Loading judgment…

KRISHNAKANT SHARMA (LH OF LATE VIMALADEVI SHARMA),MUMBAI vs INCOME TAX OFFICER - 23(3)(5), MUMBAI | BharatTax

KRISHNAKANT SHARMA (LH OF LATE VIMALADEVI SHARMA),MUMBAI vs. INCOME TAX OFFICER - 23(3)(5), MUMBAI

ITA 417/MUM/2025Status: DisposedITAT Mumbai04 April 2025AY 2011-2012Bench: SHRI BR BASKARAN (Accountant Member), SHRI SANDEEP GOSAIN (Judicial Member)1 pages

AI SummaryAllowed

Facts

The assessee received Rs. 25,21,508/- as 'Hardship Compensation' from a developer for surrendering their flat for re-development. The Assessing Officer (AO) treated this as income in the nature of dividend. The CIT(A) confirmed the AO's action.

Held

The Tribunal held that the amount received as 'Hardship Compensation' is a capital receipt and not revenue income. It is akin to rehabilitation allowance due to displacement from the property. The receipt reduces the cost of acquisition of the asset.

Key Issues

Whether 'Hardship Compensation' received by an assessee from a developer for displacement during re-development is a capital receipt or revenue income.

Sections Cited

147, 2(24), 45

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI

Before: SHRI BR BASKARAN & SHRI SANDEEP GOSAIN

For Appellant: Shri Hitesh Shah

For Respondent: Shri Kiran Unavekar, Sr. DR

Hearing: 12.03.2025Pronounced: 04.04.2025

Date of Hearing 12.03.2025 Date of Pronouncement 04.04.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM:

These two appeals have been filed by the assessee challenging the impugned order 06.12.2023 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / Ld. CIT(A) for the A.Ys 2011-12 & 2012-13. Since all the issues involved in two three appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed for the sake of convenience and brevity. We shall take A.Y 2011-12 as lead case and facts narrated therein.

2.

At the very outset, it is noticed that there is a delay in filing the present appeals and in this regard an affidavit has been filed by the assessee Therefore, after hearing the parties on condonation of delay and after going through the contents of the affidavit and keeping in view, the principles laid down by Hon’ble Supreme Court in the case of Land Acquisition Collector Vs. Mst. Katiji & Ors., [1987] AIR 1353 (SC), wherein it has been held that where substantial justice is pitted against technicalities of none deliberate delay, then in that eventuality substantial justice is to be preferred. In our view the principle of advancing substantial justice is of ‘prime importance’. Hence considering the fact that the assessee has justifiably and property explained the delay which occurred in filing the appeal, the expression ‘sufficient cause’ is being liberally construed, therefore we are inclined to condone the delay in filing the appeal and heard on merits.

3. Now, as far as the merits of the case is concerned. It is noticed that the main grievance of the assessee is against the action of Ld. CIT(A) in confirming the additions made by AO by treating the amount of ‘hardship compensation’ received by the assessee as income.

3.

Brief facts are that the assessee is an individual (Retired Person) who has filed her return of income on 26.07.2011, declaring total income of Rs.1,12,913/- for AY 2011-12. Later, the case of the assessee was reopened u/s 147 of the Income Tax Act, 1961 (hereinafter "the Act") for the reason that even though assessee received Rs.25,21,508/- from developer/builder M/s. DB-MIG Realtors and Builders Pvt. Ltd. (hereinafter "Builder") have not offered for tax the said receipt, which according to the AO escaped assessment. The assessee replied to the AO that she had a flat (C- 12/96) in the residential society [MIG Co-operative Housing Society Ltd, Bandra (East)] and as per terms of the re-development agreement dated 31.10.2010, she received Rs.25,21,508/- from the developer/builder as "Hardship Compensation". According to the assessee, the amount received from the builder was capital receipt and therefore not liable to be tax. However, the AO did not agree. He noted that assessee was a member of the housing society, and that the society was the owner of the properties (flats); and it had entered into agreement for development of the property with the builder vide agreement dated 31.10.2010 and by virtue of such an agreement with the developer for re-developing the property, each member of the society received a new flat in exchange of surrender of old flat. The AO noted the terms of agreement at para no. 6 of his order and further noted that on surrender of flats by members, builder had issued cheque in the name of the member (including assessee) which were handed over to the assessee through the society. According to the AO, thus housing society received total amount of Rs.149.89 crores, which were in-turn, handed over to the individual members as per the re-development agreement. This action of the housing society handing 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.

4. In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes "any capital gains chargeable under section 45", and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon'ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed 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 Supreme Court, in the case of Dr. George Thomas K vs CIT(156 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 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.

5. Per-Contra, the Ld. DR relied on the order of the Ld. CIT(A)/AO, however, could not controvert the fact that the assessee received of Rs.25,21,508/- from Builder in terms of the re- development agreement and such compensation was paid by the builder on account of hardship faced by the owner of the flat due to displacement of the occupants of the flats, which payment is in the nature of hardship allowance/rehabilitation allowance. This compensation was over and above the exchange of old flat with new flat. In such a scenario, the amount of Rs.25,21,508/- received by the assessee, as compensation for displacement in terms of re- development 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, and therefore the same will be taken into account when occasion arises for computing capital gains in respect of said. Subject to these observation, the appeal of assessee is allowed. 5. Since the facts of the present case are similar to the facts in the case of Smt. Kunnama V. Balakrishna Vs ITO (supra) therefore, keeping in view the principles of judicial consistency and judicial discipline and while following the decision of the coordinate bench, we give the same directions in the present case as well.