KUNNAMA V BALAKRISHNA,MUMBAI vs. INCOME TAX OFFICER 23(2)(2), MUMBAI

PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/(NFAC), Delhi dated 27.05.2023 for the assessment year 2011-12. 2. None appeared for the assessee, despite the fact that the appeal has been fixed for hearing on previous five (5) occasions. The main grievance of the assessee is against the action of the Ld. CIT(A) confirming the addition of Rs.25,21,508/- made by AO by treating the Hardship Compensation Fund as “Dividend Income” received from the residential society.

3 A.Y. 2011-12 Smt. Kunnama V. Balakrishna over payment from builder to the individual member/assessee was not in accordance with the “Principle of Mutuality” since the same was received from the developer (a third party); and further described the transaction in his own words “Hence, the activity of entering into an agreement for re-development of the property and receipt of consideration by the society and diverting of the same at source to the individual members is purely a commercial activity”. Therefore, he was of the opinion that amount given to the assessee (hardship compensation) is akin to dividend distributed by the housing society and therefore, its character is revenue in nature. And therefore, he added the same i.e. Rs.25,21,508/- as revenue receipt in the form of dividend under the head “income from other sources”. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of the AO. Aggrieved, the assessee is before us.

“3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position.

5 A.Y. 2011-12 Smt. Kunnama V. Balakrishna that “..,, we hold that the amounts received by the assessee during the financial years in question have to be regarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act….” This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific provision in the Act. No matter how wide be the scope of income u/s.2(24) it cannot obliterate the distinction between capital receipt and revenue receipt. It is not even the case of the Assessing Officer that the compensation received by the assessee is in the revenue field, and rightly so because the residential flat owned by the assessee in society building is certainly a capital asset in the hands of the assessee and compensation is referable to the same. As held by Hon’ble ITR 412), “the burden is on the revenue to establish that the receipt is of revenue nature” though “once the receipt is found to be of revenue character, whether it comes under exemption or not, it is for the assessee to establish”. The only defence put up by learned Departmental Representative is that cash compensation received by the assessee is nothing but his share in profits earned by the developer which are essentially revenue items in nature. This argument however proceeds on the fallacy that the nature of payment in the hands of payer also ends up determining it’s nature in the hands of the recipient. As observed by Hon’ble Supreme Court in the case of CIT vs. Kamal Behari Lal Singha (82 ITR 460), “it is now well settled that, in order to 6 A.Y. 2011-12 Smt. Kunnama V. Balakrishna find out whether it is a capital receipt or revenue receipt, one has to see what it is in the hands of the receiver and not what it is in the hands of the payer”. The consideration for which the amount has been paid by the developer are, therefore, not really relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, in our considered view, the receipt of Rs.11,75,000 by the assessee cannot be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. However, in our considered opinion and as learned counsel for the assessee fairly agrees, the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. Subject to these observations, grievance of the assessee is upheld.

7 A.Y. 2011-12 Smt. Kunnama V. Balakrishna agreement is not a revenue receipt and constitute capital receipt, as the property has gone into re-development. We find that the issue as to whether the hardship compensation received by the assessee from builder in terms of the re-development agreement is no longer res- integra and we find that Co-ordinate Bench of this Tribunal in the case of Kushal K. Bangia (supra) have answered the question in favour of the assessee by holding it to be capital receipt not liable to tax. We find that the issue involved in the instant case is squarely covered by the decision of the Tribunal (supra) and therefore, we are of the opinion that “Hardship Compensation” given to the assessee pursuant to the re-development agreement is a capital receipt and cannot be treated as revenue receipt as held by the AO/Ld. CIT(A). The reliance placed by AO/Ld. CIT(A) on the case law of the Hon’ble Supreme Court in the case of M/s. Bangalore Club v CIT 156 Taxman 323 is not relevant on the issue in hand. Therefore, the AO/Ld. CIT(A) erred in law holding that hardship compensation received by the assessee from the builder was in nature of the dividend in the hands of the assessee/member of the housing society. In the light of the aforesaid discussion, we are of the considered view that receipt of “Hardship Compensation” of Rs.25,02,508/- cannot be said to be of revenue nature and accordingly the same is outside the ambit of income u/s 2(24) of the Act. However, in the case of Kushal K. Bangia (supra) as well as in the case of Jitendra Kumar Soneja v ITO, Ward-6(3)(3) (2016) 161 ITD 269 (Mum), the Tribunal has observed in similar case that the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat,

8 A.Y. 2011-12 Smt. Kunnama V. Balakrishna and, therefore, the same will be taken into account when occasion arises for computing capital gains in respect of the said asset. Subject to these observation, the appeal of assessee is allowed.

आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //// उि/सहधयक िंजीकधर /(Dy./Asstt.