Money received by property owner from the tenant after termination of a lease agreement either as part of compensation, damages or ‘mesne’ profits should be treated as his income and subjected to tax, a Delhi High Court has ruled.
As per the detail of the case a property owner had entered into an agreement with a tenant and fixed a rent and how much it would increase every year. The tenant did not abide by the agreement and the property owner filed a suit. The court ruled in the favour of the property owner and awarded him mesne profits and damages with interest.

While filing the tax returns for the year the property owner claimed that the amount received from the tenant was not an income and should not be subjected to tax. The property owner claimed that this was capital receipt.

The tax department argued that the amount received was akin to income and should be subjected to tax. The tax department said that the money received was only after the lease contract was terminated and was not part of the rent.