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Facts
The assessee received Rs. 53,50,500 from a builder for redevelopment of a flat, which was treated as income from other sources by the Assessing Officer (AO) and upheld by the CIT(A). The assessee contended it was a capital receipt for vacating the flat and hardship allowance.
Held
The Tribunal held that the compensation received for vacating the flat and hardship allowance is in the nature of a capital receipt and not taxable as income from other sources, relying on High Court and coordinate bench decisions.
Key Issues
Whether the compensation received by the assessee from the builder for vacating the flat and for hardship allowance is a capital receipt or taxable income from other sources.
Sections Cited
Sec. 147, Sec. 148, Sec. 143(2), Sec. 142(1), Sec. 56(2)(vii)(a), Sec. 10(34), Sec. 54, Sec. 54EC
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: AND SHRI OMKARESHWAR CHIDARA, AM
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the impugned order of the Learned Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], passed u/s.250 of the Income Tax Act, 1961 (“the Act” for short), pertaining to the Assessment Year (‘AY’ for short) 2011-12.
The assessee has raised the following grounds of appeal: “Ground 1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in dismissing the appeal of the appellant in a summary manner without passing a speaking and a reasoned order. Ground 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) failed to appreciate that the amount of Rs.53,50,500 received by the appellant in relation to the redevelopment of flat was in the nature of capital receipt and therefore not liable to tax.
Ground 3. On the facts and circumstances of the case and in law and without Prejudice to the other Grounds Appeal, the Ld. CIT (A) failed to appreciate that the AO had erred in characterizing the compensation of Rs.53,50,500 received by the Appellant from the builder as income from other sources rather than as Long-Term Capital Gains. Ground 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the AO had further erred in denying exemption u/s 54 and u/s 54EC of the Income Tax Act that are available to the appellant in case the impugned income is considered as taxable.”
Brief facts of the case are that the assessee is an individual deriving income from pension and income from other sources as interest from bank and postal authority. The assessee filed his return of income declaring total income at Rs.3,33,247/-. The assessee’s case was reopened u/s 147 of the Act vide notice dated 12.01.2016 u/s 148 of the Act on the basis of information that the assessee has received compensation from M/s. Kalpataru Properties Pvt. Ltd. amounting to Rs.53.50 lakhs which income is said to have escaped assessment. Notices u/s 143(2) and 142(1) of the Act were duly issued and served upon the assessee. During the assessment proceedings, the assessee contended that Rs.28.50 lakhs was received as corpus amount and Rs.25,00,000/- was received as compensation and that the same are in the nature of capital receipts not liable to be taxed. The assessee had also filed the copy of agreement dated 26.04.2010 entered into with the society in which the assessee is a member of M/s. Kalpataru Properties Pvt. Ltd., according to which the assessee has received Rs.53,55,500/- out of which Rs.25,00,000/- was for compensating members for not adhering to the terms and conditions agreed by the developer and Rs.28.50 lakhs was paid to the member as members’ beneficial right and interest in the corpus and in the income of the society and the same pertained to for nuisance, annoyance and hardship caused to the members. It was also observed that M/s.
Mr. Subhash Suryakant Phadkar Kalpataru Properties Pvt. Ltd. has paid Rs.15 crores to the society over and above the payment made to each member of the society as individual members. The Learned Assessing Officer (“the Ld. AO” for short) rejected the assessee’s contention that the same is capital receipt and taxed the same as income from other sources vide assessment order dated 30.12.2016 passed u/s 143(3) r.w.s. 147 of the Act, thereby determining the total income at Rs.56,83,750/- after making the impugned addition as income from other sources amounting to Rs.53,55,500/-. The first appellate authority upheld the addition made by the Ld. AO by extensively relying on the finding of the Ld. AO.
Aggrieved, the assessee is in appeal before us challenging the impugned order of the Ld. CIT(A).
The Learned Authorized Representative (“Ld. AR” for short) for the assessee contended that the assessee had entered into a transaction with the builder for redevelopment of an old flat in return for a new premises which is larger in area than the old flat and in addition to the same the assessee was also entitled to receive Rs.53,50,500/- as compensation for vacating the existing flat and also towards hardship allowances. The Ld.
AR further contended that Rs.25,00,000/- was for compensation received from the builder for not adhering to the agreed terms and Rs.28,15,500/- pertained to hardship allowance and that the same amounts to the capital receipt in the hands of the assessee not liable to tax. It was further contended that as per the development agreement between members and the society it was specified that there was no necessity to vacate the flats during the redevelopment period but since the conditions were not complied by the builder, the members including the assessee were required to vacate their flats within 60 days from the sanction of the building plan approved by the municipality and therefore Mr. Subhash Suryakant Phadkar Rs.25,00,000/- was merely an additional compensation paid towards the hardship caused to the assessee. The Ld. AR further reiterated that it is settled position of law that the compensation or hardship allowance paid by the builder to the owners are held to be capital in nature and not liable to be taxed as income from other sources in the hands of the assesse. The Ld. AR relied on a catena of decisions in support of his contention.
The Learned Departmental Representative (“Ld. DR” for short), on the other hand, 6. controverted the said fact and contended that the lower authorities have rightly taxed the receipt as income from other sources as section 2(24) of the Act which defines “income” has not specifically exempted such receipts for hardship allowances to be exempted. Further, the Ld. DR extensively relied on the order of the lower authorities.
We have heard the rival submissions and perused the materials available on record. 7.
The undisputed facts here are that the assessee has received Rs.53,50,500/- from M/s.
Kalpataru Properties Pvt. Ltd. out of which Rs.25,00,000/- was for compensation to the owners of the flat by the builder for not complying with the terms and conditions agreed by the developer and Rs.28.50 lakh was towards members’ beneficial rights and interest in the corpus and in the income of the society which is also for nuisance, annoyance and hardship caused to the owner. It is also evident that M/s. Kalpataru Properties Pvt. Ltd. has paid a total of Rs.15 crores to the society over and above the payment of Rs.53.50 lakhs to each member of the society. The Revenue held the receipt to be income from other sources as per section 56(2)(vii)(a) of the Act, where any sum of money received exceeding Rs.50,000/- without consideration is chargeable as “income from other sources”. The Revenue’s contention is that such receipt received by the assessee as hardship allowance is not expressly exempted and only when the Mr. Subhash Suryakant Phadkar intention of the legislature was to exempt certain income such as section 10(34) of the Act in case of dividend income which is exempted from being taxed and in the absence of such express provision the receipt for hardship allowance in whatever terms it is called would be taxable as “income from other sources”. The Ld. CIT(A) has merely upheld the order of the Ld. AO on the ground that the assessee has not filed any additional documentary evidences to substantiate the additional ground raised by the assessee during the remand proceeding and had dismissed the grounds of appeal thereby holding the income to be “income from other sources”. Though the assessee has relied on various decisions wherein the hardship allowance has been held to be capital receipt, the Ld. CIT(A) has failed to consider the same. Hon’ble Jurisdictional Bombay High Court in the case of Sarfaraz S. Furniturewalla vs. Afshan Sharfali Ashok Kumar & Ors. (2024)
166 taxmann.com 425 / (2024) 467 ITR 230 (Bom.) held that transit rent / hardship allowance / rehabilitation allowance / displacement allowance paid by the developer/landlord to the tenant is not held to be a revenue receipt and not liable to be taxed for the purpose of deduction of TDS for such amount payable by the developer to the tenant. Here, though it is a case where the developer has paid the owner of the flat for the purpose of redevelopment as hardship allowance which is akin to that of a transit rent or rehabilitation allowance, which is nothing but a compensation paid to the assessee by the developer for displacement of the assessee from his flat till the time the redeveloped property is handed over to the assessee, the said decision of the Hon’ble Bombay High Court has, in fact, relied on the decision of the co-ordinate Bench in the cases of Smt. Delilah Raj Mansukhani in (Assessment Year : 2010-2011) and Ajay Parasmal Kothari in 2013-2014). As this issue has already been decided by various decisions of the co-ordinate Benches as well as the Hon’ble Jurisdictional High Court, we do not find any justification in deviating from the view that has already been taken in favour of the assessee. We, therefore, deem it fit to allow all the grounds of appeal raised by the assessee on the Mr. Subhash Suryakant Phadkar issue of addition made by the Ld. AO and upheld by the Ld. CIT(A) in holding it to be income from other source and thereby direct the Ld. AO to delete the impugned addition in the hands of the assessee.
In the result, the appeal filed by the assessee is hereby allowed in above terms.
Order pronounced in the open court on 22.01.2026
Sd/- Sd/- (OMKARESHWAR CHIDARA) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 22.01.2026 *Kishore, Sr. PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,
(Dy./Asstt.Registrar) ITAT, Mumbai