Mesne profit
This query is : Resolved
24 January 2015
We have recd mesne profits alongwith interest as per order of the court which was awarded to us for wrongful use of our property.
We wish to know whether that Mesne Profit & interest recd are taxable?
And if Taxable under which head?
We wish to know whether that Mesne Profit & interest recd are taxable?
And if Taxable under which head?
24 January 2015
Mesne profit and its interest is 'capital receipt' not chargeable to income tax.
Citation:- Narang Overseas Pvt Ltd Vs. ACIT [2008] AIT 67 (ITAT-Mumbai).
Citation:- Narang Overseas Pvt Ltd Vs. ACIT [2008] AIT 67 (ITAT-Mumbai).
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07 February 2015
Sir,
Has department have filed an appeal against the Narang's Order ITA 4623/Mum/ 05 A.Y. 2002-03 order dated 20.05.2008
Has department have filed an appeal against the Narang's Order ITA 4623/Mum/ 05 A.Y. 2002-03 order dated 20.05.2008
03 August 2024
**Mesne Profit and Interest: Taxation and Relevant Provisions**
### **1. Taxability of Mesne Profits and Interest**
**Mesne Profit** refers to the profits that the owner of a property has lost due to wrongful possession or use of that property by another party. When awarded by a court, mesne profits are intended to compensate the rightful owner for the period the property was wrongfully occupied.
**Interest on Mesne Profits** is often awarded to compensate for the loss of time value of money during the period of wrongful possession.
#### **Taxability:**
**1. **Mesne Profits:**
- **Taxability:** Mesne profits are generally considered to be taxable under the head "Income from Other Sources" (Section 56 of the Income Tax Act, 1961) since they represent compensation for wrongful use of property.
- **Reasoning:** They are treated as income because they compensate for the loss of income that the rightful owner would have otherwise earned from the property.
**2. **Interest on Mesne Profits:**
- **Taxability:** Interest received on mesne profits is also taxable under "Income from Other Sources" as it represents interest earned on the compensation amount awarded by the court.
- **Reasoning:** This interest is considered income since it accrues as a return on the amount awarded, similar to interest earned on any other investment.
### **2. Relevant Tax Provisions:**
- **Section 56** of the Income Tax Act, 1961: Covers income from other sources, including mesne profits and interest thereon.
- **Section 145A**: Provides that any interest on compensation or damages received will be treated as income in the year of receipt.
### **3. Department’s Appeal Against Narang's Order**
The case you mentioned, ITA 4623/Mum/05 A.Y. 2002-03, pertains to whether mesne profits are taxable. If the Tribunal’s decision was in favor of treating mesne profits as non-taxable or under a different head, and if the department believes this decision was incorrect, it may file an appeal.
To determine if the department has filed an appeal against the Tribunal’s order, you would need to:
- **Check Recent Orders:** Look for any subsequent orders or judgments from higher courts (e.g., High Court or Supreme Court) that might indicate if the department has challenged the Tribunal’s order.
- **Contact Income Tax Authorities:** For the most accurate and up-to-date information, contacting the local Income Tax office or accessing the e-filing portal might provide insights into whether the department has pursued further legal action.
- **Consult Legal Counsel:** For specific details about whether the department has filed an appeal, consulting with a tax advisor or legal counsel who can access current litigation records might be beneficial.
### **Summary**
- **Mesne Profits** and **Interest on Mesne Profits** are generally taxable under the head "Income from Other Sources".
- **Relevant Sections** include Section 56 and Section 145A of the Income Tax Act.
- To determine if the department has filed an appeal against the Tribunal's order, check recent legal developments or consult with a legal expert.
### **1. Taxability of Mesne Profits and Interest**
**Mesne Profit** refers to the profits that the owner of a property has lost due to wrongful possession or use of that property by another party. When awarded by a court, mesne profits are intended to compensate the rightful owner for the period the property was wrongfully occupied.
**Interest on Mesne Profits** is often awarded to compensate for the loss of time value of money during the period of wrongful possession.
#### **Taxability:**
**1. **Mesne Profits:**
- **Taxability:** Mesne profits are generally considered to be taxable under the head "Income from Other Sources" (Section 56 of the Income Tax Act, 1961) since they represent compensation for wrongful use of property.
- **Reasoning:** They are treated as income because they compensate for the loss of income that the rightful owner would have otherwise earned from the property.
**2. **Interest on Mesne Profits:**
- **Taxability:** Interest received on mesne profits is also taxable under "Income from Other Sources" as it represents interest earned on the compensation amount awarded by the court.
- **Reasoning:** This interest is considered income since it accrues as a return on the amount awarded, similar to interest earned on any other investment.
### **2. Relevant Tax Provisions:**
- **Section 56** of the Income Tax Act, 1961: Covers income from other sources, including mesne profits and interest thereon.
- **Section 145A**: Provides that any interest on compensation or damages received will be treated as income in the year of receipt.
### **3. Department’s Appeal Against Narang's Order**
The case you mentioned, ITA 4623/Mum/05 A.Y. 2002-03, pertains to whether mesne profits are taxable. If the Tribunal’s decision was in favor of treating mesne profits as non-taxable or under a different head, and if the department believes this decision was incorrect, it may file an appeal.
To determine if the department has filed an appeal against the Tribunal’s order, you would need to:
- **Check Recent Orders:** Look for any subsequent orders or judgments from higher courts (e.g., High Court or Supreme Court) that might indicate if the department has challenged the Tribunal’s order.
- **Contact Income Tax Authorities:** For the most accurate and up-to-date information, contacting the local Income Tax office or accessing the e-filing portal might provide insights into whether the department has pursued further legal action.
- **Consult Legal Counsel:** For specific details about whether the department has filed an appeal, consulting with a tax advisor or legal counsel who can access current litigation records might be beneficial.
### **Summary**
- **Mesne Profits** and **Interest on Mesne Profits** are generally taxable under the head "Income from Other Sources".
- **Relevant Sections** include Section 56 and Section 145A of the Income Tax Act.
- To determine if the department has filed an appeal against the Tribunal's order, check recent legal developments or consult with a legal expert.
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