April 2021
Sections 2(24), 45, 56 – Compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitutes capital receipt as the property has gone into redevelopment
By Jagdish T. Punjabi | Prachi Parekh | Chartered Accountants
Devendra Jain | Advocate
3. 2021 (3) TMI 252-ITAT Mumbai Smt. Dellilah Raj Mansukhani vs. ITO ITA No.: 3526/Mum/2017 A.Y.: 2010-11 Date of order: 29th January, 2021
Sections 2(24), 45, 56 – Compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitutes capital receipt as the property has gone into redevelopment
FACTS
During the course of appellate proceedings the CIT(A) found, on the basis of details forwarded by M/s Calvin Properties, that the assessee has been given compensation for alternative accommodation of Rs. 2,60,000 as per the terms of the Development Agreement. According to the CIT(A), the amount received was over and above the rent actually paid by the assessee and, therefore, the same has to be taxed accordingly. The CIT(A) having issued notice u/s 251(2) qua the proposed enhancement and considering the reply of the assessee that she received monthly rental compensation during the year aggregating to Rs. 2,60,000 for the alternative accommodation which is a compensation on account of her family displacement from the accommodation and tremendous hardship and inconvenience caused to her, the said compensation is towards meeting / overcoming the hardships and it is a capital receipt and therefore not liable to be taxed.
The assessee relied on the decision of the co-ordinate Bench in the case of Kushal K. Bangia vs. ITO in ITA No. 2349/Mum/2011 for A.Y. 2007-08 wherein the A.O. did not tax the displacement compensation as it was held to be a receipt not in the nature of income. The CIT(A) rejected the contentions of the assessee and enhanced the assessment to the extent of Rs. 2,60,000 by holding that the assessee has not paid any rent.
Aggrieved, the assessee preferred an appeal to the Tribunal.
HELD
The Tribunal held that compensation received by the assessee towards displacement in terms of the Development Agreement is not a revenue receipt and constitutes capital receipt as the property has gone into redevelopment. It observed that in a scenario where the property goes into redevelopment, 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. It observed that the case of the assessee is squarely supported by the decision of the co-ordinate Bench in the case of Devshi Lakhamshi Dedhia vs. ACIT ITA No. 5350/Mum/2012 wherein a similar issue has been decided in favour of the assessee. The Tribunal in that case held that the amounts received by the assessee as hardship compensation, rehabilitation compensation and for shifting are not liable to tax. Accordingly, the Tribunal set aside the findings of the CIT(A) and directed the A.O. to delete the addition made of Rs. 2,60,000.
