Mesne profits is a capital receipt and not chargeable to tax

Issue Under 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, can not be part of book profit u/s. 15JB, as it was held as capital assets?”.

Held by High Court

The impugned order of the Tribunal has held that the mesne profits received by the Respondent­Assessee for the unauthorized occupation of its premises from Central Bank of India is a receipt ofcapital 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/s. 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:­

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