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Facts
The assessee, an individual, received Rs. 25,21,508/- as hardship/rehabilitation compensation in FY 2010-11 due to a housing society's redevelopment agreement. This amount was not declared in her income tax returns for A.Y. 2011-12. The Assessing Officer (AO) initiated reassessment proceedings, treated the compensation as 'income from other sources', and made an addition to her total income, which was subsequently upheld by the CIT(A).
Held
The Tribunal, relying on several past decisions from coordinate benches on similar issues, held that hardship/displacement compensation received from a developer for redevelopment is a capital receipt and not taxable income. Consequently, the addition made by the AO and confirmed by the CIT(A) was set aside and deleted.
Key Issues
The primary legal issue was whether hardship/displacement compensation received from a developer during property redevelopment constitutes a capital receipt (not taxable) or a revenue receipt taxable as income from other sources. A secondary issue regarding the validity of reopening assessment under Section 147 was raised but not pressed by the appellant.
Sections Cited
143(3), 147, 250, 144, 274, 271(1)(c), 234B, 148, 143(2), 142(1), 2(24)
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Income Tax Appellate Tribunal, “H”BENCHMUMBAI
Before: SHRI PAVAN KUMAR GADALE & SMT RENU JAUHRI
IN THE INCOME TAX APPELLATE TRIBUNAL “H”BENCHMUMBAI BEFORE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER & SMT RENU JAUHRI, ACCOUNTANT MEMBER
ITA No.1981 & 1982/MUM/2024 (A.Y.2011-12 & 2012-13)
Nalini SanjeevNadkarni Vs. ITO – 42(2)(4) Kautilya Bhavan, C-161,121 MIG Colony, BKC,Bandra (East), Gandhi Nagar, Mumbai-400051. Bandra (East), Mumbai-400051. PAN/GIR No. ACLPN0556F (अपीलाथ�/Appellant) (��यथ�/Respondent)
Appellant by Mr.Jinesh Shah.AR Respondent by Ms.JancyElizabethRani,L.Sr,DR
सुनवाई क� तार�ख/Date of Hearing 22.07.2024 घोषणा क� तार�ख/Date of Pronouncement 24.07.2024
ORDER PER PAVAN KUMAR GADALE, JM: “ These two appeals are filed by the assessee against the separate orders of National Faceless Appeal Centre (NFAC), Delhi / CIT(A) passed u/sec 143(3) r.w.s 147 and u/sec 250 of the Act.
Since the issues involved in these appeals are common and identical, hence they are clubbed, heard and a consolidated order is passed. For the sake of convenience, we shall take up ITA No. 1981/Mum/2024, A.Y 2011-12 as
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai lead case and facts narrated. The assessee has raised the following grounds of appeal.
On Facts and Circumstances of the Case and in Law, the Learned CIT (A) has erred in upholding the reopening of assessment under Sec 147 of the IT Act.
On Facts and Circumstances of the Case and in Law, the Learned CIT (A) as well as ITO-35(2)(4) erred in confirming addition of Hardship Compensation of Rs 25,21,508/- in the impugned assessment order.
The Learned CIT (A) has erred in confirming the addition at Rs 25, 21,508/- received by the Appellant as hardship Compensation. He has further erred in confirming the said addition to the income under the head income from other sources. Regard being had to the facts and circumstances of the case, the said addition ought to have been deleted, being in the nature of Capital Receipt.
Without prejudice to ground no 2 & 3, and as an alternative ground of appeal, the Learned CIT (A) has erred in confirming addition of Rs 25,21,508/- received by the appellant as hardship compensation under the head income from other sources, instead of long-term capital gain. Regard being had to the facts and circumstances of the case, the said addition ought to have been assessed under the head long term capital gain in which transfer of capital asset is complete.
On Facts and Circumstances of the Case and in Law, the Ld. CIT(A) has erred in appreciating the fact that on identical issue in case of appellant Ld.AO (NFAC) had accepted that Hardship Compensation received is a capital receipt and not revenue receipt and hence not taxable in the order of
3 ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai assessment passed u/s 147 r.w.s 144 of the Act in AY 2015- 2016 & 2016-2017
On Facts and Circumstances of the Case and in Law, the Ld. CIT(A) erred in confirming penalty proceeding u/s 274 r.w.s 271(1)(c) of the Income Tax Act, 1961.
On Facts and Circumstances of the Case and in Law, the Ld. CIT(A) erred in confirming chargeability of Interest under the provision of section 234B of the Income Tax Act, 1961 . 8. The appellant craves leave of the Hon'ble Bench to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal.. 3. The brief facts of the case are that, the assessee is an individual and has filed the return of income for the A.Y. 2011-12 on 27.03.2012 disclosing a total income of Rs. 3,19,069/- and subsequently the assessee has filed revised return of income on 27.03.2012 with no variation in total income. The Assessing Officer(AO) has received information that the assessee is residing in a housing society and whereas the said society has entered into development agreement with M/s DB MIG Realtors and Builders Pvt Ltd on 31.10.2010 and as per the list provided by the developer, the assessee has received payment of Rs. 25,21,508/- in the F.Y 2010-11 towards rehabilitation and the amount was not declared in the return of income filed for A.Y.2011-12. Therefore the AO has reason to believe that the income has escaped assessment and has
4 ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai issued notice u/sec148 of the Act. In compliance to the notice, the assessee has filed the return of income on 17.12.2018 disclosing a total income of Rs. 3,19,069/- and also the assessee has declared amount of Rs. 25,21,508/- as capital receipt. Subsequently the AO has issued notice u/sec 143(2) and u/sec 142(1) of the Act. In compliance to notice, the assessee has submitted the details and mentioned that the consideration received by the assessee is in the nature of hardship compensation / displacement compensation and is a capital receipt and is not liable to tax. Whereas the AO has dealt on the facts, submissions and provisions of the Act and was not satisfied with the explanations of the asssessee on the capital receipt and the A.O has treated the hardship compensation money received by the assessee as income from other sources and assessed the total income of Rs. 28,40,580/- and passed the order u/sec 143 r.w.s 147 of the Act date 27.12.2018.
Aggrieved by the order the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the grounds of appeal, submissions of the assessee and findings of the AO but has confirmed the action of the AO and dismissed the assessee appeal. Aggrieved by the order the assessee has filed appeal before the Hon’ble Tribunal.
At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the AO
5 ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai overlooking the submissions and the information filed in the assessment proceedings and appellate proceedings. The contentions of the Ld. AR that the amount received by the assessee is towards hardship compensation / displacement compensation and is a capital receipt and not liable to tax. Further the Ld.AR substantiated the submissions with the factual paper book, synopsis and judicial decisions and prayed for allowing the appeal. Per Contra, the Ld. DR submitted that the nature of compensation is a revenue receipt/ income and the Ld. DR relied on the order of the CIT(A).
We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue envisaged by the Ld.AR that the CIT(A) has erred in confirming the addition of hardship compensation/displacement compensation received by the assessee overlooking the facts that, the allowance is paid as per the agreement entered by the M/s DB MIG Realtors and Builders Pvt Ltd and the assessee was paid specified amount due to displacement from his place in the society building because of the development/ construction works carried out by the developer. The Ld. AR submitted that the assessee has received by cheque Rs. 8,40,508/- on 13.10.2010 and Rs. 18,81,005/- on 01.02.201 in F.Y.2010-11. The Ld. AR demonstrated the relevant development agreement entered on 31.10.2010 placed at Page 12 to 22 of the paper book and in particular at page
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai 20 “Annexure” “I” “A” the basis for making the provision of payments for hardship compensation. Further the Ld. AR referred to the submissions made before the AO on this disputed issue placed at page 9 to 11 of the paper book. We find that the AO has not considered the submissions of the assessee being a senior citizen has received this hardship compensation for the displacement purpose and cannot be taxable in the hans of the asssesse. Further the Ld. AR submitted that for the A.Y 2015-16 and A.Y.2016- 17 the revenue has accepted the assesse’s plea of capital receipt and not considered as income and the Ld.AR placed the copy of assessment orders U/sec143(3) r.w.s147 of the Act, which is not disputed. The Ld. AR has relied on the fallowing judicial decisions as under:
1.Vinod Murlidhar Chawla Vs. ITO Ward-23(3)(5) (ITA NO 3206/MUM/2022).
2 Ajay Parasmal Kothari Vs. ITO Ward-30(1) (1) (ITA NO 2823/MUM/2022).
Jitendra Kumar Soneja Vs. ITO, Ward 6(3) (3) (161 ITD 269).
Smt Delilah Raj Mansukhani Vs. ITO, Ward 35(1)(3) (ITA NO 3526/MUM/2017).
5.Kushal K Bangia Vs. ITO Ward 21(1)(2) (ITA NO 2439/MUM/2011).
6.Shri Lawrence Rebello Vs. ITO 1(3), Indore (ITA NO 132/IND/2020
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai 7. We find the coordinate bench of this Honble Tribunal in the case of Vinod Muralidhar Chawla Vs. ITO in ITA No. 3206/Mum/2022 for A.Y.2011-12 order dated21-02-2023 has considered the facts, provisions and the nature of hardship compensation and granted relief dealt at Page 3 Para 5 to 9 of the order read as under as under: “5. We have considered the rival submissions and perused the material available on record. The assessee is a member of the MIG Co-operative Housing Society Ltd. The society, who was the owner of the property, entered into an agreement for the development of the property, and to achieve this, the society and its members awarded a contract to M/s DB MIG Realtors and Builders Private Limited vide agreement dated 31/10/2010. As per the terms of the said agreement, the developer shall develop the property in such a manner that each member of the society shall receive a new flat in exchange of the surrender of the old flat depending upon the size of the old flat along with interest in the additional FSI allotted by MHADA. It is further to be noted that the property and the additional FSI are in the name of the society. Further, as per the said agreement, all the expenses, costs, and charges for the proposed project of redevelopment of the said property including for the purchase of additional FSI from MHADA, etc. shall be borne by the developers alone and the society and/or members shall not be liable to pay or contribute any amount toward the same. The developer, as per the agreement has paid to the society being the lawful owner of the property and the members an aggregate monetary consideration. The said monetary consideration was distributed among the members of the society being shareholders, depending upon the size of their old flat. During the year under consideration, the assessee has received an amount of Rs.25,21,508, being the consideration for the surrender of his old flat. Since the assessee treated the said amount as capital receipt and did not offer the same to taxation, therefore, on the basis of information received from ITO-23(2)(3), Mumbai reassessment proceedings were initiated in the case of the assessee and vide assessment order passed
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai under section 143 (3) r/w section 147 of the Act the aforesaid receipt of Rs.25,21,508, was treated as taxable in the hands of the assessee as „income from other sources‟. As per the assessee, the said payment is a hardship allowance to cover the cost of prospective loss of place of residence and the consequential hardship thereof, including loss of furniture, fixtures, and other inbuilt conveniences like fresh gas connections and various other facilities including relocation of residence. Thus, as per the assessee, this compensation is purely to compensate the personal loss and other inconveniences likely to be caused and therefore, can only be a capital receipt and can never be treated as a revenue receipt. 6. 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 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) 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
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai 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(24) 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 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.” 7. 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 made by the Assessing Officer and upheld by the learned CIT(A) vide impugned order is set aside and ordered to be deleted. As a result, ground No.1, raised in assessee‟s appeal is allowed. 8. As the issue on merits was covered in favour of the assessee by various decisions of the coordinate bench of the Tribunal, therefore the learned Authorised Representative wishes not to press the application seeking admission of additional ground of appeal challenging the invocation of reassessment proceedings under section 147 of the Act. Accordingly, the said application is dismissed as not pressed 9. In the result, the appeal by the assessee is allowed”.
Similarly the Honble Tribunal in the case of Ajay Parasmal Kothari Vs. ITO in ITA No. 2823/Mum/2022 order dated 3-04-2023 has granted relief observing at Page10 Para 12to 14 of the order read as under: “12. Considered the rival submissions and material placed on record, it is fact on record that assessee has received ₹.3,73,191/- from the builder for alternate accommodation. However, assessee has not
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai utilized these funds for any accommodation. However, he adjusted and lived with his parents. It clearly indicates that even though assessee has not utilized the rent received for his accommodation, however, he has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period. We observe that Coordinate Bench has considered the similar issue and adjudicated the same in the case of Smt Delilah Raj Mansukhani v. ITO (ITA.No. 3526/Mum/2017 dated 29.01.2021) 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 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
ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai 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 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 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.
Respectfully following the co-ordinate Bench decision, we set aside the findings of the Id. 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 also hold that the above receipt of compensation for hardship is in the nature of capital receipt. Accordingly, the addition made by the Assessing Officer is deleted. Ground raised by the assessee is allowed.
In the result, appeal filed by the assessee is allowed.
We have considered the facts, circumstances and the ratio of the judicial decisions. The Hon’ble Tribunal has passed the order, where the hardship compensation received by the asssesse is considered as capital receipt and is not taxable. Accordingly, we follow the judicial precedence, and set aside the order of the CIT(A) and direct the Assessing officer to delete the addition. And we allow the grounds of appeal in favour of the asssesse.
In the result, the appeal filed by the assesse is allowed.
12 ITA No. 1981 & 1982/MUM/2024 Nalni Sanjeev Nadkarni, Mumbai ITA No. 1982/Mum/2024.A.Y 2012-13. 11. As the facts and circumstances in this appeal are identical to ITA No 1981/Mum/2024, for the A.Y 2011-12 (except variance in figures) and the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, we allow the grounds of appeal in favour of the assessee.
In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 24.07.2024.
/- Sd/- Sd/- Sd (RENU JAUHRI) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 24/07/2024 KRK Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy//
BY ORDER, (Dy./Asstt.Registrar)ITAT, Mumbai