Jurispruden tiol – Tomorrow ' s cases Legal Corner Icon — the image was hosted by the publisher and was not captured.

By Vijay Kumar

Income Tax

Mesne profits paid for deprivation of use of property by legal owner are capital receipts, not chargeable to tax; Since interest payment is also related to mesne profits, it is also capital in nature, rules ITAT Five-Member Special Bench

THE contentious issue before the Five-Member Special Bench was : Whether in the light of the Apex Court decision in the case P. Mariappa Gounder ( 2002-TIOL-600-SC-IT ), the mesne profit received by the assessee is revenue income chargeable to tax? What is mesne profit? It is compensation or damages paid to the lawful owner of a property for wrongful possession. In other words, it is the sum received against unlawful possession of a property by the legal owner. And the verdict has gone against the Revenue which industriously argued to establish that such compensation is revenue receipt. But having considered a large swathe of judicial decisions, the Special Bench finally bought the argument of the assessee that since the sum received was related to the use of a capital asset, it should be treated as capital receipt. Even the interest paid on such a sum was also held to be capital in nature. While arriving at this decision the Special Bench also overruled the decision of Kolkata Special Bench which had held such a sum as chargeable to tax in the case of Sushil Kumar .

The Special Bench also observed that there is a difference of opinion amongst various High Courts on the issue relating to nature and character of the mesne profits. Therefore, following various judgements of the Supreme Court, it is held that the mesne profits constitute capital receipt not chargeable to tax. While summing up the decision, the Bench further noted that the Apex Court in the case of P. Mariappa Gounder (supra) was not concerned with the issue whether the mesne profit received against the wrongful possession of the property is in the nature of revenue receipt or capital receipt. The only issue before the court related to the year of taxability. Hence it cannot be said that the Supreme Court adjudicated upon the issue relating to the nature and character of the receipt by way of mesne profits.

Central Excise

Cenvat credit should be allowed on basis of Depot invoices: CESTAT

THE appellants are manufacturers of readymade garments (Heading 61.02 of the First Schedule to the Central Excise Tariff Act.) Their products came to be chargeable to duty of excise with effect from 01.04.2003, from which date they have been clearing their products on payment of duty by availing CENVAT credit on inputs. During 2003-04, they had taken CENVAT credit of the duty paid on inputs in stock as on 31 st day of March, 2003, inputs contained in finished product in stock as on the said date as well as input in process as on the said date, amounting to over Rs. 1 crore, under Rule 9A of the CENVAT Credit Rules, 2002. The inputs, in respect of which such credit was taken, had been purchased from depots of various manufacturers of cotton yarn and the availment of credit was on the strength of depot invoices. The department having found fault with such invoices and having found no registration of the depots with the department, proposed to disallow the above credit to the appellants.

Central Excise

Appeal – delay not condoned but original order passed without hearing – matter remanded : Bombay HC

THE petitioner is a manufacturer of Centrifugal Pumps. They also manufacture goods which are inputs for the pumps and which are used in the manufacture of the pumps. There is no dispute that the pumps as manufactured are exempt from Central Excise Duty. The Revenue demanded duty on the CI castings and a belated appeal was filed with Commissioner (Appeals) who held that he had no powers to condone delay. Tribunal also dismissed the appeal. And the assessee is before the High Court.

Customs

A two-decade old Customs show cause notice ultimately finds an Adjudicating authority, thanks to Tribunal

IN the year 1989 a notice was issued to the applicant by the Customs authorities.

The matter went to the Tribunal from the appellant's side & vide an order of March 1998 the Tribunal remanded the matter thus –

“In these circumstances it is held that it will be appropriate and in consonance with the principles of natural justice to remand the matter to the adjudicating authority for the purpose of hearing the appellants in the matter and to pass appropriate orders afresh regarding their liability to penalty in accordance with law.

The adjudicating authority may extend to appellants only such opportunity to defence as are feasible and practicable so as to complete the denovo proceedings within a reasonable time and is at liberty to pass order afresh if there is discernible attempt at procrastination of the proceedings.

See our columns tomorrow for the judgements