2003-04
Rental income 23,769 733=1,56,420 50,72,233
of balance (Excluding -
properties 733)
(Rs.24,502 -
Rs.733)
Rental income for the year Rs.6,08,66,796
[Rs.50,72,233X12]
2.1. In view of the above, Assessing Officer worked out the deemed rental income at Rs.6,08,66,796/-. After allowing deduction u/s.24(a) @ 30% total income was assessed at Rs.4,26,06,757/-. We note that, as obsorbed by the ld. Commissioner of Income tax (Appeals) also that the Assessing Officer wrongly proceeded on the premise that Hon'ble Delhi High Court has retrospectively determined and fixed Rs.1,42,000/ - as monthly rent for the premises occupied by M/s. Bank of Punjab, and the said order operated as a formula to retrospectively enhance the rents being paid by all the 39 Protected Tenants of Appellant by 19000% i.e. from Rs. 23,769/- per month to Rs.50,72,233/- per month, i.e. (Rs.6,08,66, 796/ - p.a.). The rest of the building (other than premises on 1st Floor occupied by Bank of Punjab) is occupied by statutory tenants and they were paying statutory rent for the last 25 years. It is also noted that the Assessing Officer unjustifiably enhanced the rental income of the assessee without any documentary evidence/presumptive basis as the presumptive rent was never received/receivable by the assessee. There is uncontroverted finding in the impugned order that the Additional Rent Control Tribunal directed Punjab National Bank to deposit the amount of Rs.1,42,000/- (as mesne profit/occupation charges/damages) in the Court and not Hon'ble Delhi High Court, which bank of Punjab was paying to M/s. Hemkunt Chemicals vide its order dated 05/07/2003. The Hon'ble Delhi Court in its Order dated 29/07/2003 did not mention any amount, or fix/determine any enhanced rent for M/s. Bank of Punjab 10 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties or the assessee's 39 other tenants as erroneously assumed by the Assessing Officer. The Special Bench of the ITAT in the case of Narang Overseas(P)Ltd. v. ACIT 111 ITD 1, held that the amount was received against wrongful possession of the property and therefore the mesne profit received by the assessee under the consent decree awarded by the Apex Court at the rate of Rs. 10 lakhs was on account of damages for deprivation of use and occupation for the property and, therefore, the sum so received was capital in nature and not chargeable to tax was not considered by the Assessing Officer in proper prospective and he deliberately chose to ignore that the assessee's 39 protected tenants were not a party to the proceeding between the assessee and Bank of Punjab/Hem Kunt Chemicals at any stage, thus, the orders therein had no, and could not have any application upon them. The annual value to be assessed in the hands of the landlord/owner is a statutory rent amount only and not the enhanced amount received by the tenant from the sub-tenants/ occupant. The Assessing Officer had committed an error in considering the amount of money deposited, in court, by Bank of Punjab in the subsequent assessment years as rent due to the assessee instead of compensation/occupation charges, which is directed by the court to be paid by party (in this case Bank of Punjab) against whom eviction order had been passed, which is in direct contradiction of the Assessing Officer's own finding in Page-2 of the Assessment Order, wherein the Assessing Officer has admitted that in July,2003, Bank of Punjab was directed to pay compensation of Rs.1,42,000/- per month by Delhi High Court. This amount (deposited by Bank of Punjab) which the Assessing Officer treats as rental income is in reality compensation for wrongful possession which was deposited only in the subsequent assessment years by Bank of Punjab, and was received by the assessee only in A.Y.2007-2008, and A.Y.2008-09. There is wrong presumption by the Assessing Officer that Bank of Punjab and not Hem Kunt Chemicals was the assessee's tenant without appreciating that as per Sec. 16(a) and (b) of the Delhi Rent Act no tenant without the previous consent in writing of the land lord has the right to sublet or assign the premises occupied by him. Once eviction orders are passed the relationship of land lord/tenant comes to an end.11 ITA Nos. 2991 & 2992/Mum/2013
Seth Properties Thereafter, the land lord can be awarded only compensation by the Court till possession is handed back to the land lord by the tenant. Thus, there was a gross error in the assessment order in increasing the rents of all the Appellant's remaining 39 protected tenants (being Rs.23,769/- per Month paid to the Appellant by its lawful/ protected tenants) by 19000% i.e. to Rs.50, 72,233/ - Per Month because these lawful tenants are ,protected tenants who enjoy protection under the Delhi Rent Control Act,1958. Sec 6A of the Delhi Rent Act 1958 has restricted the power of land lords (i.e. the appellant herein) to increase rents beyond 10% and that too only after every 3 years.
2.2. Section 105 and 107 of the transfer of Transfer of Property Act does not confer any right on any Civil Court to fix the rent of any premises, which is a matter between the Lessor and the Lessee subject to provisions of the Rent Act. The Appellant is expressly barred from receiving any consideration for creation of a sub-tenant or the tenants as per see 16(4) of the Delhi Rent Act. Similar issue with identical facts in assessee's own case was decided by the ld. Commissioner of Income tax (Appeals) for A. Y. 2003-04, wherein, CIT(A) vide order No.CIT(A)-23/ITO-12(1 )(4)/IT-448/201 0-11 dated 08/07/2011 held as under: "The Assessing Officer has computed income from house property in respect of all the tenanted premises, including L- 40, 1st Floor premises in respect of which there was a dispute before the Tribunal! Court, and in respect of which the appellant has been allowed to withdraw moneys deposited under Court order. The Assessing Officer on the basis of the amount determined by the High Court in respect of L-40 which was in dispute, has treated the same as rental for the balance properties as receivable and the difference amount (i. e., difference between rental income as per High Court order and as declared by the appellant) has been brought to tax. For the properties other than L-40, deemed value of rental of Rs.34,61 ,623 per month has been taken. With regard to L-40 on similar basis (after allowing for cost inflation @ 20%), amount of Rs.1, 13,600/- per month has been taken as the deemed rental value. It is found, firstly that the order of Delhi High Court was only specific to L-40 premises, which were let out to Hemkunt 12 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties Chemicals further sublet to 8ank of Punjab. The properties were under the Delhi Rent Control Act. The ITAT Mumbai in ITA No. 35241MI2008 A.Y.2002-03 in Shri Deepak Vaswani v ITO Ward 12(2)(40 Mumbai has laid down principles on how the determination of ALV is to be made. It has been held that in case the property is covered by the Rent Control Act, the annual value u/s 23(1) (a) cannot exceed the standard rent determined under the Rent Control Act because of the restriction on the value of rent as held by the Supreme Court in the case of Sheela Kaushik (113 ITR 435). Thus without any specific order in respect of other properties, the Assessing Officer could not have extrapolated the rent using the basis of the Court decision in respect of the L-40 property. The Assessing Officer is thus directed to restrict the rental income in respect of properties other than L-40 to the standard rent determined under the Rent Control Act.
As regards the L-40 property (under dispute), provisions of section 25AA and 258 have to be taken into consideration. Section 25AA of the Act provides that where the assessee can not realize rent from a property let out to a tenant, and subsequently any amount in respect of such rent is realized, such receipt shall be deemed to be chargeable under the head 'income from house property' as income of the previous year in which it is received. Section 258 of the Act makes a special provision for arrears of rent received, and states that where an assessee has received an amount by way of arrears of rent from such property, which is not charged to tax in any previous year, the amount so received shall be deemed to be chargeable under the head 'income from house property' as income of the previous year in which it is received, whether the assessee continues to remain the owner of such property in the previous year in which arrears are received or not. (deduction of 30% would also be allowable against such receipt). In the present case since the appellant has not received any amount either by way of unrealized rent or by way of arrears in AY 2003-04, which is evident from the court orders (the amount is stated to have been received after directions of the Court dated 2910712007) and amounts were released to the appellant from 2810712006. In point of fact even the order of Court directing deposit of monthly amount of Rs. 1,42,0001 - is dated 2910712003, which is after the end of the previous year relevant to AY 7003-04. Thus in view of the provisions of sections 25AA and 258, the income (receipt) is to be taxed in the year of receipt and cannot be subjected to tax in AY 13 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties 2003-04. The rental income for AY 2003-04 would be restricted to the standard rent determined under the Rent Control Act.
The addition made by the Assessing Officer is thus deleted."
2.3. Before us, no contrary decision was brought on record by either side reversing the aforesaid order, thus, on the Rule of consistency also the assessee is having a good case, thus, the stand of the CIT(A) deserves to be upheld. The Assessment Year 2003-04 is the lead year, wherein, we have upheld the stand of the ld. Commissioner of Income tax (Appeals), whereas, the remaining Assessment Years, on identical fact, the ground raised by the Revenue is that the case of Assessment Year 2003-04 is pending before the Tribunal. However, we have upheld the order of the ld. Commissioner of Income tax (Appeals) for Assessment Year 2003-04, therefore, the identical issue for the later assessment years is automatically disposed of in favour of the assessee."
3.5. During hearing, the Ld. DR neither controverted the factual finding recorded by the Tribunal for Assessment Year 2004-05 and 2006-07 nor brought on record any contrary decision/facts, therefore, for the sake of consistency, it has to be followed and as on date the order of the Tribunal stands.
3.6. In another case, of Goodwill theaters Pvt. Ltd. (ITA No.8185/Mum/2012, for Assessment Year 2008-09 order dated 09/06/2013, the Coordinate Bench of the Tribunal held as under:-
14 ITA Nos. 2991 & 2992/Mum/2013Seth Properties "This appeal has been preferred by the department against the order dated 30-9-2011 of leaned CIT(A)-3, Mumbai relating to the assessment year 2008-09.
2. The department in Grounds No.1 & 2, has raised objection in regard to holding that the mesne profits of Rs.1,47,18,280/- received by the assessee constituted capital receipt not chargeable to tax, in spite of the direct 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.
3. The facts in brief are that during the year under consideration the assessee company received mense profit for unauthorised occupation ITA No.8185/2011 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 vide SLP 19635 of 2002 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 to the assessee company of Novelty Chambers 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 whose copy was received by the assessee company on 13th June 2007 for the T.E. and R. Suit No.59/81 of 2000 of Miscellaneous Notice Number 275 of 2002 filed by the assessee company 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 a give 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 against the T.E. and R Suit No.59/81 of 2000 of Miscellaneous Notice Number 275 of 2002 vide its appeal number 1744 of 2007 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/-. Moreover, ITA No.8185/2011 Central Bank of India have also preferred an appeal against the said determination of mesne profit which has been admitted and is 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 has directly taken to the capital reserve without crediting the profit and loss account holding 15 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties it to be a capitol receipt exempt from Income-tax. The appeal of the Central Bank of India vide its appeal number 1744 of 2007 is still pending for adjudication.
4. Assessee preferred appeal before the CIT(A). Detailed written submissions were filed before him. It was submitted that mesne profit received for unauthorized occupation of the premises is a capital receipt not chargeable to tax in the light of the decision of Special Bench of the Tribunal in the case of Narang Overseas Pvt. Ltd. Vs. ACIT, reported in 100 ITD (Mum)(SB). Further reliance was placed on the decision in the case of CIT Vs. Mrs. Annamma Alexander, 191 ITR 551 (Ker.). Regarding the decision of the Hon'ble Madras High Court relied upon by the learned AO, it was submitted that the facts in that case are different. The finding of the learned AO were explained before the CIT(A) through written submission and it was submitted that findings of the learned CIT(A) are not correct. It was further submitted that the decision of the Hon'ble Madras High Court, which is merged in the decision of the Hon'ble Supreme Court, has been considered by the Special Bench and found that the facts are different. Learned CIT(A) after considering the order of the AO, detailed written ITA No.8185/2011 submission filed on behalf of the assessee, which are part of the order of learned CIT(A) also, found that the AO was not justified in treating the receipts as revenue in nature. Learned CIT(A) found that the decision of the Hon'ble Madras High Court has been considered by the Special Bench is squarely applicable on the facts of the present case as the facts of the present case are also similar to the facts before Special Bench. Accordingly, he held that the mesne profit received by the assessee is capital in nature and not chargeable to tax. Against the finding of the learned CIT(A), the department is in appeal here before the Tribunal
5. Learned DR placed reliance on the order of AO. Part of the order of the AO was read also. On the other hand, learned counsel of the assessee placed strong reliance on the order of learned CIT(A). The findings of the learned CIT(A) have been recorded in para 1.3 at pages 17 & 18 of his order, are as under :-
"I have considered the facts. It is seen that the AO has relied in the case of P. Mariappa Gounder 147 ITD 676 (Mad) which has been affirmed by the Supreme Court in 232 ITR 2 (SC) wherein the issue was the year of taxability of the msene profit. Wherein as per the order of Supreme Court, the trial Court has determine the amount of mesne portit payable to the appellant and the trial court has determined the liability 16 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties and passed an order on December 22, 1962. Therefore, it was held that the amount was ascertained on 22.12.1962. Hence, it was liable to be charge on the basis of mercantile system of accounting in the AY. 1963-64. It is further seen that the Appellant has contested that the issue whether the mesne profit was capital or revenue was not the question agitated in the case of P. Mariappa Gounder. The AR relied in the case of Narang Overseas P.Ltd. 111 ITD 1 Mum, (SB) wherein the Hon'ble 5 Member Special Bench has considered the decision in the case of P. Mariappa Gounder (supra) and observed that the above decision was only concern with one issue relating to year of applicability of mesne profit i.e. whether it was taxable in the AY. 63-64 or A.Y. 64-65. The issue ITA No.8185/2011 whether mesne profit constitute revenue receipt or capital receipt was not before the Supreme Court as was apparent from the question posed before it for adjudication. After considering these facts, the Hon'ble Special Bench has held that mesne profit received from the depreviation of use of occupation of property would be capital receipt not chargeable to tax. This decision of Special Bench is also taken before the jurisdictional High Court. However, the appeal against this decision was dismissed vide order dated 25.6.2009 in ITA No. 1797 of 2008 by the Hon'ble Bombay High Court. In the light of these facts, the mesne profit received by the appellant on account of decree and depreviation of use of occupation of property and therefore, the sum so received was capital in nature not chargeable to tax. Since the decision of Special Bench is binding on the appellate authorities working under its jurisdiction. Therefore respectfully following the same, the mesne profit is received by the appellant is treated as capital receipt and not chargeable to tax."
6. After going through the order of AO and the above findings of the learned CIT(A), we noted that the AO decided the issue against the assessee following the decision of the Hon'ble Madras High Court in the case of P. Mariappa Gounder (supra). This decision of the Hon'ble Madras High Court and the decision of the Hon'ble Supreme Court confirming the order of Hon'ble Madras High Court has been considered by the Special Bench and found that the facts are different. It is further seen that the decision of the Special Bench has been confirmed by the Hon'ble Bombay High Court vide order dated 25-6- 2009. All these facts have been considered by the learned CIT(A), which remained uncontroverted. Therefore, without going into details further, we see no reason to interfere in the findings of the learned CIT(A) as the order of the learned CIT(A) is in consonance with the order of the Special Bench, which has been confirmed by the Hon'ble ITA 17 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties No.8185/2011 Bombay High Court. Accordingly, we confirm the order of the learned CIT(A) on the issue involved.
7. Ground No.3 is against holding that the mesne profits though forming part of book profits under Section 115JB were deductible being capital receipts, in spite of the clear provisions of the Explanation to Section 115JB which do not permit such a deduction.
8. The noted that the assessee has treated the income of Rs.1,47,18,280/- as capital receipt which was taken directly to the capital reserve account without crediting the profit and loss account. The AO held that since this receipt has been treated as revenue receipt and in view of the provision of Section 115JB, needs to be added back to the book profit as the same has been carried to reserves other than a reserve specified under Section 33AC of the Act. Accordingly, the same was brought to tax while computing the income under Section 115JB of the Act.
9. Learned CIT(A) deleted the addition by observing that since this receipt is not revenue in nature as the same is capital in nature, not chargeable to tax. Though the learned CIT(A) has deleted the addition, however, while deleting the addition, learned CIT(A) has observed that since the mesne profit is reflected in the profit and loss account, hence, it is rightly taxable for computing book profit, hence, on principle, the findings of the AO were upheld. However, since the mesne profit is held to be capital in nature, hence, not chargeable to tax, then it ITA No.8185/2011 becomes consequential in nature. Therefore, the income computed under Section 115JB was also deleted by the learned CIT(A).
10. Learned DR placed reliance on the order of AO. On the other hand, learned counsel of the assessee stated that the findings of the learned CIT(A) recorded in para 5.1 are partly incorrect. It was stated that it is incorrect to note at the end of the learned CIT(A) that since the mesne profit is reflected in profit and loss account, hence, it is rightly taxable for computing books profit. In this respect, it was submitted by the learned AR that mesne profit was not reflected in the profit and loss account and this fact has been recorded by the AO also. Therefore, to this extent, the findings of the learned CIT(A) are not correct, which needs to be rectified. Further reliance was placed on the order of CIT(A) to the remaining part of his order, where the addition made by the AO was deleted.
18 ITA Nos. 2991 & 2992/Mum/2013Seth Properties
11. After considering the submission and perusing the material on record, we found that the counsel of the assessee is correct in objecting the findings of the learned CIT(A) that the mesne profit is reflected in the profit and loss account but was directly credited to the capital account in the balance sheet. Learned CIT(A) has held that the mesne profit is not revenue receipt but capital in nature because while deciding the ground on merit, the receipt has been found as capital in nature in view of the decision of the Special bench. Since the mesne profit is in capital in nature in view of the decision of the Special Bench, ITA No.8185/2011 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. Therefore, in view of the above facts and circumstances of the case and in view of the reasoning given by the learned CIT(A), we hold that the learned CIT(A) was justified in deleting the addition computed by the AO under Section 115JB. Accordingly, in this regard, the order of the learned CIT(A) is confirmed.
12. In the result, appeal of the department is dismissed."
In the aforesaid order, the Tribunal has duly considered the decision from Hon'ble Madras High Court in the case of CIT vs P. Mariappa Gounder (147 ITR 676) (Mad.), the Special Bench decision in the case of Narang Overseas Pvt. Ltd. (supra), CIT vs M/s Annamma Alexander, 191 ITR 551 (Kerala), the decisions relied upon by Ld. DR and thereafter the appeal of the Revenue was dismissed. It is noted that this decision of the Tribunal was affirmed by Hon'ble jurisdictional High Court vide order dated 06/06/2016 (Income Tax Appeal No.2356 of 2013). The relevant portion (pages 10-14 of the paper book) is reproduced hereunder:-
19 ITA Nos. 2991 & 2992/Mum/2013Seth Properties "This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 19th June, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal)for the Assessment Year 2008-09.
2 The Revenue urges the following questions of law for our consideration:
"(a) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits are capital receipts in the hands of the assessee and not revenue receipts chargeable to tax?
(b) Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that mesne profits, cannot be part of book profit u/s. 15JB, as it was held as capital assets ?".
3. The impugned order of the Tribunal has held that the mesne profits received by the Respondent-Assessee for the unauthorized occupation of its premises from Central Bank of India is a receipt of capital nature and thus not taxable. To reach the above conclusion, the impugned order placed reliance upon the decision of Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., v/so ACIT 100 ITD (Mum)S.B. The issue before the Special Bench in Narang Overseas Pvt. Ltd. (supra) was whether the mesne profits received by an assessee is revenue or capital in nature. The Special Bench, in its order placed reliance upon the definition of mesne profits in Section 2(12) of the Code of Civil Procedure, 1908 which reads as under:-
"Mesne profits/of property means those 'profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received the re from) together with interest on such profits) but shall not include profits due to improvements made by the person in wrongful possession. "
On the basis of above, it held that any amount received from a person in wrongful possession of its property, would be mesne profits and it is capital in nature.
4. This appeal was on board on 14th January, 2016. At that time, it was pointed out to us that the Revenue had preferred an appeal against the decision of the Special Bench in Narang Overseas Pvt. Ltd. (supra) to this Court being Income Tax Appeal (L) No. 1791 of 2008. However, the 20 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties Appeal of the Revenue was dismissed for non-removal of office objections on 25th June, 2009. In view of the above, at the instance of the Revenue, the appeal was adjourned to enable the Revenue to find out whether the dismissed Income Tax Appeal (L) No.1791 of 2008 filed by the Revenue from the order of the Special Bench in Narang Overseas Pvt. Ltd., (supra), has been restored to the file of this Court. Further, the Revenue was directed to put on record the reason why the Revenue seeks to challenge the impugned order in the face of the order of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) which appears to be undisturbed.
5. Today, when the Appeal was called out, Mr. Chhotaray, learned Counsel appearing for the Revetlue on instruction states that till date no proceedings had been filed in this Court, seeking to restore its appeal in the case of Narang Overeas Pvt. Ltd., (supra) dismissed on 25th June, 2009. However, he further states that the Revenue is still in the process of ascertaing the reason for non-removal of office objections in Income Tax Appeal (L) No: 1791 of 2008 in Narang Overseas Pvt. Ltd., (supra), leading to dismissal on 25th June, 2009.
6. In spite of our order dated 14rh January, 2016, the Revenue has not taken any steps to put on affidavit the reasons why it seeks to press this appeal. This is particularly so in the face of having accepted the order of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra).
7. We had in Director of Income Tax (International Taxation) v/s Credit Agricole Indosuez ITR 102 -377- observed as under:-
"(v) :-......................................21 ITA Nos. 2991 & 2992/Mum/2013
Seth Properties In matters of tax, justice requires that there must be certainty of law which presupposes equal application of law. Thus) where the issue in controversy stands settled by the decisions of this court or the Tribunal in any other case and the Revenue has accepted that decision then in that event, the Revenue ought not to agitate the issue further unless there is some cogent justification such as change in law or some later decision of an higher forum, etc., then in such cases appropriately the appeal memo itself must specify the reasons for preferring an appeal failing which at least before admission the officer concerned should file an affidavit pointing out the reasons for filing the appeal. It is only when the court is satisfied with the reasons given, that the merits of the issue need be examined of purposes for admission (please see I.T.A. No.37 of 2013 CIT v. Proctor and Gamble Home Products Ltd., dated January 19,2015 [2015J 377 ITR 66 (Bom); I.TA. No.269 of 2013 CIT v. SBI dated February 4, 2015 [2015]375 ITR 20(Bom); I.TA. No. 330 of 2013 DIT v. Citibank N. A. dated March 11, 2015 - [2015] 377 ITR 69 (Bom).) Filing of appeal under Section 260A of the Act is serious issue. The parties who seek to file such appeals (which are normally after two tiers of appeal before the authorities under the Act) must do so after due application of mind and not raise frivolous / concluded issues. This is certainly expected of the State .. "
8 Thus, on the above ground alone, we see no reason to entertain the present appeal.
9 However, Mr. Chhotaray, learned Counsel appearing for the Revenue, submitted that decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) will not apply as the facts in this case are different. Mr. Chhotaray points out that landlord- tenant relationship as arising in the present case was not present in Narang Overseas Pvt. Ltd., (supra). Thus, he submits that this appeal needs to be admitted.
10 We find 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 is no doubt that the issue arising herein is also with regard to the character of mesne profits received by the Respondent-Assesse. In this case also, the amounts are' received by the 22 ITA Nos. 2991 & 2992/Mum/2013 Seth Properties Respondent-Assessee from a person in wrongful possession of its property i.e. after the relationship of landlord and tenant has come to an end, Once the Special Bench order of the Tribunal in Narang Overseas Pvt. Ltd. (supra) has taken a view on the character of mesne profits, then unless the Revenue challenges the order of the Special Bench of the Tribunal it would be unfair of the Revenue to pick and choose assessees where it would follow the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra) The least that is expected of the State which prides itself on Rule of Law is that it twould equally apply the law to all assessees's.
11 We make it clear that we have not examined the merits of the question raised for our consideration. We are not entertaining the present appeal on the limited ground that the Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra), The fact that even after the dismissal of its Appeal (L) NO.1791 of 2008 for non- removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas Pvt. Ltd., (supra). Thus, the question as framed in the present facts does not give rise to any substantial question of law. 12 Accordingly, Appeal is dismissed. No order as to costs.'
4. In The aforesaid order, the Hon'ble jurisdictional High Court duly considered the decision of the Special Bench of the Tribunal in the case of Narang Overseas Pvt.
23 ITA Nos. 2991 & 2992/Mum/2013Seth Properties Ltd., DIT(IT) vs Credit Agricole Indosuez 102 ITR 377(Bom.) and held that since the decision of the Special Bench of the Tribunal in the case of Narang Overseas Pvt. Ltd. is not challenged by the Revenue, therefore, it is not acceptable to not to follow the decision of the Special Bench. Thus, respectfully following the decision of the Hon'ble High Courts and the ratio laid down in the cases decided by the Tribunal, wherein, it was held that mense profit is not revenue receipt but capital in nature. Identical ratio was laid down in the case of Narang Overseas and M/s Goodwill Theater Pvt. Ltd., thus, on this ground, the appeal of the assessee deserves to be allowed. This order will be applicable to both the years under consideration, being on identical facts.
Finally the appeals of the assessee are partly allowed.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 14/09/2017.
Sd/- Sd/-
(G. Manjunatha) (Joginder Singh)
लेखा सद#य / ACCOUNTANT MEMBER या$यक सद#य / JUDICIAL MEMBER
मब
ुं ई Mumbai; +दनांक Dated : 04/10/2017
f{x~{tÜ? P.S/. न.स.,
24 ITA Nos. 2991 & 2992/Mum/2013
Seth Properties
आदे श क %$त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ/ / The Appellant
2. 01यथ/ / The Respondent.
3. आयकर आय3 ु त,(अपील) / The CIT, Mumbai.
4. आयकर आय3 ु त / CIT(A)- , Mumbai
5. 5वभागीय 0 त न ध, आयकर अपील&य अ धकरण, मब ुं ई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, स1या5पत 0 त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मब ुं ई / ITAT, Mumbai