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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI M. BALAGANESH & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 21/10/2022 passed under section 250 of the income tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2011-12.
In this appeal, the assessee has raised the following ground:-
“The learned Commissioner of Income Tax (A) has erred in view of the facts, circumstances and law, in confirming the action of Assessing Officer in making addition of Rs. 25,21,508/- on account of Hardship Compensation received by treating it revenue receipt instead of capital receipt.”
Vinod Murlidhar Chawal ITA no.3206/Mum./2022
The brief facts of the case as emanating from record are: The assessee is an individual. For the year under consideration, the assessee filed his return of income on 31/03/2013, declaring a total income at Rs.1,21,270. Pursuant to the information received from ITO-23(2)(3), Mumbai that the assessee is in receipt of an amount of Rs.84,05,026, as hardship allowance along with a new flat in a newly developed building admeasuring 1381 sq.ft. in lieu of his old flat admeasuring 505 sq.ft., and an amount of Rs.25,21,508, has been paid to the assessee in the year under consideration, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued on 16/03/2018. In the reasons recorded by the Assessing Officer before reopening the assessment, it was also mentioned that the assessee has received the said amount as one of the members of the MIG Co-operative Housing Society Ltd and the housing society has entered into a redevelopment agreement with M/s DB MIG Realtors and Builders Private Limited. The assessee filed a letter requesting to treat the return already filed as a return filed in response to the notice issued under section 148 of the Act. During the reassessment proceedings, the assessee was asked to show cause as to why the amount of Rs.25,21,508, received from M/s DB MIG Realtors and Builders Private Limited be not treated as income from other sources within the meaning of section 56 of the Act. The Assessing Officer vide order dated 18/12/2018, passed under section 143(3) r/w section 147 of the Act denied the claim of the assessee that the above receipts as capital receipts and held that the activity carried out by the housing society is in the nature of the commercial activity, the monetary consideration arising out of it is directly distributed to its members being shareholders is akin to the dividend and is Page | 2
Vinod Murlidhar Chawal ITA no.3206/Mum./2022 therefore exigible to income tax in the hands of the assessee under the head „income from other sources‟. Accordingly, the Assessing Officer made an addition of Rs.25,21,508, as income from other sources.
The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee both in respect of invocation of jurisdiction under section 147 of the Act as well as on merits of addition made by the Assessing Officer. Being aggrieved, the assessee is in appeal before us.
We have considered the rival submissions and perused the material available on record. The assessee is a member of the MIG Co-operative Housing Society Ltd. The society, who was the owner of the property, entered into an agreement for the development of the property, and to achieve this, the society and its members awarded a contract to M/s DB MIG Realtors and Builders Private Limited vide agreement dated 31/10/2010. As per the terms of the said agreement, the developer shall develop the property in such a manner that each member of the society shall receive a new flat in exchange of the surrender of the old flat depending upon the size of the old flat along with interest in the additional FSI allotted by MHADA. It is further to be noted that the property and the additional FSI are in the name of the society. Further, as per the said agreement, all the expenses, costs, and charges for the proposed project of redevelopment of the said property including for the purchase of additional FSI from MHADA, etc. shall be borne by the developers alone and the society and/or members shall not be liable to pay or contribute any amount toward the same. The developer, as per the agreement has paid to the society being the lawful owner of the property and the members an Page | 3
Vinod Murlidhar Chawal ITA no.3206/Mum./2022 aggregate monetary consideration. The said monetary consideration was distributed among the members of the society being shareholders, depending upon the size of their old flat. During the year under consideration, the assessee has received an amount of Rs.25,21,508, being the consideration for the surrender of his old flat. Since the assessee treated the said amount as capital receipt and did not offer the same to taxation, therefore, on the basis of information received from ITO-23(2)(3), Mumbai reassessment proceedings were initiated in the case of the assessee and vide assessment order passed under section 143 (3) r/w section 147 of the Act the aforesaid receipt of Rs.25,21,508, was treated as taxable in the hands of the assessee as „income from other sources‟. As per the assessee, the said payment is a hardship allowance to cover the cost of prospective loss of place of residence and the consequential hardship thereof, including loss of furniture, fixtures, and other inbuilt conveniences like fresh gas connections and various other facilities including relocation of residence. Thus, as per the assessee, this compensation is purely to compensate the personal loss and other inconveniences likely to be caused and therefore, can only be a capital receipt and can never be treated as a revenue receipt.
We find that while dealing with a similar issue of taxability of hardship compensation, the coordinate bench of the Tribunal in Lawrence Rebello vs ITO, in ITA No.132/Ind./2020, vide order dated 29/09/2021, after considering various decisions passed by the coordinate bench of the Tribunal on similar issue, observed as under:-
Vinod Murlidhar Chawal ITA no.3206/Mum./2022
“11. On careful consideration of above rival submissions, we are of the considered view that in the reasons recorded the AO himself noted that the benefits received by the assessee from a bigger size of flat and impugned amount has been given in pursuance to agreement between the society and the developer and it was hardship compensation, rehabilitation compensation kind of benefit. The orders passed by the ITAT Mumbai Bench in case of Smt. Delilah Raj Mansukhani (supra), Jitendra Kumar Soneja (supra) and Kushal K Bangia(supra) including the order passed by the Mumbai Bench in the case of Shri Devshi Lakhamshi Dedhia (supra), it is amply clear that where the assessee being a flat owner in a housing society receives certain sum from developer as corpus fund towards hardship caused to flat owners on redevelopment, impugned amount has to be treated as capital receipt simplicitor which as per Section 2(24)(vi) of the Act is not taxable as income of the assessee. In this regard, we find it profitable to reproduce para 3.2 of the order of ITAT Mumbai Bench in the case of Jitendra Kumar Soneja (supra), which reads as under:- "3.2 Nothing contrary was brought to my knowledge on behalf of Revenue. Facts being similar, so following same reasoning, I find that consideration for which the amount has been paid by the developer are, therefore, not relevant in determining the nature of receipt in the hands of the assessee. In view of these discussion, in my considered view, assessee could not be said to be of revenue nature, and, accordingly, the same is outside the ambit of income under section 2(24) of the Act. 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, the appeal of assessee is allowed." Respectfully following the above observations of the ITAT Mumbai Bench as well as the orders cited supra, we are compelled to hold that the benefit received by the assessee in the form of bigger size of flat and amount received as hardship allowance from the developer is a capital receipt, which cannot be treated as revenue receipt for taxing as income.”
Since in the present case also the taxability of receipt of similar nature, i.e. hardship allowance is involved, therefore, respectfully following the aforesaid decision the addition made by the Assessing Officer and upheld by the learned CIT(A) vide impugned order is set aside and ordered to be deleted. As a result, ground No.1, raised in assessee‟s appeal is allowed.
As the issue on merits was covered in favour of the assessee by various decisions of the coordinate bench of the Tribunal, therefore the learned Authorised Representative wishes not to press the application seeking admission of additional ground of appeal challenging the invocation of Page | 5
Vinod Murlidhar Chawal ITA no.3206/Mum./2022 reassessment proceedings under section 147 of the Act. Accordingly, the said application is dismissed as not pressed.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 21/02/2023