ASIHA AYUB GHEEWALA,MUMBAI vs. ITO WARD 23(1)(1), MUMBAI

Assessee has raised the following grounds of appeal: I. Additions u/s 56(2)(x) of Rs. 31,06,100/- as Income from other sources. 1. The Ld. CIT(A) erred in law and on facts in confirming the addition of Rs. 31,06,100/-, being difference between stamp duty value and actual consideration, under section 56(2)(x) of the Act as income from other sources, alleging purchase of immovable property at inadequate consideration, without appreciating the fact that assessee had received the flat on redevelopment of the society and jointly owned the flat along with her husband, Mr. Ayub Gheewala. 2. The Ld. CIT(A) failed to appreciate that the said flat, along with the entire building, went for redevelopment, pursuant to which the developer allotted and registered a new flat free of cost on 06.06.2017 in lieu of the original flat and the allotment of the new flat was not a purchase but a consequence of redevelopment rights attached to the original property, and therefore the provisions of section 56(2)(x) are not applicable. II. Additions of Rs. 23,44,464/- as income from capital gains. 3. The Ld. CIT(A) erred in law and on facts in confirming the addition of 23,44,464/- as income from capital gains on alleged relinquishment of tenancy rights without appreciating that the said amount represents rent compensation received for temporary displacement, calculated at Rs. 120 per sq. ft. for a period of 36 months, aggregating to Rs. 23,44,464/-whereas the compensation was received under a registered redevelopment agreement entered into with the society as well as assessee, solely for vacating the premises during the construction period. 4. The Ld. CIT(A) failed to appreciate that there is no relinquishment or transfer of tenancy rights within the meaning of the Act. Accordingly, the amount received cannot be taxed as capital gains, and the addition deserves to be deleted.

Brief facts as culled out from the records are that assessee is an individual and filed her return of income on 31.03.2019, reporting total income at Rs.4,48,250/-. During the assessment proceedings, ld. Assessing Officer observed that assessee had been allotted a flat pursuant to redevelopment of the existing one. According to him, the difference between the stamp duty value of the property and the consideration reflected in the registered document was liable to tax under section 56(2)(x). Ld. Assessing Officer accordingly, made an addition of Rs.31,06,100/- as income from other sources. Further, ld. Assessing Officer held that the compensation received by the assessee during redevelopment represented consideration for relinquishment of tenancy rights and accordingly, brought to tax a sum of Rs.23,44,464/- under the head "Capital Gains". Ld. CIT(A) confirmed both the additions. Aggrieved, assessee is in appeal before the Tribunal.

Ld. Counsel for the assessee submitted that the authorities below have completely misconstrued the nature of the redevelopment transaction. It was submitted that assessee along with her husband was already the owner/co-owner of the original flat in the society. Pursuant to redevelopment undertaken by the society, the developer allotted a new flat in lieu of the existing flat under a registered redevelopment agreement. It was argued that there was no purchase of any immovable property by assessee so as to attract the provisions of section 56(2)(x). The allotment of the new flat was merely an incident of redevelopment and substitution of the existing property. It was further submitted that the compensation of Rs.23,44,464/- represented hardship/rent compensation paid during the period assessee was required to vacate the premises for redevelopment. Such compensation was quantified at Rs.120 per sq. ft. for 36 months under the redevelopment agreement and was received only because of temporary displacement. It was contended that there was no relinquishment or transfer of tenancy rights or any capital asset so as to attract the charging provisions relating to capital gains.

We have heard the rival submissions and perused the material available on record. Insofar as the addition made under section 56(2)(x) is concerned, we find that assessee has consistently pleaded that the impugned flat was not acquired by way of purchase but was allotted pursuant to redevelopment of the existing society building against surrender of the old flat already owned jointly by assessee and her husband. Assessee has also contended that the redevelopment agreement, permanent alternate accommodation agreement, original ownership documents and other contemporaneous evidences clearly establish that the allotment of the new flat was only a consequence of redevelopment and not an independent acquisition for inadequate consideration.

Assessee has also placed on record the details of compensation received under the redevelopment arrangement. The details, as appearing from the compensation statement, are reproduced below:

Ld. Counsel for the assessee placed reliance on the judgment of Hon'ble jurisdictional High Court of Bombay in the case of Sarfaraz S. 8 Furniturewalla v. Afshan Sharfali Ashok Kumar & Ors. [2024] 467 ITR 230 (Bom), wherein the Hon'ble Court approved the view taken by the Tribunal in redevelopment cases concerning transit rent/hardship compensation. It was submitted that Hon'ble Court, while considering the taxability of transit rent, reproduced and approved the findings of the Tribunal in the case of Delilah Raj Mansukhani v. ITO (ITA No.3526/Mum/2017, order dated 29.01.2021), holding that such compensation is in the nature of hardship/rehabilitation allowance and does not constitute taxable revenue receipt. Ld. Counsel specifically invited our attention to paragraphs 9.1 of the said judgment wherein the Hon'ble Court extracted the findings of the Tribunal in Smt. Delilah Raj Mansukhani (supra), which read as under: "5. After hearing the rival submissions and perusing the material on record, we find that compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re-development. In such scenario, the compensation is normally paid by the builder on account of hardship faced by owner of the flat due to displacement of the occupants of the flat. The said payment is in the nature of hardship allowance /rehabilitation allowance and is not liable to tax. The case of the assessee is squarely supported by the decision of the Co-ordinate Bench in the case of Shri Devshi Lakhamshi Dedhiavs. ACIT in ITA No.5350/Mum/2012 wherein similar issue has been decided in favour of the assessee, the relevant operative portion is reproduced hereunder:- 15. We have considered the rivals submissions and perused the materials on records. We note that the assessee received compensation of Rs. 19,50,873/- from the developer when the building in which the assessee owned flat went for re-development as per the agreement between the developers and flat owners dated 28.03.2008. The said compensation was paid towards hardship Rs, 13,45,278/-; rehabilitation Rs, 5,90,625/- and for shifting Rs. 15,000/-. We also note that the assessee paid Rs. 18,63,000/- to Joys Developers for acquiring additional area of 138 Sq Ft. It was also noted that the assessee shifted to his own house when the building went for re-development. Now the question before is whether the compensation upon re-development of property towards hardship, rehabilitation and shifting received by the assessee is taxable if the potential TDR/FSI is available to the land owner or society which owns the (and depending upon the terms of the redevelopment agreement without transferring the land. In the present case the assessee who was flat owner in the building was member of the society, As per the agreement each member of the society including the assessee was to be given a flat in lieu of the old one and the each member including the assessee was given compensation. We also note that In the decisions in ITA No 72/Mum/2012 assessment year 2008-09 Bench E and ITA No 5271/Mum/2012 assessment year 2008-09 Bench "D" the Tribunal held that the amounts received as compensation for hardship rehabilitation and for shifting are not liable to tax We, therefore, respectfully, the above decisions are of the considered view that the amounts received by the assessee as hardship compensation, rehabilitation compensation and for shifting are not liable to tax and the order passed by the first appellate authority can not be sustained. Thus the order of CIT(A) is reversed and ground is allowed in favour of the assessee. 16.In the result, appeal of the assessee is partly allowed, as above. "

We find that the aforesaid factual assertions, the redevelopment documents placed on record and the judicial precedents relied upon by the ld. Counsel, including the judgment of the Hon'ble Bombay High Court in Sarfaraz S. Furniturewalla (supra) and the decision of the Co- ordinate Bench in Delilah Raj Mansukhani (supra), have neither been examined nor dealt with by the ld. CIT(A). The impugned first appellate order does not record any finding on the applicability of the aforesaid decisions to the facts of the present case. Since these authorities have a direct bearing on the controversy involved, the same require due consideration while adjudicating the issues on merits. We are, therefore, of the considered view that the ends of justice would be met by restoring the entire matter to the file of ld. CIT(A) for de novo meritorious adjudication. Ld. CIT(A) is directed to adjudicate the matter afresh, by passing a reasoned and speaking order, after granting adequate opportunity of being heard to assessee and after considering all the submissions and judicial precedents that may be relied upon.

We make it clear that we have not expressed any opinion on the merits of either of the additions and all the contentions of both the parties are left open for consideration by the ld. CIT(A). Assessee shall also extend full cooperation and furnish all supporting documents as may be called for during the appellate proceedings. Accordingly, the grounds raised by assessee are allowed for statistical purposes.

In the result, appeal filed by the assessee is allowed for statistical purposes.