Narang Overseas vs. ACIT (ITAT Mumbai 5 Member Special Bench)

DATE: (Date of pronouncement)
DATE: February 26, 2008 (Date of publication)

(i) The judgement of the SC in Mariappa Gounder vs. CIT 232 ITR 2 does not decide whether mesne profits received against wrongful possession of property is in the nature of revenue receipt or capital receipt. It merely decides the year of taxability of such profits on the assumption that such profits are taxable;

(ii) An amount received against wrongful possession of property amounts to mesne profits whether determined by the court or under a consent decree in view of the definition of that term in s. 2(12) of the CPC;

(iii) In view of the conflict of judicial opinion amongst the High Courts on the taxability of mesne profits, the legal position that where two views are possible, the view favourable to the assessee should be followed applies. Accordingly, mesne profits are a capital receipt and are not chargeable to tax.

(iv) As the mesne profits are capital in nature, the interest thereon upto the date of determination of the mesne profits is also capital in nature.

Note: The judgement in Sushil Kumar 88 ITD 35 (Kol) (SB) on this point is overruled.