Tuesday, August 30, 2016

Sum received from developer due to hardship caused on redevelopment of flat not a revenue receipt

The issue before the ITAT was as under:

Whether compensation received towards hardship caused to assessee on redevelopment of flat was in the nature of capital receipt and as such not taxable?

The ITAT held as under:

1) Similar facts were present in case of Kushal K Bangia v. ITO [2012] 18 taxmann.com 31 (Mum.), wherein the Mumbai ITAT held as under:

“It is not even the case of the AO 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. The only defence put up by DR 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. 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"

2) Following the judgment of Kushal (Supra), it could be held that such compensation could not be said to be of revenue nature, and, accordingly, the same was outside the ambit of income under section 2(24).

3) The impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same would be taken into account as such, as and when occasion arises for computing capital gains in respect of the said asset. - JITENDRA KUMAR SONEJA V. ITO [2016] 72 taxmann.com 318 (Mumbai - Trib.)
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