Mesne profits constitute capital receipt not chargeable to tax

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Mesne profits constitute capital receipt not chargeable to tax

AIT News Network

MUMBAI. 5 Member Special Bench of ITAT vide a significant ruling dated 20^th February 2008 AIT-2008-67-ITAT ruled that Mesne profits constitute capital receipt not chargeable to tax.

The President ITAT, vide order dated 7.8.2006 constituted Special Bench to adjudicate the issue as to whether in the light of decision in AIT-1998-03-SC it must be held that mesne profit received by the assessee is revenue income chargeable to tax.

Special Bench has ruled

That the Hon’ble Supreme Court in the case of P. Mariappa Gounder (supra) was not concerned with the issue whether the mesne profit received against the wrongful possession of the property is in the nature of revenue receipt or capital receipt. The only issue before the court related to the year of taxability. Hence it cannot be said that the Hon’ble Supreme Court adjudicated upon the issue relating to the nature and character of the receipt by way of mesne profits.
That the amount received against wrongful possession of the property amounts to mesne profits whether determined by the court or under a consent decree within the ambit of section 2(12) of the Code of Civil Procedure, 1908.
There is a difference of opinion amongst various High Courts on the issue relating to nature and character of the mesne profits. Therefore, following various judgments of the Hon’ble Supreme Court mentioned in Paragraph No. 48, it is held that the mesne profits constitute capital receipt not chargeable to tax.
interest from the date of termination of lease till the date of decree would be capital receipt not chargeable to tax. However, if any interest is received by the assessee beyond that period then, it would be revenue receipt chargeable to tax.

(Click here for full text of Ruling AIT-2008-67-ITAT)

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