ITAT Holds Mesne Profits from SBI as Taxable Revenue Receipt: Assessee’s Appeal Dismissed

Archna Chadha, the assessee, owned several immovable properties, which was leased to State Bank of India (SBI). After the expiry of the lease and subsequent disputes over the enhancement of rent, SBI continued to occupy the premises. The assessee initiated civil proceedings seeking possession and mesne profits for unauthorized occupation.

The High Court, through interim and final orders between 2013 and 2015, directed SBI to vacate the property and pay mesne profits calculated at escalating monthly rates for the period of wrongful occupation from August 2010 to September 2015. During AY 2016-17, the assessee received Rs. 1.62 crore as part of such mesne profits. In the revised return, this amount was claimed as a non-taxable capital receipt. The Assessing Officer treated the receipt as taxable revenue income, a view upheld by the NFAC.

Main Issue: Whether mesne profits received by a landlord from a tenant for unauthorised occupation of property constitute a capital receipt or a taxable revenue receipt under the Income Tax Act.

ITAT Rules: The ITAT Delhi dismissed the appeal and upheld the addition. The Tribunal held that the mesne profits received by the assessee were in place of rent that would have otherwise been earned and did not involve any damage to, or diminution of, the capital asset itself. The property remained intact, and the compensation was directly linked to loss of rental income due to the overstay by the tenant.

Relying on Skyland Builders (P) Ltd. v. ITO, the Tribunal ruled that such mesne profits are revenue receipts chargeable to tax under Section 23(1). The Tribunal held that the jurisdictional High Court decision squarely covered the issue against the assessee.

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