ORDER
A.V. Balasubramanyam, Judicial Member
1. This appeal, by the-assessee, raises two questions.
2. The assessee, a former Government servant, was allotted a site by the City Improvement Trust Board in the 4th T Block of Jayanagar, Bangalore, admeasuring 430 sq. yds., in 1958 for which he incurred a cost of Rs. 3,000. He was put in possession of the site on 14-3-1958. He got a sanctioned plan in March, 1958, and constructed a building in the year 1960-61. The expenditure incurred for the building was Rs. 63,000. The successor to City Improvement Trust Board (Bangalore Development Authority) gave a conveyance in favour of the assessee on 19-6-1982.
3. The assessee had let the property to a tenant. There was an ejectment suit against the tenant which the assessee had instituted on 24-7-1978. It ended in a compromise on 25-2-1982. As per the compromise, the assessee agreed to sell the property to the tenant for Rs. 2 lakhs. Pursuant thereto the sale was effected on 25-9-1982. The tenant agreed to pay Rs. 75,000 to the assessee towards ‘manse profits and post of the suit’.
4. In the assessment for 1983-84, for which the previous year terminated on 31-3-1983, the question of capital gains arose. For the purpose of cost, the value of the property as on 1 -1 -1964, had to be determined. The ITO made a reference to the DVO who fixed the cost at Rs. 49,000. Since the sale was for Rs. 2 lakhs, he brought to charge Rs. 1,51,000 as income by way of short-term capital gains. We may remark here that, according to the ITO, the assessee acquired ownership on 19-6-1982, when he obtained a conveyance from the Bangalore Development Authority. He, therefore, treated it as a short-term capital gain.
5. The sum of Rs. 75,000 received under the compromise reported to Court was the aggregate of the following :
Rs.
(1) Cost of suit 800
(2) Stamp duty 6,000
(3) Arrears of rent 31,800
(4) Compensation for wrongful dispossession of property 36,400
---------
75,000
---------
Rs. 36,400 received as manse profits was treated as income of the assessee under other sources. The assessee had appealed from the assessment and there were several points which had been pressed before the Commissioner (Appeals) for consideration. The Commissioner (Appeals)gave partial relief to the assessee. The assessee is on further appeal aggrieved by the findings recorded on two questions. The revenue has accepted the order of the Commissioner (Appeals).
6. The Commissioner (Appeals) has held that it is a long-term capital gain since the assessee had become owner of the site from 1960-61. This has become final since the revenue has not preferred an appeal.
7. There is no dispute in regard to sale price. The grievance of the assessee, on the point of capital gains, is in regard to valuation as on 1-1-1964.
8. To repeat, the departmental value has fixed the value at Rs. 49,000. The assessee had relied upon a report of an approved value who has valued at Rs. 1,31,860. The property had been tenanted and the same was being used for non-residential purposes. On the basis of rent capitalization method, the value would work out to Rs. 36,000. As per land and building method the value would be Rs. 61,556. The departmental value took average of the two and fixed the value at Rs. 49,000.
9. According to approved value, whose report the assessee relied upon, the value of the land was Rs. 64,500 while the value of the building was Rs. 67,360. The total is Rs. 1,31,860.
10. The property had been let out earlier on a rent of Rs. 200 per month to a school. As the Commissioner (Appeals) remarks, the assessee had granted a lease on a low rent out of philanthropic consideration and we agree with his observation that rent capitalization method is not a sure index to know the value and particularly when there is convincing evidence that the value should have been much more. Even the departmental value did not entirely rely upon this method. We, in the circumstances, hold that land and building method is a more appropriate method by which a reasonable estimation of value as on 1-1-1964 could be made.
11. Now of building. When the property was leased to the tenant in early 1980 there was a proceeding before the House Rent Controller for fixation of fair rent and in that cost of construction of the building had to be ascertained. As per order passed by the Rent Controller, the cost of construction of the building was Rs. 63,000 besides an expenditure of Rs. 5,000 to Rs. 6,000 for improvement of the site.
12. The Commissioner (Appeals) did not feel called upon to accept the report of the approved value. There were sale instances of plots in the same area which disclosed a price of Rs. 348.38 per sq.mtr. in 1974. On that basis, the Commissioner (Appeals) took the value of the plot at Rs. 125 per sq. mtr. According to approved value the value of the land is Rs. 180 per sq. mtr. It is not known on what basis the Commissioner (Appeals) scaled down the value to Rs. 125 for 1964 depending upon the ruling rate of Rs. 348.38 per sq. mtr., in January, 1974. In a matter of this type one has to only hazard a rough estimate having due regard to the available material on record. We find no warrant for adopting the rate of Rs. 180 as proposed by the approved value. At the same time, as property value had been steadily increasing, we feel that the rate of Rs. 125 is little on the lower side. In the circumstances of this case we find it reasonable to take the value of the land at Rs. 140 per sq. mtr. The value of 359.33 sq. mtr. of land be accordingly computed for the purpose of capital gains.
13. The assessee had spent Rs. 63,000 in 1960-61. The Commissioner (Appeals) fixed the value at Rs, 60,000 and his reasons are: ,
… The material available shows that the appellant has spent Rs. 63,000 on this property in 1960-61. Taking this as the figure for cost of construction we have to deduct depreciation for the period 1960-61 to 1st Jan., 1964. After considering all these factors, the value of the property as on 1-1-1964 can reasonably be fixed at Rs. 60,000…
It follows that he deducted Rs. 3,000 towards depreciation of the building. Though the place where the site is located might not have been a fully developed area in early sixties in comparison to 1982 when the assessee sold, one cannot deny that the property value was increasing from year to year. In that way the site value must have appreciated from 1960 to 1964. It is common knowledge that the rate of appreciation of plots is far higher than the rate of depreciation that can be allowed on building. In any event, whatever depreciation is to be allowed for the purpose of satisfying the law, then one cannot ignore the appreciation in value of the site. Therefore, having regard to the short gap between 1960 and 1964, one can reasonably think that depreciation on the building is set off by the appreciation in site value. Therefore, it would be proper to take the value of the property at Rs. 63,000 as on 1-1-1964.
14. In the final, the value of the property as on 1-1-1964, will be as hereunder:
Rs.
(i) Value of land of 359.33 sq. mtrs. at Rs. 140 per sq. mtr. 50,306
(ii) Value of the building 63,000
-----------
Total 1,13,306
-----------
Rs. 1,13,306 shall be adopted as the cost for the purpose of capital gains.
15. The next points of the action of the ITO in charging Rs. 36,400 as income from other sources. We may furnish facts in relation thereto.
16. The assessee had leased the property to the purchaser for non-residential purposes. There was a proceeding before the Rent Control Officer for fixation of fair rent. The tenant had been paying a monthly rent of Rs. 600 to the assessee. The tenancy was not protected under the rent regulation. The assessee terminated the tenancy and raised an action for ejectment under the provisions of Transfer of Property Act on 24th July, 1978. In the suit, there was, among other things, a prayer for recovery of past rent as well as manse profits upto the date of possession. A compromise was reported to Court on 28-5-1982. Rs. 75,000 was payable by the tenant to the assessee towards manse profits and cost of the suit. There is no dispute that Rs. 36,400 was manse profits which the assessee became entitled to.
17. Rent is an amount payable by the tenant to the landlord for use and occupation of the lease-hold during the subsistence of lease. A tenant holding over after the determination of lease is liable to pay manse profits till actual delivery of the premises is given to the landlord. In other words, manse profits are recompensed to the landlord for wrongful possession of the property even after the termination of the lease without yielding up possession in deference to the determination of the lease effected by the landlord, for a tenant loses his right to possession after the lease is determined.
18. Dr. Krishna, the learned counsel for the assessee, pressed two points for consideration. His first submission was that manse profits being compensation granted to the landlord for an injury suffered by him on account of wrongful act perpetrated by the tenant who had squatted on the property without right, the same is not taxable as income. His second submission was that rental income had been assessed annually on notional basis under the head ‘Income from house property’ right from the time of lease up to the time the property was sold and, as such, inclusion of Rs. 36,400 in this year merely because it was quantified in the suit would result in taxing twice over. One thing is certain. The rent fixed was Rs. 600 and the tenant would have paid the same rent if the lease had not been determined. To put it differently, the assessee would have received no more than Rs. 600 p.m. had he not determined the lease and raised an action, but straightaway executed a sale deed in favour of the tenant. In the suit he filed in Civil Court, the prayer was:
Prays for judgment and decree directing the defendant to put the plaintiff in possession of the premises, and to pay Rs. 1,200 towards rent and manse profits and to pay future manse profits at Rs. 600 from the date of suit till delivery of possession.
Rent is a fixed amount unless varied in a fair rent proceeding. Manse profits are the amount which a person in wrongful possession of a property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession: see Section 2(12) of the Code of Civil Procedure. This is an amount which the Court will award after inquiry in the absence of agreement between the parties. Normally manse profits would be an amount higher than the rent payable, for the former would include interest also. In the instant case, the assessee had limited the claim for manse profits to Rs. 600 p.m. only. So the Court could not have granted a decree in excess of Rs. 600 p.m. The amount received by the assessee as manse profits was not in excess of the rent which he would have received had the lease not come to an end on account of determination by the assessee.
19. Evidence on record shows that the assessee has been taxed on rental income at the rate of Rs. 600 per month (in respect of the same property) under the head ‘Income from house property’ from the assessmentyearl979-80onwardsupto the assessment year 1983-84. This income was taxed on accrual basis even though the assessee had not received any amount by way of rent from the tenant. Merely because it is quantified as manse profits on account of suit in a later year, that cannot be once again brought to charge under the head ‘Income from other sources’ because the lease had come to an end. Whether rent or manse profits, it is an amount relatable to ownership of the property. A receipt may be rent or manse profits. The technical distinction between rent and manse profits cannot subject an amount relating to same period to charge twice by putting it under different heads. When the income from property which the assessee should have realised, but had not owing to recalcitrance of the tenant, has been charged under the head’ Income from house property’ every year, it would be opposed to all principles of assess ability to bring to charge what the owner gets after fighting out a litigation. The first submission of Dr. Krishna has, therefore, to be upheld and inclusion of Rs. 36,400 in the taxable income cannot be justified. On this reason alone the deletion of the same has to be ordered.
20. The other submission of Dr. Krishna is equally substantial. His submission was that when payment is made as compensation by the wrong doer for an injury caused to another, the same does not constitute income or the recipient. He relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. J.D. Italia [1983] 141 ITR 948 and the decision of the Punjab and Haryana High Court in the case of CIT v. Chiranji Lal Multani Mal Rai Bahadur (P.) Ltd. [1989] 45 Taxman 156. We were referred to the decision of the Supreme Court in the case of CYI v. Shamsher Printing Press [1960] 39 ITR 90 and of the Madras High Court in the case of CIT v. P. Mariappa Goudner [1964] 147 ITR 676 by the learned departmental representative.
21. The Madras High Court has in principle held that manse profits awarded by Court for wrongful possession are liable to be assessed in the year of quantification. This was a case where the assessee had filed a suit for specific performance of an agreement for sale of a tile factory and there was a decree in his favour. There was also an order awarding manse profits, and the same was quantified by the Court. Manse profits, quantified, related to a particular period during which the assessee was the owner as a consequence of a decree granting specific performance of the agreement for sale. Factually it was compensation granted for the loss caused to the assessee by the wrong doer, for the assessee, had he become the owner, would have run the tile factory to generate income. It does not appear from the report whether for the same period the assessee had been assessed on rent on notional basis in respect of that property. In this essence the case is distinguishable.
22. The case of Shamsher Printing Press (supra) is also distinguishable. In that case compensation had been granted for compulsory eviction of the premises where the assessee was carrying on business. Such amount was held to be compensation for loss of profits and, therefore, revenue receipt. It is pertinent to note that their Lordships have observed that the amount had not been received for any injury in respect of any capital asset. This observation supports the view that we are inclined to take in the instant appeal.
23. In the case of J.D. Italia (supra), the land of the assessee had been unauthorisedly occupied and civil action has been raised in a Court of Law for recovery of possession and other incidental reliefs. A certain sum of money was ordered to be paid under the compromise decree passed in the suit for wrongful use and occupation of the property. The Court, on examination of facts, found that this amount was in reality damages for use and occupation paid to the owner as compensation by the trespasser. Such amount was held to be not classifiable as revenue receipt for being included in the total income.
24. In the case of Chiranji Lal Multani Mal Rai Bahadur (P.)Ltd. (supra), the Punjab and Haryana High Court dealt with a case where a certain amount was ordered to be paid as interest. Interest is granted either, on statutory authority or as compensation for wrongful deprivation of an amount which the owner thereof had right to use. In this case, the amount awarded as interest was by way of compensation and such receipt was held to be not the income of the assessee.
25. The principle laid down by the Andhra Pradesh High Court and the Punjab and Haryana High Court is that whenever an amount is received by an assessee by way of compensation on account of some injury sufferred in respect of property belonging to him, the same cannot be classified as ‘taxable income’. With respect to their Lordships of the Madras High Court who decided Mariappa Gounder’s case (supra) we are inclined to apply the principle laid down by the Andhra Pradesh and Punjab and Haryana High Courts to conclude that amount received by the owner as compensation on account of deprivation of use of his property is not taxable. For these reasons we accept also the alternative submission made by Dr. Krishna,
26. For the foregoing we direct deletion of Rs. 36,400 included in the taxable income.
27. The appeal stands allowed in part.