Archna Chadha Vs ACIT (ITAT Delhi)
Mesne Profits from Overstaying Tenant Are Revenue Income: ITAT Delhi Holds Compensation Taxable as Rental Receipt
The Delhi ITAT dismissed the assessee’s appeal and held that mesne profits of ₹1.62 crore received from State Bank of India for unauthorised occupation of leased premises were taxable as revenue receipts and not capital receipts. The Tribunal noted that the property had originally been let out on rent and the dispute arose only due to overstaying by the tenant after termination of tenancy. The civil court quantified mesne profits on the basis of prevailing rental value and occupancy charges, clearly in substitution of rent that the assessee would otherwise have earned.
Relying heavily on the binding Delhi High Court judgment in Skyland Builders (P) Ltd., the Tribunal held that where mesne profits compensate loss of rental income and the capital asset remains intact without any damage or diminution of title, the receipt constitutes revenue income taxable under Section 23(1). The plea that mesne profits represent capital compensation for deprivation of property rights was rejected, as the facts showed mere continuation of tenancy at higher occupational charges. Accordingly, the mesne profits were rightly assessed as taxable income and the assessee’s appeal was dismissed
FULL TEXT OF THE ORDER OF ITAT DELHI
