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Facts
The assessee, an individual and member of a housing society, received Rs. 53,50,500/- from a developer as hardship allowance for vacating her flat for redevelopment. The Assessing Officer (AO) treated this amount as income from other sources, while the assessee claimed it as a capital receipt.
Held
The Tribunal held that the amount received by the assessee as hardship allowance for vacating the flat due to redevelopment is a capital receipt and not taxable as income. The Tribunal relied on previous decisions of the ITAT Mumbai Bench.
Key Issues
Whether the hardship allowance received by the assessee from a developer for vacating a flat for redevelopment is a capital receipt or taxable income.
Sections Cited
Section 2(24), Section 148, Section 143(2), Section 142(1), Section 271(1)(c)
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY, JM &
IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JM & MS PADMAVATHY S, AM I.T.A. No. 3670/Mum/2023 (Assessment Year: 2011-12)
Upinder Kaur Khalsa Rao ITO-35(3)(1), C-20/183, MIG Colony, Pratyaksha Kar Bhavan, Bandra Vs. Bandra East), Mumbai-400051. Kurla Complex, Bandra (E), PAN : AFKPK0563R Mumbai-400051
Appellant) : Respondent) Appellant/Assessee by : Shri Haridas Bhat, CA : Ms. Rajeshari Menon, Sr. DR Revenue/Respondent by : 27.02.2024 Date of Hearing Date of Pronouncement : 04.03.2024 O R D E R Per Padmavathy S, AM: This appeal is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC) [for short 'the CIT(A)] dated 14.08.2023 for the AY 2011-12. The assessee has raised the following grounds of appeal: “a) On the facts and circumstances of the case, and in Law, the CITA, NFAC erred In confirming addition made by the Income Tax Officer 35(3)(1), Mumbai (The AO.) amounting to of Rs. 17,83,500/- towards proportionate 1/3 share of Rs. 50,00,000/-received on account of hardship compensation.
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b) On the facts and circumstances of the case and in law CITA erred in confirming that: i. AD made addition after considering the same as hardship compensation. ii. The appellant is in receipt of hardship compensation on account of redevelopment project and the same is capital receipt and not an Income taxable under the act. (iii) The amount received by the appellant are related to capital assets and hence the nature of receipts in nature of money consideration is also capital in nature. iv. Section 2(24) is an exhaustive definition and does not include capital receipts. c) Thus in view of above, the Appellant therefore prays that addition of Rs. 17,83,500/- which is a capital receipt and may please be deleted.”
The assessee is an individual. The AO received information from ACIT- 23(2), Mumbai that members of the Society, Middle Income Group-4 CHS Ltd. have received payments from developer Kalpataru Properties Pvt. Ltd. and the assessee being a member of the said Society had received an amount of Rs. 53,50,500/-. Since the assessee has not filed the return of income for the AY 2011- 12 the AO had a reason to believe that the income chargeable to tax to the extent of the amount received by the assessee from the developer has escaped assessment, and accordingly the AO re-opened the assessment by issue of notice under section 148 of the Income Tax Act (the Act). The assessee in response to notice under section 148 filed a return of income on 14.11.2018 declaring an income of Rs. 39,085/-. The assessee submitted before the AO that the property is inherited by her and her two sisters. The assessee further submitted that the sum of Rs. 53,50,000/- was agreed to be paid by the developer as hardship allowance and out
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of the agreed amount only Rs. 10,00,000/- was received by the assessee. The assessee also submitted that since the amount was received as compensation for the inconvenience caused to the owners the amount received is in the nature of capital receipt and therefore not chargeable to tax. The assessee in this regard placed reliance on various decisions of the Co-ordinate Bench of the Tribunal.
The AO did not accept the submissions of the assessee for the reason that the amount paid by the builder is for vacating the property so that it can be developed and the same cannot be construed that such an allowance will enhance the capital value of the property. Therefore, the AO held that the amount is liable to be taxable under the head Income from Other Sources and completed the assessment accordingly. Aggrieved the assessee filed appeal before the CIT(A) and made similar submissions. The CIT(A) did not accept the contention of the assessee that the amount is the capital receipt and not taxable. However, the CIT(A) gave relief to the assessee to the extent of 2/3rd shares of the amount received since the assessee is only 1/3rd owner of the said property. The relevant observations of the CIT(A) in this regard is extracted below: “6.1. Ground Nos. 1 & 2: The Ground No. 18 2 are taken and decided together as they both relate to the common issue of treatment of receipt of Rs.53.50,000/- from the Builder. The fact and circumstances of the case has already been stated and, therefore, is not required to be repeated for the sake of brevity. The contention of the appellant is that the sum of Rs. 53,50.000/- is a capital receipt not chargeable to tax as the same has been paid as hardship allowance/non-adherence to the original agreement and there is no sale, exchange or extinguishment of any rights and also there is no cost of acquisition. The question is whether the contention of the appellant is correct and justified that the sum of Rs. 53,50,500/- is a capital receipt not taxable as per the Act and the said sum is payment towards hardship and inconvenience caused to them. Also whether the contention of the appellant is correct that there was no transfer of asset, extinguishment of right and title and there was no cost of acquisition requiring chargeability as capital gains. As already stated above, the payment was made to the appellant because of her right as a
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member of the said Housing Society and being owner of the flat therein. If the appellant had not owned the flat and/or there was no change of agreement/redevelopment agreement between the Builder/Developer and the Society to utilize not only the vacant available space but also the entire space of the Housing Society requiring members of the Society to vacate their flats there was no question of any payment to any of the members of the Society and there was no question of giving any flats of larger size. So clearly whatever the appellant has got is due to the transfer of the capital asset in the form of the flat and due to the extinguishment of her right, title, possession and enjoyment as a member of the said Housing Society. So, the appellant is not found correct in saying that there was no transfer of any asset or extinguishment of any right. There is clearly an extinguishment of rights of the assessee and exchange/transfer of the flat. Clearly. Section 2 (47) of the Act is attracted to the case of the appellant. The terms and condition of the agreement dated 26- 04-2010 and the payment by installments on fulfilling the condition of vacating individually and collectively the premises/flats, as already stated, bears testimony to the said fact. Therefore, the contention of the assessee that it is hardship allowance etc. is not found acceptable. Also, the appellant got the flat in exchange of her old flat, therefore, the contention of the appellant that there is no cost of acquisition involved is also found not acceptable The judicial decisions relied upon are on the entirely different fact and circumstances and not at all applicable. The appellant has heavily relied on the decision of the Hon'ble ITAT, Mumbai in the case of Rajnikant D. Shroff Vs ACIT in ITA No. 4424/Mum/2014 Order Dated. 23.09.2016. The perusal of the decision revealed that the fact of the case is not identical to the fact of the case of the appellant and therefore, not applicable to the present case. The fact in the case of Rajnikant D. Shroff was that the assessee was the owner of flat in Parishram Co-operative Housing Society Ltd and the building had become old requiring extensive repairing, the members of the society decided to re-develop the existing property through a developer. Assessee got Rs. 26,23,238/- whereas the total receivable amount was Rs.1,73,75,487/-. However, the assessee did not get the balance amount till date due to the dispute arising between the members of the Society and developer. The assessee submitted that, if the dispute was not resolved amicably, the agreement may have to be cancelled and amount received on signing of the agreement may have to be refunded to the developer. The fact in the instant case is that the Developer wanted to utilize the available vacant plot and subsequently changed the plan to develop the entire society and there was no dispute between the members and the Developer and no question of refund of the money. The members got the entire money as agreed, the Society was developed and members got the
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flats also. In view of the above fact and discussion, Ground Nos. 1 & 2 are dismissed.” 4. The assessee is in appeal before the Tribunal against the order of CIT(A). The ld. AR submitted that the AO and the CIT(A) have not denied the fact that the amount paid by the developer is to alleviate the hardship that the members would suffer on handing over flats for redevelopment. The ld. AR further submitted that by merely handing over the property for redevelopment there is no transfer of asset or extinguishment of right and title and therefore the money received by the assessee is not chargeable to tax as Capital Gains. The ld. AR further submitted that the Co-ordinate Bench of the Tribunal has been consistently holding that the hardship allowance received by the assessee from the developer is a capital receipt and therefore not taxable to tax. The ld. AR placed reliance on the following decisions in this regard. (i) Vinod Murlidhar Chawal Vs. ITO (ITA No. 3206/Mum/2022 dated 21.02.2023. (ii) Narayan Devrajan Iyengar Vs. ITO (ITA No. 106/Mum/2023 dated 10.05.2023. (iii) Mrs. Puspa R. Chawal Vs. ITO (ITA No. 2864/Mum/2022 dated 01.11.2023.
The ld. DR on the other hand submitted that the amount received by the assessee cannot be treated as hardship allowance since the members were paid a portion of the amount in compensation towards non-adherence of the material terms and conditions in which the members were not required to vacate the flat and a portion was paid for inconvenience caused to vacate the property for redevelopment. Therefore, the ld. DR submitted that the case laws relied on by the assessee cannot be directly applied to assessee's case.
We heard the parties and perused the material on record. The assessee had inherited a house property which is part of MIG Co-operative Housing Society
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Group-IV limited (Society) in Bandra along with her two sisters. The assessee is one of the beneficiaries of the society consisting of 96 members, which went under the Re-development vide agreement dated 26th April 2010 entered into by the Society with Kalpataru properties Private Limited (the developer). As per annexure-C of the said Re-development Agreement (page 1 to 60of paper book), in which the assessee's name along with her sisters appears at serial no.79 having old flat 29/255 in the said society. The assessee's case was reopened under section for the reason that the assessee being a member of the society has received a sum of Rs.53,50,500 pursuant to the terms of the agreement. Accordingly, notice under section 148 of the Act was issued and served on the assessee on 28.03.2018. In response to the said notice, the assessee filed his return of income on 14.11.2018 declaring a total income of Rs.39,085. Subsequently, notices under section 143(2) as well as section 142(1) of the Act along with a questionnaire were issued and served on the assessee. The assessee in response submitted that the amount was received as hardship allowance from the builder and the same is a capital receipt not taxable. The assessee further submitted that out of the said sum she has received only Rs.10,00,000 from the builder and the balance amount was never received due to some family dispute. The assessee also submitted that the Mumbai Bench of the Tribunal has been consistently holding the issue in favour of the assessee that the amount received towards hardship allowance is a capital receipt not subject to tax. The AO treated the said receipt as income from other sources by holding that –
“7. From the above, it is clear, that the receipt by assessee of Rs 53,50,000/- (or right to receive) by whatever name is nothing but monetary compensation by the builder which is given to the assessee to alleviate her difficulties or hard ship in giving up the possession of her flat for the purpose of redevelopment. This is simply an assistance given by the builder to the assessee to get over her temporary
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difficulties in vacating her residence for redevelopment purpose. For the assessee, such a receipt is in the nature of income from other sources, as it has got nothing to do with capital value enhancement of the redeveloped property.
In view of the above, it appears that such receipts by the assessee are taxable as income from other sources. The assessee has not furnished the dates on which she has received such payments from the builder She has just stated that there was dispute. The agreement between the society and the builder M/s Knlpataru Properties Pvt. Ltd. was signed on 26.4.10. The onus is on the assessee to furnish complete details of receipts with documentary evidences, which the assessee has not discharged Merely making a claim without documentary evidences cannot be accepted Her address as per return filed in response to notice u/s 148 also mentions as 8-83. Kalpataru Sparkle, MIG colony, Bandra(East) Mumbai. In view of these, and also to protect the interest of revenue, the entire sum of Rs 53,50,000/- therefore is brought to tax as income from other sources.
Penalty proceedings u/s 271(1)(c) are separately initiated for concealment of income”
From above observations of the AO, it is clear that the AO is not disputing the fact the amount is received by the assessee as a compensation for the difficulties and hardships in giving up the possession of the property i.e. the amount is a hardship allowance. However the AO has not accepted that it is a capital receipt not subject to tax. On perusal of the agreement entered into between the Society and the Builder we notice that Clause 5(B)(II) (page 13 of paper book) clearly states that the amount paid is compensatory for the hardship faced by the member in vacating the flat and hardship / nuisance suffered during the construction.
We notice that the coordinate bench while considering the issue of whether the amount received as hardship allowance by a member of the Society from the builder as part of the re-development agreement has been consistently holding that the such a receipt is capital in nature and does not fall within the ambit of
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income under section 2(24) of the Act. In this regard the relevant observations of the coordinate bench in the case of Lawrence Rebello vs ITO (ITA No.132/Ind./2020, dated 29/09/2021) is extracted below – “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 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.”
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The facts of the assessee's case as elaborated above being identical i.e. the issue of taxability of hardship allowance, we respectful follow the above decision to hold that the addition of Rs.17,83,500 be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04-03-2024.
Sd/- Sd/- (VIKAS AWASTHY) (MS. PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai