P. MARIAPPA GOUNDER VS COMMISSIONER OF INCOME-TAX
1999 P T D 972
[232 I T R 2]
[Supreme Court of India]
Present: B. N. Kirpal and S. P. Kurdukar, JJ
P. MARIAPPA GOUNDER
Versus
COMMISSIONER OF INCOME-TAX
Civil Appeals Nos. 4582 and 4583 of 1984, decided on 21/01/1998.
Income-tax-
----Income---Accrual---Suit by assessee against vendor for specific performance of agreement to sell property---Decree by Supreme Court on 22-4-1958---Supreme Court also declaring assessee entitled to mesne profits and directing Trial Court to determine quantum of such profits---Trial Court determining mesne profits by order, dated 22-12-1962---Mesne profits received by assessee in assessment year 1964-65---Decree passed by Supreme Court created only an inchoate right in favour of assessee---Liability became ascertained only when Trial Court passed order on 22-12-1962---Mesne profits to be assessed in assessment year 1963-64.
The appellant had agreed to purchase a tile factory under an agreement dated May 22, 1950, from the vendor. When the vendor did not convey the property as promised the appellant filed a suit for specific performance against the vendor. The suit was ultimately decreed by the Supreme Court by its judgment dated April 22, 1958. In terms of this decree, the appellant was required to deposit a sum of Rs.85,000 within 30 days of the decree and thereupon the title in the property was to be conveyed to the appellant. The Supreme Court also passed a decree declaring that the appellant was entitled to mesne profits against the respondent. The Supreme Court directed the trial Court to hold an enquiry and then to determine the amount of mesne profits which was payable by the respondent vendor to the appellant. The trial Court determined the quantum of mesne profits at 8.57,093 by its order dated December 22, 1962. The amount of mesne profits was received by the appellant in the accounting year relevant for the assessment year 1964-65. The Income-tax Officer assessed the sum of Rs.57,093 received by the appellant in the assessment year 1963-64. On appeal, the Appellate Assistant Commissioner deleted the amount from the assessment for the assessment year 1963-64 on the ground that the same could be taxed only in the assessment year 1964-65. On further appeal, the Tribunal held that the amount was assessable only in the assessment year 1963-64. On a reference, the High Court held that the mesne profits were rightly assessed in the assessment year 1963-64 and the same could not be brought to tax in the assessment year 1964-65. On appeal to the Supreme Court:
Held, dismissing the appeal, that under Order 20, Rule 12 of the Civil Procedure Code, 1908, when the Court passes a decree for possession and mesne profits by clause (ba), it may pass a decree "for mesne profits or directing an enquiry as to such mesne profits". In the instant case, the Supreme Court passed an order directing an enquiry as to the mesne profits which would be payable by the judgment-debtor to the decree-holder. When the Supreme Court on April 22, 1958, decreed the appellant's suit, there was only an inchoate right, which arose in his favour. The trial Court was directed by the Supreme Court to hold an enquiry and then to determine the amount of mesne profits which was payable. It was only when the trial Court determined the amount of mesne profits that the right to receive the same accrued in favour of the appellant. The liability became ascertained only when the trial Court passed an order on December 22, 1962, and not earlier. Following the mercantile system of accounting, the mesne profits awarded by order, dated December 22, 1962 were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was, in fact, realised by the assessee.
C.I.T. v. Mariappa Gounder (P.) (1984) 147 ITR 676 affirmed.
Khan Bahadur Ahmed Alladin and Sons v. C.I.T. (1969) 74 ITR 651 (AP) and C.I.T. v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC) applied.
S. Balakrishnan and M.K.D. Namboodri, Advocates for Appellant.
B.B. Ahuja, Senior Advocate (Rajiv Nanda and B.K. Prasad, Advocates with him) for Respondent.
JUDGMENT
The question, which arises for consideration in this appeal is as to in which assessment year the appellant is liable to be assessed in respect of mesne profits which were awarded in his favour. Briefly stated, the facts, as found by the Tribunal, are that the appellant had agreed to purchase a tile factory, vide written agreement dated May 22, 1950. When the vendor did not convey the property as promised, the appellant filed a suit for specific performance. This suit was ultimately decreed in appeal by this Court vide its judgment, dated April 22, 1958. In terms of this decree, the appellant was required to deposit Rs.85,000 within 30 days of the decree and thereupon the title in the property was to be conveyed to the appellant. This Court also passed a decree declaring that the appellant was entitled to mesne profits against the respondent therein and in connection therewith the decree of this Court stated as follows:--
"And this Court Doth accordingly direct that the trial Court do hold an enquiry about the mesne profits, and such sums as may be found to be due on inquiry against the second and third respondents in respect of the mesne profits be deducted from the amount to be deposited in cash in the Court by the appellant aforesaid in accordance with clause (a) supra, and do direct the payment of the remaining amount, if any, to the third respondent who is the assignee of the second respondent pendente-lite. "
It is not in dispute that the trial Court went into the matter and determined the quantum of mesne profits by its order, dated 22nd December, 1962, relevant to the assessment year 1963-64. The amount of mesne profits which was determined at Rs.57,093 was received by the appellant in the following accounting year relevant to the assessment year 1964-65.
The Income-tax Officer assessed this sum of Rs.57,093 in the assessment year 1963-64. On appeal, the Appellate Assistant Commissioner however, deleted this amount as in his opinion the same could be taxed only in the year 1964-65. On further appeal, the Tribunal came to the conclusion that this sum was taxable only in the assessment year 1963-64. Thereupon, at the instance of the assessee, the Tribunal referred the following two questions of law to the High Court to-Madras (see (1984) 147 ITR 676, 687):
"(1) Whether the mesne profits decreed by the Supreme Court accrued to the assessee earlier to the accounting year relevant to the assessment year 1963-64?
(2) Whether, on the facts and in the circumstances of the case, the mesne profits received by the assessee is liable to be taxed in the assessment year 1964-65?"
The High Court, by its judgment under appeal, came to the conclusion that the mesne profits were rightly taxed in the assessment year 1963-64 and the same could not be taxed in the assessment year 1964-65. The aforesaid questions were answered accordingly.
It is contended by Shri Balakrishnan that the right to receive the mesne profits accrued to the appellant on April 22, 1958, when this Court decreed the suit of the appellant and held that he was entitled to receive the mesne profits. Learned counsel submits that as the right had accrued on that day, merely because the quantification of the same was postponed, it would not mean that the income accrued only at the time when the trial Court computed the amount of mesne profits.
Shri Ahuja, learned counsel for the respondent, however, submitted that with the passing of the decree by this Court the appellant only got an inchoate right and his right to receive the mesne profits got ascertained only when the trial Court had determined the amount on December 22, 1962.
In our opinion, the decision of the High Court does not call for any interference. It will be seen that under Order XX, Rule 12, of the Code of Civil Procedure when the Court passes a decree for possession and mesne profits by clause (ba) it may pass a decree "for mesne profits or directing an enquiry as to such mesne profits". In the present case, from the portion of the decree extracted hereinabove, it is clear that his Court passed an order directing an enquiry as to the mesne profits which would be payable by the judgment-debtor to the decree-holder. As on the day when this Court decreed the appellant's suit there was only art inchoate right, which arose in his favour. The trial Court was directed to hold an enquiry arid then to determine the amount of mesne profits which was payable.
The situation, in the present case, is similar where compensation is awarded and subsequently enhanced, on property being acquired under the provisions of the Land Acquisition Act. In Khan Bahadur Ahmed Alladin & Sons v. CIT (1969) 74 ITR 651 the High Court of Andhra Pradesh had to consider such a question. There the land was acquired in the year 1954 and additional compensation was paid as per Court decree in 1956. The question arose whether this additional compensation was taxable in the year when the land was taken over or was taxable in the year when the decree was passed it, 1956. Dealing with the question as to what was the income that could be said to have accrued to him on that date and which it could be assessed to tax, the High Court at page 657 observed as follows:
"If the actual amount of compensation has not been fixed, no income could accrue to him. It cannot be contended that the mere claim by the assessee, after taking of possession, at a particular rate or for a certain sum, is the compensation. It is the amount actually awarded by the Collector or subsequently decreed by the Court, which accrues to him, and the respective amounts, whether awarded by the Collector or the Court accrue on the respective dates on which the award or the decree is passed. Income-tax is not levied on a mere right to receive compensation; there must be something tangible, something in the nature of a debt, something in the nature of an obligation to pay an ascertained amount. Till such time, no income can be said to have accrued. On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in section 4(l)(b)(i), could it be said that the right of enhanced compensation, which has not yet been accepted by the proper forum, namely, the Court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment the enhanced compensation accrues only when it becomes payable, i.e. when the Court accepts the claim. As has been stated earlier, a mere claim by the assessee, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that even if a Court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessee also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest Court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initial compensation awarded by the Collector and recompute the entire income on the basis of the final compensation? We do not think there can be any justification for such a proposition. On a proper construction of the terms "accrue or "arise" we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the Revenue. At the same time, it safeguards the assessee and prevents harassment. To hold otherwise would be contrary to the provisions of law."
The aforesaid passage was quoted with approval by this Court in CIT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524, in which case also this Court was called upon to deal with a question as to when the additional compensation awarded was liable to be taxed. In that case the amount of compensation awarded by the arbitrator was in dispute. On an appeal having been filed by the State Government it was held that the said amount could be taxed only when the dispute was resolved because if the appeal had been allowed in its entirety, the right of payment of enhanced compensation would have fallen altogether.
Applying the ratio of the aforesaid decision, it appears to us that the decree, dated April, 22, 1958, passed by this Court only created an inchoate right in favour of the appellant. It is only when the trial Court determined the amount of mesne profits that the right to receive the same accrued in favour of the appellant. In other words, the liability became ascertained only with the order of the trial Court on December 22, 1962, and not earlier. Following the mercantile system of accounting the mesne profits awarded by order, dated December 22, 1962, were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was in fact realised by the assessee. In our opinion, therefore, the High Court was right in deciding the reference in favour of the Department. We accordingly, dismiss the appeals but in the circumstances of this case award no costs.
M.B.A./1868/FC Appeals dismissed.