By TIOL News Service

MUMBAI, FEB 19, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether mesne profit/ occupation charges/ damages fixed by Rent Control Tribunal in eviction proceedings, can be treated as rent receivable in respect of premises protected by Rent Control Act. NO IS THE VERDICT.

Facts of the cas:

The assessee is an owner of numerous shops in one building at New Delhi. For the relevant year, the assessee had let out all its shops to persons who were tenants protected under the Delhi Rent Control Act. In respect of one of its shops/ premises viz. L40 which was given on rent to one M/s. Hemkunt Chemicals, who had illegally sublet it to M/s. Bank of Punjab. Therefore, proceedings were initiated by the assessee for eviction of M/s. Bank of Punjab Ltd., as a trespasser and M/s. Hemkunt Chemicals for unlawfully inducting M/s. Bank of Punjab Ltd., into the premises. In these eviction proceedings, the Rent Control Tribunal directed M/s. Bank of Punjab to deposit Rs.1,42,000/- per month in Court. This order was confirmed by the Delhi High Court and the assessee was allowed to withdraw the amounts deposited by M/s. Bank of Punjab. On withdrawal, the amounts received were duly disclosed in the return of assessee for A.Ys 2007-08 and 2008-09 as non-taxable compensation. This amount of Rs.1,42,000/- per month which was awarded only in respect of the L40 premises against a trespasser as mesne profit/ occupation charges/ damages was taken as the yardstick of the rent which would be obtained even in respect of the other premises/shops owned by the assessee even when they were occupied by the protected tenant under the Rent Control Act. Thus, the AO determined the rental income at Rs.4.29 Crores u/s 143(3) r/w/s 147.

On appeal, the CIT(A) held that the dispute before the Rent Control Tribunal was in respect of one of the properties which had been trespassed by M/s. Bank of Punjab Ltd., and the compensation/ mesne profit/ damages granted in respect thereof could not be compared to the rent received in respect of all other shops/premises from protected tenants.

On further appeal, the Tribunal held that the assessee was expressly barred from receiving any consideration in excess of the provisions of the Rent Act. Further, the order of the Tribunal while upholding the order of CIT(A) held that the determination of mesne profit/ occupation charges/ damages by the Rent Control Tribunal was only with regard to one specific premises which the original tenant one M/s. Hemkunt Chemicals had unlawfully inducted one M/s. Bank of Punjab Ltd., so as to trespass into it. The Tribunal further held that in view of the fact that all the other shops/ premises of which the rent was sought to be enhanced, were covered by the Rent Control Act and the rent could not be in excess of the standard rent determined under the Rent Control Act. Thus, without any specific order being passed in respect of other premises, the AO could not have extrapolated the mesne profit/ occupation charges/ damages fixed by the Additional Rent Control Tribunal as rent receivable in respect of all other shops/ premises even when protected by the Rent Control Act.

High Court held:

++ the submission on behalf of the Revenue proceeds on an incorrect fundamental premise viz. that the Addl. Rent Control Tribunal had fixed a rent of Rs.1.42 lakhs per month in respect of premises occupied by M/s. Bank of Punjab. This is factually incorrect. The amount of Rs.1.42 lakhs per month were directed to be paid by M/s. Bank of Punjab in eviction proceedings as mesne profits/ damages. All the other premises are let out to persons who are protected by the Rent Control Act. Moreover, no order has been passed by the Rent Control Tribunal, fixing higher rent in respect of the other premises nor has the Revenue brought on record any evidence of the other premises being let out by the assessee at more than the declared rent. Thus, there is no reason to interfere with the order of the Tribunal.

(See 2019-TIOL-382-HC-MUM-IT)