S. B. Sinha, C.J.
1. The substantial questions of law which have been raised and are required to be answered in this appeal are :
'(i) Whether the Tribunal was right in law in holding that the damages or any part thereof for illegal occupation of the premises accrued to the appellant though the claim thereforee was yet to be adjudicated finally and was pending disposal before the High Court ?
(ii) Whether the Tribunal is right in law in holding that the amount received by the appellant under interim order of the High Court dated January 6, 1993, relevant to the assessment year 1993-94 is taxable on month to month basis in the assessment years 1990-91 and 1991-92 as relatable thereto?'
2. Facts :
The appeal is for the assessment year 1990-91 and the first question for the assessment year 1991-92 rotates around a single issue. Briefly stated the facts of the case on the issue ate :
The assessed entered into a lease agreement on November 26, 1979, with Arya Dharma Seva Sangh, for the lease of the first floor premises, Flat No. H-72, Connaught Circus, New Delhi, together with right of entrance passage and other easements of the said premises for 114 months at a rent of Rs. 1,000 per month. This lease deed was renewable at the desire of the tenant. The assessed entered into sub-lease vide lease deed dated August 18, 1981, with the Traders Bank. The Traders Bank regularly paid the rent till 1998 at the rate of Rs. 24,201.75 p.m. On nationalisation the Bank of Baroda took over the possession of the premises from the Traders Bank. On June 15, 1989, this sublease expired. Since the Bank of Baroda, after taking over from the Traders Bank failed to pay the rent to the assessed, the assessed vide its letter dated January 11, 1989, terminated the tenancy agreement with effect from January 31, 1989, on the ground of non-payment of rent. After January 11, 1989, the assessed received a letter from the bank dated January 6, 1989, along with a cheque dated December 19, 1988, for Rs. 96,807 representing the rent for the months of July to October, 1988. The assessed vide its letter dated January 13, 1989, returned the cheque clarifying that tenancy was terminated vide its letter dated January 11, 1989. Though the assessed terminated the tenancy agreement and returned some of the cheques received towards rent, rental income was shown in the return of income for the assessment year 1989-90 and for three months, i.e., from April 1, 1989, to June 30, 1989, in its return ofincome for the assessment year 1990-91. The Assessing Officer while framing the assessment year 1990-91 under Section 143(3) called upon the assessed to explain as to why the rent for the period after June 30, 1989, was not offered for taxation. It was explained on behalf of the assessed that the tenancy was valid till June 30, 1989, and thereafter the assessed was not entitled to receive rent. It was also explained that the assessed had filed legal suit against the bank for vacation of the premises. As the right to receive the rent was in dispute, it was submitted on behalf of the assessed that the same could not be brought to tax. Before the Assessing Officer the assessed relied on the decision of the apex court in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. : [1986]161ITR524(SC) . The Assessing Officer deputed the inspector who reported that the bank was regularly paying rent to the asses-see-company. The Assessing Officer thereafter included in the total income the rent of 12 months at the rate of Rs. 24,201.75 per month instead of three months as shown by the assessed for the assessment year 1990-91, and for 12 months for the assessment year 1991-92. The decision of the Assessing Officer was confirmed by the learned Commissioner of Income-tax (Appeals) for both the assessment years.
3. Shri M. S. Syali, learned counsel for the assessed, vehemently urged that the Revenue authorities had erred in including the rent for nine months and twelve months, respectively, in the assessed's income for the assessment years 1990-91 and 1991-92, respectively. It was submitted by learned counsel that the assessed was following the cash method of accounting in respect of the rent received. He further pointed out that both the Revenue authorities had failed in appreciating the adoption of this method of accounting and had wrongly mentioned that the books of account were maintained by the assessed on the basis of the mercantile system of accounting. He pointed out that the rental income in the earlier years was not assessed under the head 'Income from house property' because of the fact that the assessed was not the owner of the said property. It was pointed out by him that the income recorded in the earlier years was also assessed accordingly. He pointed out that when the bank failed to pay the rent in accordance with the terms of the lease deed, a suit for possession and recovery was filed before the Delhi High Court claiming compensation therein as under :
(a) Rent for the period July, 1988, to May, 1989, i.e., for 11 months at the rate of Rs. 24,201.75 p.m. totalling Rs. 2,66,219.25.
(b) Compensation for the period June 1, 1989, to July 31, 1991, i.e., 26 months at the rate of Rs. 70,000 per month as the market value of the premises on June 1, 1989, was approximately Rs. 70,000 per month and since then it had further gone up, totalling Rs. 18,20,000.
4. Referring to paragraph 18 of the suit filed before the High Court, learned counsel pleaded that the assessed's total claim of Rs. 2,66,219.25 was towards the rent received from July, 1988, to May, 1989, and of Rs. 18,20,000 was towards compensation from June 1, 1989, to July 31, 1991. Learned counsel explained that the lease deed entered into with the bank was for a specified period and had expired in May, 1989, and there was no provision contained in the deed for its further renewal at the choice of the bank. He thereforee, pleaded that even if it was presumed for the sake of argument that the asses-see was maintaining its accounts on the mercantile system of accounting, the assessed had no right to receive the rent from the bank after the expiry of the said lease deed. It was explained by him that there was a distinction between cases where the right to receive payment was in dispute and it was not a question of merely quantifying the amount to be received and cases where the right to receive payment was admitted and the quantification of the amount payable was then to be determined. He pleaded that the assessed had no right to receive payment and thus the rent was not taxable. He also submitted that the disputed amount could not be taxed.
5. On the other hand, the contention of learned counsel for the respondent is that the assessed had filed the suit for vacation of the property as also for compensation at the rate of Rs. 70,000 per month, for the period after the expiry of the lease agreement. He pointed out that the compensation of Rs. 70,000 per month included rent of Rs. 24,000 and odd which was in accordance with the agreement with the bank though the lease had expired in the month of May, 1989, and the balance amount, was attributed to the damages as claimed by the assessed. He further pointed out that the Assessing Officer had taxed only the portion attributable to the rent at the rate of Rs. 24,000 and odd per month and not the balance of around Rs. 46,000 per month towards damages. It was further pointed out by learned counsel for the respondent that the assessed was maintaining its accounts on the mercantile system of accounting, as was evident from the order of the Assessing Officer itself, wherein a specific finding to this effect had been given. As the assessed was following the mercantile system of accounting learned counsel submitted that the income becomes taxable when the assessed acquires the right to receive the same, irrespective of the fact whether it was received or not.
6. For the purpose of disposal of this appeal, we will proceed on the basis that the assessed had been following the mercantile system of accounting.
7. In the instant case, it is accepted that the provisions of the Delhi Rent Control Act are not applicable and the relationship of the landlord and the tenant is governed by the provisions of the Transfer of Property Act. Section 105 of the Transfer of Property Act is as follows :
'105. Lease defined.--A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service of any other thing of value, to be rendered periodically or on specified occasions, to the transferor by the transferee, who accepts the transfer on such terms.
Lesser, lessee, premium and rent defined : The transferor is called the Lesser, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.'
8. It is beyond any cavil of doubt that rent is payable by a lessee to his landlord so long the lease subsists. It is accepted that the lease by and between the appellant and Traders Bank came to an end with effect from January 31, 1989.
9. Upon valid termination of tenancy, the tenant no longer remains a tenant but becomes a trespasser. For the purpose of his eviction, the appellant herein filed a suit and also claimed a decree for mesne profits. Rent and mesne profits connote two different meanings. Mesne profits is defined in Section 2(12) of the Code of Civil Procedure, 1908, to mean :
' 'Mesne profits' of property means those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received there from, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession.'
10. In Suit No. 2669 of 1991, the appellant claimed a sum of Rs. 70,000 per month by way of damages. The learned Tribunal noticed that as the claim for mesne profits was calculated at Rs. 70,000 per month which was higher than the actual rent payable at Rs. 24,000 the said sum of Rs. 24,000 becomes taxable, as being payable by the lessee to the landlord.
11. Mesne profits are a composite sum. Damages payable by an erstwhile lessee, who becomes a trespasser upon the termination of the lease, are an unascertained amount of money. They do not constitute a debt.
12. Various factors may be taken into consideration by a court as regards determination of the mesne profits/damages payable by the defendant to the plaintiff. Such an unascertained sum is not and cannot be said to have become a debt payable to the assessed by his erstwhile tenant.
13. Mr. R. D. Jolly, learned counsel appearing on behalf of the respondent however, has placed strong reliance upon Section 194-I of the Income-tax Act, 1961, and supported the order passed by the learned Tribunal. Section 194-I is in the following terms :
'194-I. Rent.-- Any person, not being an individual or a Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of-
(a) fifteen per cent., if the payee is an individual or a Hindu undivided family, and
(b) twenty per cent, in other cases.
Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thousand rupees. Explanationn.--For the purposes of this section,--
(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 books 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.'
14. It is well settled that the definition of an expression used for one purpose, cannot be applied for another purpose.
15. The Explanationn appended to the aforementioned provision whereupon Mr. Jolly placed strong reliance, begins with the expressions 'for the purposes of this section'. Section 194-I provides for deduction of income-tax by the tenant while paying rent to the landlord. The said provision has got nothing to do with taxability of income as provided for under sections 4 and 5 of the Income-tax Act. Section 4 of the Income-tax Act reads thus :
'4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :
Provided that where by virtue of any provision of this Act, income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly,
(2) In respect of income chargeable under Sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.'
16. Section 194-I does not govern the provisions of accrual of income. It is also not a case where the tenant bank had deducted the amount of tax as provided for under Section 194-I from the rental payable to the appellant.
17. In the instant case, the claim of the appellant against his erstwhile tenant is pending. The lis between the parties being pending adjudication, the fate thereof is unknown.
18. In a given case, having regard to the delay in disposal of the matter, the parties may arrive at a settlement in terms whereof the landlord may give up his right to mesne profits or even pay some amount from his pocket. It, thereforee, cannot be said that only because the claim of the appellant by way of mesne profits denotes a higher amount of the rent, the same can be divided into two parts, as has been sought to be done by the Income-tax Appellate Tribunal.
19. In CIT v. Hindustan Housing and Land Development Trust Ltd. : [1986]161ITR524(SC) , the apex court has made a distinction between cases where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. The apex court referred to the earlier decision of the Andhra Pradesh High Court dealing with the taxability of compensation received under the Land Acquisition Act in Khan Bahadur Ahmed Alladin and Sons v. CIT : [1969]74ITR651(AP) wherein it was held that where the land has been taken over by the Government, the right of the owner to compensation was an inchoate right until the compensation had been actually determined and had become payable. The said decision has been considered by the apex court in P. Mariappa Gounder v. CIT : [1998]232ITR2(SC) wherein the court has even proceeded on the basis that even if a decree has been passed allowing mesne profits, if the same is required to be quantified in terms of Order 29, rule 12 of the Civil Procedure Code, the same would not be an accrued income, holding (page 6) :
'On the date when the Collector awarded the compensation, it is only that amount which had accrued or deemed to accrue, whether in fact paid or not. But by no stretch of the words in Section 4(1)(b)(i), could it be said that the right to enhanced compensation, which has not yet been accepted by the proper forum, namely, the court, has also become payable on the date when the original compensation became payable, for being included in that year of assessment. The enhanced compensation accrues only when it becomes payable, i.e., when the court accepts the claim. As has been stated earlier, a mere claim by the assessed, after taking of possession of the land, at a particular rate or for a certain sum is not compensation. It must not be forgotten that, even if a court has awarded enhanced compensation, there is a right of appeal by the Government to the High Court, and the High Court may either disallow that claim or reduce the compensation. As against that judgment, there is a further right of appeal to the Supreme Court. The assessed also can appeal against the insufficiency of the enhanced compensation. Can it be said that the final determination by the highest court of the compensation would entitle the Income-tax Officer, notwithstanding the period of limitation fixed under the Income-tax Act, to reopen the assessment in which he had included the initialcompensation awarded by the Collector and recompute the entire income on the basis of the final compensation We do not think there can be any justification for such a proposition. On a proper construction of the terms 'accrue' or 'arise', we are of the view that such an interpretation cannot be placed. The interpretation given by us does not affect the interests of the Revenue. At the same time, it safeguards the assessed and prevents harassment. To hold otherwise would be contrary to the provisions of law.'
20. Yet again, recently in CIT v. United Provinces Electric Supply Co. : [2000]244ITR764(SC) , it has been held that where partial payment has been made towards compensation which has been accepted, the same would become taxable. Such is not the position here inasmuch as during the relevant assessment years, no amount was accepted by the appellant from its tenant.
21. In CIT v. Smt. Vimla D. Somvane [1994] 212 ITR 489 , V. A. Mohta J. as the learned Justice then was, observed (page 491) :
'The right to receive the agreed lease money was in jeopardy because of pendency of proceedings for fixation of standard rent in a court of law. There was thus neither factual accrual nor deemed accrual. Income arising out of the lease of the plot falls in assets under the head 'Other sources'. Option regarding adoption of system of accounting is with the assessed and not with the Income-tax Department. The assessed is indeed free even to 'follow different methods of accounting for income from different sources in an appropriate case. The Department cannot compel the assessed to adopt the mercantile system of accounting. As a matter of fact, it was not adopted. Under the circumstances, the income from lease rent could not be taxed on accrual basis.'
22. In Godhra Electricity Co. Ltd. v. CIT : [1997]225ITR746(SC) , the apex court held that (page 760) :
'The Tribunal had rightly held that the claim at the increased rates as made by the assessed-company on the basis of which necessary entries were made, represented only hypothetical income, and the impugned amounts as brought to tax by the Income-tax Officer did not represent income which had really accrued to the assessed-company during the relevant previous years.'
23. In CIT v. O.P.N. Arunachala Nadar : [1983]141ITR620(Mad) , it has been held (pages 625-626) :
'One other question which has been referred to us in this case relates to another item of deduction claimed by the assessed, which was disallowed by the Income-tax Officer in the first instance, but subsequently allowed by the appellate authorities. The claim for allowance related to the mesne profits decreed in the partition suit as payable by the assessed to his erstwhile partner, John Samuel. The mesne profits, as ascertained by the court, amounted to Rs. 8,000. It is needless to say that this amount related to past mesne profits of more than one year. The ground on which the Income-tax Officer refused to allow this amount to be deducted in the computation of the profits for thesubsequent account year with which we are now concerned was that they related to 1957 and onwards and cannot, thereforee, come in for deduction during any subsequent years, let alone in the account year in question relevant to 1962-63. Both the Appellate Assistant Commissioner and the Tribunal took a different view. They held that it was not possible to envisage any liability on the part of the assessed for payment of mesne profits until the court gave a decree against him in that regard. They further held that the liability for mesne profits accrued only after the judgment was rendered against the asses-see in the partition suit. Accordingly, they held that the claim for allowing deduction of mesne profits was properly laid by the assessed as arising or accruing only in the year in which the judgment was rendered against the assessed. We did not hear such argument from learned counsel for the department on this question. There may be a limited class of cases in income-tax law where the theory of relation back may be applied both for the purpose of fixing the year of receipt of income and for the purpose of determining the year for allowance of expenditure. But, in this case, the very peculiar conception of mesne profits can be consistent only with the position that the person in possession is in unlawful occupation of property which actually produces or is capable of producing profits. So long as the assessed in this case was claiming that he was in lawful occupation not only of his own half share of the salt pans, but also of the half share belonging to John Samuel, he could not consistent with that stand, be expected to claim an allowance in his income-tax assessments of a deduction in respect of the so-called mesne profits as having accrued year by year. It is only when the court gave its verdict on the unlawful nature of his possession that the income accruing from the half share of lands took upon itself the character of mesne profits. thereforee, it was only when the judgment was rendered in this regard that the liability itself has properly accrued. We, thereforee agree with the conclusion of the Tribunal that the sum of Rs. 8,000 was properly allowable in the year of account relevant to the assessment year 1962-63. Since we have answered both the questions in this reference in favor of the assessed, the Department will pay the assessed's costs. Counsel's fee Rs. 500.'
24. The decisions referred to hereinbefore, in no uncertain terms, clearly show that the mesne profits which are yet to be determined, do not come within the purview of an accrued income for the purpose of sections 4 and 5 of the Income-tax Act.
25. In that view of the matter, question No. 1 must be answered in favor of the assessed and against the Revenue. As a logical corollary, question No. 2 must also be answered in favor of the assessed and against the Revenue. However, we may place on record that after a period of two years, by an interim order passed by the court, some amount had been directed to be paid to the assessed herein which the assessed had shown in its return without prejudice to his rights and contentions. We do not intend to express any opinion on the merits so far as the contention of the assessed is concerned that despite the same, the income accrued by it, is not taxable. The appeal is disposed of accordingly.