S. Kempadevamma vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The assessee, after having terminated the lease in favour of the lessee, filed a suit for possession and also damages

for use and occupation of the property after termination of the lease. The assessee claimed that the amount awarded by the court as damages for

use and occupation of the property by the lessee after the termination of the lease is in the nature of a capital receipt. That claim was negatived by

the Assessing Officer, by the appellate authority and also by the Tribunal.

The question that has been referred to us is at the instance of the assessee.

We see no merit in the assessee''s claim that the nature of the receipt is not revenue but capital. Had the lease not been terminated and the

landlord continued to receive the rent from the tenant, there could have been no doubt at all, that the rental so received would be in the nature of a

revenue receipt. Though termed damages, the amount directed to be paid by the lessee to retain possession even after the termination of the lease

is an amount payable to the assessee for use and occupation of the lessor''s property by the person in occupation, whose legal character would be

that of a person who is liable to be evicted at the instance of the lessor and who remains under liability to pay compensation for the period for

which he had retained possession against the wishes of the lessor. The amount so payable to the owner is the amount payable for the use and

occupation of the premises and remains a revenue receipt in the hands of the lessor.

The capital asset of the lessor remains in his legal constructive possession during the time when it is occupied by a tenant with the consent of the

lessor. During the period it is occupied against the wishes of the lessor, by the lessee who fails to vacate after the termination of the tenancy, the

owner is not deprived of his ownership except in cases where adverse possession for the statutory period is established. It is that asset which

yields the revenue, whether as rent or as damages or compensation for use and occupation of the premises. It is this character of the receipt that is

required to be taken note of, not the nomenclature given to it. The fact that the money payable for the period subsequent to the date of termination

of the lease is termed as damages for use and occupation, does not on that ground alone render that amount a capital receipt in the hands of the

owner. That amount is an yield from the property and remains as revenue receipt.

The questions referred to us are, therefore, answered in favour of the Revenue and against the assessee.

So far as the quantum is concerned, the Tribunal shall hear the assessee as it is submitted that the decree that had been passed by the trial court

has been modified by the appellate court.