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Facts
The assessee received Rs. 45,98,063 from a developer for surrender of a residential flat during redevelopment. The assessee declared it as a capital receipt, but the AO treated it as income from other sources under Section 56 and made an addition. The CIT(A) confirmed the addition.
Held
The Tribunal, following co-ordinate bench decisions, held that the compensation received for hardship and rehabilitation during redevelopment is a capital receipt and not taxable. The addition made by the AO was deleted.
Key Issues
Whether compensation received for surrender of a flat during redevelopment is a capital receipt or revenue receipt taxable under Section 56.
Sections Cited
56, 45, 54, 148, 143(1), 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
Assessee by : Shri Mandar Vaidya, A/R Revenue by : Ms. Kavitha Kaushik, Sr. D/R सुनवाई की तारीख/Date of Hearing : 04/08/2025 घोषणा की तारीख /Date of Pronouncement: 08/08/2025 आदेश/O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order dated 30/05/2025 by NFAC, Delhi [hereinafter the ‘ld. CIT(A)’] pertaining to AY 2009-10.
The grievance of the assessee reads as under:- “1) The learned CIT (Appeals), has erred in view of facts, circumstances and law, in confirming the action of the Assessing Officer in making addition of Rs 45,98,063 received by the Assessee from M/s Suyog Happy Homes towards the transfer / surrender relating to the re development of the Residential Flat of the Assessee, as a Revenue Receipt instead of Capital Receipt. 2) Without prejudice to the above, the learned CIT (Appeals), in view of facts, circumstances and law has erred in confirming the above receipt taxable as Income from Other Sources under Section 56 of the Income Tax Act, 1961 (hereinafter referred to as "Act") instead of long term Capital Gain under Section 45 of the Act and its investment in Residential House exempt under Section 54 of the Act.
2 3) The learned CIT (Appeals), has confirmed charging of interest u/s 234B of Rs. 15, 33,072/-.”
Briefly stated the facts of the case are that the assesse filed her return of income on 31/07/2009 declaring total income at Rs. 3,80,580/- which was revised on 25/08/2016 declaring total income at Rs. 4,92,120/-. The return was processed u/s 143(1) of the Act.
Subsequently, on the basis of the information received it was noticed that the society of the assessee had entered into a development agreement with the developer and the assessee being a member of the said Society has received an amount of Rs. 45,98,063/- which was not disclosed by her in her return of income and accordingly notice u/s 148 of the Act was issued and served upon the assessee and the assessment was reopened. The assessee was asked to explain why Rs. 45,98,063/- received by her should not be assessed to tax u/s 56 of the Act. In her reply, the assessee claimed that it is a capital receipt and not taxable. The contention of the assessee was dismissed by the AO who was of the firm belief that as per the development agreement in addition to the entitlement to receive the flat, the assessee has received Rs. 45,98,063/- from the developer and the same is taxable as income from other sources and made addition of Rs. 45,98,063/-. The assessee agitated the matter before the ld. CIT(A) but without any success. 5. Before us, the ld. Counsel for the assessee drew our attention to the decision of the Co-ordinate Bench in the case of Mrs. Pushpa R. Chawla one of the residents of the said society who has also received compensation from the builder for redevelopment of the society and pointed out that the Co-ordinate Bench has deleted a similar disallowance which was followed by the Co-ordinate Bench in the case of Mr. Laxmikant Hulgappa Renuke in who is also one of the resident member of the same society. The ld. D/R placed strong reliance on the assessment order.
We have carefully perused the orders of the authorities below and the orders of the Co-ordinate Benches (supra). We find force in the contention of the ld. Counsel for the assessee. The Co-ordinate Bench in the case of Mrs. Pushpa R. Chawla (ITA No. 2864/Mum/2022), following the decision of another Co-ordinate Bench held as under:- “We observe that Coordinate Bench has considered the similar issue and adjudicated the same in the case of Smt Delilah Raj Mansukhani v. ITO in ITA.No. 3526/Mum/2017 dated 29.01.2021 and observed 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 redevelopment. 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 Dedhia vs. 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:-
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 de-development agreement without transferring the land. In the present case the assessee who was flat owner in the building was 4 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 1TA No 72/Mum/2012 assessment year 2008-09 Bench E and 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 cannot be sustained. Thus the order of CIT(A) is reversed and ground is allowed in favour of the assessee.
In the result, appeal of the assessee is partly allowed, as above.
6. Respectfully following the co-ordinate Bench decision, we set aside the findings of the ld. CIT(A) on this issue and direct the AO to delete the addition made of Rs.2,60,000/-. Accordingly, the ground No.6 is allowed.”
Respectfully following the above said decision, we are inclined to agree with the submissions of the Ld. AR of the assessee and hold that the above receipt of compensation for hardship is in the nature of capital receipt. Further, we observe that assessee has submitted that the corpus fund received by her was already declared as additional income subsequently on receipt basis in A.Y. 2015-16. Therefore, we direct the Assessing Officer to verify the same and if it is found proper, the addition on corpus fund may be deleted. Accordingly, the addition made by the Assessing Officer is deleted. Ground raised
by the assessee is allowed.”
7. Due to some rectifiable mistakes, a miscellaneous application was preferred by the assessee and this Tribunal in M.A. No. 151/Mum/2024, rectifying the mistake held as under:-
4. We have given a thoughtful consideration to the order of the Tribunal and have carefully considered the computation of income which is in the paper book. We find that the aforementioned observations of the Tribunal are not only uncalled for but also have no bearing on the facts on record whatsoever. Once, the tribunal has on no uncertain terms accepted that receipt of compensation for hardship is in the nature of capital receipt, then further observations were unnecessary, uncalled for and need to be deleted.
Para 17 shall now be read as under:-
"17. Respectfully following the above said decision, we are inclined to agree with the submissions of the Ld. AR of the assessee and hold that the above receipt of compensation for hardship is in the nature of capital receipt.