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Facts
The assessee received Rs. 25,21,508/- as hardship compensation from a developer for a redevelopment project. The Assessing Officer (AO) treated this as income from other sources, considering the activities as commercial. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the amount received by the assessee from the developer as hardship compensation, arising from a redevelopment agreement, is a capital receipt and not taxable as income. The Tribunal relied on previous judgments of coordinate benches of ITAT Mumbai.
Key Issues
Whether the hardship compensation received by a flat owner from a developer during a redevelopment project is a capital receipt or taxable income.
Sections Cited
143(3), 147, 148, 2(24)(vi), 2(21)
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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: MS KAVITHA RAJAGOPAL & SHRI RATNESH NANDAN SAHAY
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “SMC”, MUMBAI
BEFORE MS KAVITHA RAJAGOPAL, JUDICIAL MEMBER AND SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER ITA No.1605/M/2023 Assessment Year: 2011-12 Late Chitra Chakala ITO 24(1)(4) 102, Brighton Towers, 102, Brighton Towers, Lokhandwala Complex, Vs. Lokhandwala Complex, Andheri (West), Andheri (West), Mumbai- 400053. Mumbai- 400053. PAN: AABPC5032H (Appellant) (Respondent) Present for : Assessee by : Shri Satish Mody, A.R. Revenue by : Shri R. R. Makwana- SR. D.R.
Date of Hearing : 25 . 07 . 2024 Date of Pronouncement : 01 . 08 . 2024
O R D E R Per: Ratnesh Nandan Sahay, Accountant Member: 1. This appeal has been filed by the appellant against the Order of the Ld. CIT (Appeals) passed u/s. 250 of the Income Tax Act [the ‘Act’ in short] vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1050590328(1) Dated 10/03/2023 for the Assessment Year 2011-12.
2 ITA No.1605/M/2023 Late Chitra Chakala 2. Following grounds of appeal have been raised by the appellant: 1. “The learned CIT(A) erred in upholding the order passed by the learned AO, Ward 24(1)(4), Mumbai, under section 143(3) r.w.s 147 of the Act, even though it is capricious in nature and has been made ignoring the established and undisputed facts. The said order is contrary to the facts and circumstances of the case and the applicable provisions of the Act. 2. The learned CIT(A) erred in upholding the order passed by the Ld AO u/s. 143(3) of the Act, though the same unjust and is passed violating the principles of natural justice. 3. The learned CIT(A) has erred in upholding the additions made by the Ld AO to the total income of the appellant of Rs.25,21,508/-, which is contrary to the facts and circumstances of the case and made without any basis whatsoever. The appellant craves leave to add, to alter or amend the aforesaid Grounds of Appeal, if called for, before the disposal of the appeal.” 3. The facts of the case, in brief, are that the assessee has filed a return of income for the year under consideration on 30/08/2011 declaring total income at Rs.3,18,600/-. As per the information received by the Ld. AO, the assessee was a member of MIG Co-Operative Housing Society Limited which has entered into development agreement with M/s. DB MIG Realtors and Builders Private Limited on 31/10/2010 and the assessee has received a sum of Rs.25,21,508/- for flat no.102. The Ld. AO, therefore, reopened the case u/s. 147 of the Income Tax Act and issued notice u/s. 148 to the assessee to file return of income. The assesse filed the return of income in response to the notice u/s 148 of the Act on the same income of Rs.3,18,600/-. During the assessment proceedings,
3 ITA No.1605/M/2023 Late Chitra Chakala when the assessee was asked to explain the nature of the payment received, the assessee submitted that this is the hardship compensation received by the assessee on account of hardship caused due to the redevelopment project and is a capital receipt and hence not liable to tax. The Ld. AO, however, added the amount of Rs.25,21,508/- received as a share of compensation u/s. 143(3) r.w.s. 147 of the Act on the ground that the activities, carried out by the assessee, are in the nature of commercial activities and the monetary consideration arising out of it, is directly distributed to its members as a dividend, being shareholders, and, therefore, chargeable to income tax in the hands of the assessee under the head ‘income from other sources’. 4. Aggrieved by the order of the Ld. AO, the appellant filed appeal before the Ld. CIT (A), who upheld the order of the AO. This appeal has been filed against the order of the Ld. CIT (A). Before us, the appellant has placed reliance on following judgments of coordinate Benches of ITAT, Mumbai wherein identical issue of hardship compensation was considered and was allowed as a capital receipt in the hands of the assessee. 1. “Shri Lawrence Rebello vs. ITO-1(3), Indore in ITA No. 132/Ind/2020 for assessment year 2011-12. 2. Mrs. Pushpa R. Chawla vs. ITO Ward- 23(2)(5) in ITA No. 2864/Mum/2022 for assessment year 2009-10.
4 ITA No.1605/M/2023 Late Chitra Chakala 3. Vinod Murlidhar Chawal vs. Income Tax Officer Ward- 23(3)(5) in ITA No.3206/Mum/2022 for assessment year 2011-12. 4. Upinder Kaur Khalsa Rao vs. ITO- 35(3)(1) in ITA No. 3670/Mum/2023 for assessment year 2011-12.” 5. The gist of one of such decisions given by the Coordinate Bench of ITAT, Mumbai in the case of Narayan Devrajan Iyangar vs. Income Tax Officer, ward-2(2) (1) Mumbai in ITA No. 106/Mum/2023 for the assessment year 2015-16 is given as under: - “8. 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 a similar issue, observed as under:- "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, ITA No.132/Ind/2020 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)
5 ITA No.1605/M/2023 Late Chitra Chakala 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(21) 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
6 ITA No.1605/M/2023 Late Chitra Chakala 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." 9. 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 of Rs.68 lakhs made by the AO vide impugned order is set aside and ordered to be deleted.” 6. The CIT D.R. on the other hand, relied on the order of the Ld. AO and the Ld. CIT (A). 7. We have considered the above decisions of the Coordinate Benches and respectfully following the same, we also delete the addition made by the AO and allow the appeal of the assessee. 8. In the result, the appeal is allowed. Order pronounced in the open court on 01.08.2024.
Sd/- Sd/- MS KAVITHA RAJAGOPAL RATNESH NANDAN SAHAY JUDICIAL MEMBER ACCOUNTANT MEMBER
7 ITA No.1605/M/2023 Late Chitra Chakala
Mumbai, Dated: 01.08.2024. Snehal C. Ayare, Stenographer Copy to:The Appellant The Respondent The CIT, Concerned, Mumbai The DR Concerned Bench //True Copy// By Order
Dy/Asstt. Registrar, ITAT, Mumbai.