The Delhi High Court held that the mesne profits and its interest received for unauthorised occupation of immovable property by Indian Overseas Bank is taxable.
The assessee, M/s Skyland Builders Pvt. Ltd. filed the original return of income declaring income. Subsequently, the return was revised declaring income under Section 115JA. In the original return, mesne profits of Rs.77,87,303 was declared as taxable income, whereas in the revised return, the assessee claimed it as a capital receipt, and excluded it from its taxable income.
The original return was processed under Section 143(1)(a), but was taken up for scrutiny and statutory notices were issued to the assessee. The assessee claimed that mesne profits amounting to Rs.77,87,303 received during the previous year, relevant to the assessment year in question, was not liable to be taxed as income.
This claim was made by the assessee in the background that it had let out its property in the year 1980 for a period of five years, and the monthly rent was liable to be increased by 20 per cent after expiry of the first three years.
The lessee did not comply with the terms, and increased the rent by only 10 per cent. The assessee terminated the lease agreement by serving a notice upon the lessee. Since the lessee failed to vacate the premises, the assessee filed a suit for damages/ Mesne Profit and for restoration of the premises to itself.
The suit of the assessee was decreed which included award of mesne profits and damages with interest. In compliance of the Court’s decree, the lessee i.e. Indian Overseas Bank paid Rs.77,87,303 to the assessee, which the assessee claimed as a capital receipt, not liable to be taxed as income.
The ITAT rejected the assesses‟ claim with regard to non-taxability of mesne profits as income under the Act on the ground that it is a capital receipt.
The issue raised in this case was whether in the facts and circumstances of the case and in law, the ITAT was right in taxing mesne profit and interest on mesne profit received at the discretion/ directions of Civil Court in suit for unauthorized occupation of immovable property by Indian Overseas Bank, under Section 23(1) of Act.
The division judge bench of Justice Vipin Sanghi and Justice Rajnish Bhatnagar held 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.
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