Sunday, 24 November 2019

Whether judgment debtor can deduct income tax out of mesne profits paid under decree of court?

The above definition of rent makes it abundantly clear that rent is a payment by whatever name you call it for use of any land or building. Thus, merely because the rent awarded by the Court was called by the Court as damages mesne profits does not mean that it ceases to be income of the Decree Holder. Similarly, I consider that interest over the unpaid amount would qualify as income since the unpaid amount is treated as something lying deposited with the Judgment Debtor. As, a person has to pay income tax on his deposits in the bank or in FDs, he is liable to pay income tax on the interest received by him under Court orders for unpaid amounts. The judgments cited by the Decree Holder are of no help since the judgments deal with different facts and circumstances. In Haryana Urban Development Authority v. Dr. Ashok Kumar Aggarwal MANU/SC/0817/2004 : (2005) 9 SCC 524 the Supreme Court observed that TDS could not be deducted on the payments towards compensation/damages for mental agony and harassment. The Supreme Court was not dealing with mesne profits in lieu of occupation and use of the premises. The view taken by the Calcutta High Court in my opinion is not the correct view. Delhi High Court in case of Mrs. Kanti Singh and Ors. v. The Project and Equipment Corporation of India Ltd. 2001 III AD (Delhi) 686 had given no opinion about TDS and only stated that the Court cannot go behind the decree.

7. I, find no force in the plea taken by Decree Holder that Judgment Debtor could not have deducted tax at source and deposited it with the government when Judgment had to pay rent mesne profits under orders of the Court.

IN THE HIGH COURT OF DELHI

Ex. Appl. No. 405/2009 in Ex. P. No. 351/2008

Decided On: 23.12.2009

Five Star Engg. and Agents Pvt. Ltd. Vs.  P.B. State Industrial Development Corporation

Hon'ble Judges/Coram:
S.N. Dhingra, J.




1. Decree Holder had raised an issue that deduction of tax at source (TDS) by Judgment Debtor out of the mesne profits paid under decree to the Decree Holder was not proper and no TDS could be deducted. Submission of the Decree Holder is that the Decree Holder has been awarded damages by the Court after trial and damages do not form income, they were capital receipts and therefore damages awarded in favour of the Decree Holder for wrongful possession of the property by the Judgment Debtor, do not qualify for deduction of tax at source. Decree Holder has relied upon Commissioner of Income Tax v. Smt. Lila Ghosh MANU/WB/0116/1993 : 205 ITR (9) (Cal.) wherein Calcutta High Court observed as under:

In our view, on the facts of the case, the Appellate Tribunal was justified in holding that the mesne profits of Rs. 2 lakhs received by the assessee in this case were in the nature of damages and, therefore, a capital receipt.
2. Decree Holder also relied upon Narang Overases Pvt. Ltd. v. The ACIT-Central Circle 36 AIT 2008 67 ITAT, All India Reporter Ltd. Nagpur v. Ramachandra Dhondo Datar MANU/SC/0125/1960 : 1961 SCR (2) 773, Mrs. Kanti singh and Ors. v. The Project and Equipment Corporation of India Ltd. MANU/DE/0177/2001 : 2001 III AD (Delhi) 686 in support of his contention. It is further submitted that interest received by Decree Holder under the orders of the Court also does not qualify as income and was not eligible to tax.

3. I consider that this issue has been wrongly raised by the Decree Holder before this Court. Tax deduction at source is to be done by the Judgment Debtor as per law on all those amounts which are paid by Judgment Debtor for user of the premises in occupation of Judgment Debtor. If the Decree Holder considers that the amount received by Judgment Debtor did not qualify for tax, the Decree Holder can raise this issue with the tax authorities and not before this Court.

4. In any case, I consider that even otherwise, the plea raised by Decree Holder is not tenable. The Decree Holder's premises was under rent with the Judgment Debtor. On termination of tenancy a dispute arose about possession of the premises. Decree Holder simultaneously claimed user charges mesne profits for the use and occupation of premises by Judgment Debtor and got a decree for mesne profits/user charges for use and occupation of the premises in its favour. The user charges mesne profits are the income of the decree holder arising out of use and occupation of the premises of Decree Holder by Judgment Debtor. It is settled law that user charges mesne profits are determined on the basis of market rent and it is another name for market rent of the premises. Though, the user charges may be termed as mesne profits or damages but the fact remains that they are rentals of the premises during pendency of the proceedings.

5. Section 194-I of Income Tax Act defines "rent" as under:

(i) "rent" means any payment by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.

(ii) Where any income is credited to any account, whether called "Suspense account" or by any other name, in the blocks of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this Section shall apply accordingly.

6. The above definition of rent makes it abundantly clear that rent is a payment by whatever name you call it for use of any land or building. Thus, merely because the rent awarded by the Court was called by the Court as damages mesne profits does not mean that it ceases to be income of the Decree Holder. Similarly, I consider that interest over the unpaid amount would qualify as income since the unpaid amount is treated as something lying deposited with the Judgment Debtor. As, a person has to pay income tax on his deposits in the bank or in FDs, he is liable to pay income tax on the interest received by him under Court orders for unpaid amounts. The judgments cited by the Decree Holder are of no help since the judgments deal with different facts and circumstances. In Haryana Urban Development Authority v. Dr. Ashok Kumar Aggarwal MANU/SC/0817/2004 : (2005) 9 SCC 524 the Supreme Court observed that TDS could not be deducted on the payments towards compensation/damages for mental agony and harassment. The Supreme Court was not dealing with mesne profits in lieu of occupation and use of the premises. The view taken by the Calcutta High Court in my opinion is not the correct view. Delhi High Court in case of Mrs. Kanti Singh and Ors. v. The Project and Equipment Corporation of India Ltd. 2001 III AD (Delhi) 686 had given no opinion about TDS and only stated that the Court cannot go behind the decree.

7. I, find no force in the plea taken by Decree Holder that Judgment Debtor could not have deducted tax at source and deposited it with the government when Judgment had to pay rent mesne profits under orders of the Court. The review petition is dismissed.



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