Taxation of amount received from development pursuant to redevelopment agreement
Here is a ruling by Mumbai ITAT which may be relevant in determining the taxation of amount received as a result of redevelopment agreement with the developer.
Income Tax Appellate Tribunal – Mumbai
Pradyot B. Borkar, Mumbai vs Acit 19(3), Mumbai on 17 January, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
“D” BENCH, MUMBAI
BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND
SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
ITA no.4070/Mum./2016
(Assessment Year : 2011-12)
Pradyot B. Borkar
179-C, MIG Colony
……………. Appellant
Bandra (E), Mumbai 400 051
PAN – AADPB2722R
v/s
Asstt. Commissioner of Income Tax
……………. Respondent
Circle-19(3), Mumbai
Assessee by : Shri Subhash Ratnaparkhi
Revenue by : Smt. Jothilakshmi Nayak
Date of Hearing – 06.01.2020 Date of Order – 17.01.2020
ORDER
PER SAKTIJIT DEY, J.M.
The aforesaid appeal has been filed by the assessee challenging order dated 14th March 2016, passed by the learned Commissioner of Income Tax (Appeals)-33, Mumbai, pertaining to the assessment year 2011-12.
- The dispute in the present appeal is confined to the addition of Rs. 53,80,500, under the head “Income From Other Sources”.
Pradyot B. Borkar
- Brief facts are, the assessee is an individual. For the assessment year under dispute, the assessee filed his return of income on 5 th April 2012, declaring total income of Rs. 32,30,000. During the assessment proceedings, the Assessing Officer noticing that the assessee has offered long term capital gain of Rs. 31,12,638, towards sale of residential flats at C-20, 179, MIG, Bandra, Mumbai, and has simultaneously claimed deduction under section 54 of the Income Tax Act, 1961 (for short “the Act”), called upon the assessee to furnish all relevant details relating to the accrual of capital gain. After considering the details furnished by the assessee, the Assessing Officer found that the assessee was owning a flat in the housing society which was given for development under a scheme of re-development. As per the terms of the development agreement between the housing society and members of the society, in addition to receiving a new residential flat after re-development each member was also entitled to receive an amount of Rs. 53,80,500, comprising of the following:-
Compensation for non-adherence by the re-developer to the earlier Rs. 25,00,000 agreed terms and that the member should be required to vacate the old flat.
Beneficial right and interest in corpus and income of the society and Rs. 28,50,500 nuisance annoyance and hardship that will be suffered by the members during the development.
Rs. 30,000 Moving of shifting cost
- The Assessing Officer, after examining the nature of payment received by the assessee, was of the view that none of the aforesaid amounts was paid to the assessee for acquisition of the old flat, but was paid towards compensation. Therefore, the amount received is not any way related to transfer of capital asset giving rise to capital gain.
Thus, ultimately, he concluded that the amount of Rs. 53,30,500, has to be assessed under the head “Income From Other Sources”. The assessee challenged the aforesaid addition before the first appellate authority.
- Before learned Commissioner (Appeals), the assessee without prejudice to his submission that the amount of Rs. 53,50,500, is assessable under the head “Long Term Capital Gain”, submitted that the amount of Rs. 53,50,500, is in the nature of capital receipt, hence, not liable to tax. Therefore, has to be reduced from the cost of the new flat. Learned Commissioner (Appeals), however, did not find merit in any of the submissions made by the assessee and accordingly confirmed the addition made by the Assessing Officer.
- The learned Authorised Representative submitted, the amount of Rs. 53,50,500, was received by the assessee on account of handing over the old flat for the purpose of re-development and in lieu, each of the members of the housing society is to receive a new flat and an amount of Rs 53,50,000. He submitted, thus it is very much clear that the amount of Rs 53,50,500, was received in connection with the handing over of the old flat for re-development in lieu of which the assessee received the new flat. Thus, it is connected to the transfer of capital asset, hence, chargeable to capital gain. Without prejudice, he submitted, in case the Revenue treats the amount received as compensation, it has to be treated as a capital receipt not chargeable to tax, hence, has to be reduced from the cost of new flat. In support of such contention, he relied upon the following decisions:-
- i) Kaushal K. Bangia v/s ITO, [2012] 18com31 (Mum.);
- ii) Jitendra Kumar Soneja v/s ITO, [2016] 72com318 (Mum.) (Trib.); and
iii) Rajnikant D. Shroff v/s ACIT, ITA no.4424/M./2014, dated 23.09.2016.
- The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals) submitted, the development agreement was between the housing society and the developer and as per the terms of the development agreement, any capital gain accruing as a result of re- development is to be assessed at the hands of the housing society. She submitted, the compensation received by the members of housing society is in no way connected to the accrual of capital gain and is a completely distinct and separate payment made to the members due to certain other factors. Therefore, it cannot be considered as capital gain. Further, she submitted, the claim of the assessee that it is in the nature of capital receipt is also not acceptable in view of the reasoning of learned Commissioner (Appeals).
- We have considered rival submissions in the light of the decisions relied upon and perused the material on record. Undisputedly, in the return of income the assessee has offered the amount of Rs 53,50,500, as income from long term capital gain. Whereas, the Assessing Officer has held that the aforesaid amount received by the assessee is in the nature of compensation received due to some specific factors and not related to transfer of capital asset. He has observed that as per the terms of the development agreement, any capital gain arising due to re-development would accrue to the housing society. Therefore, the compensation received of Rs. 53,50,500, cannot be treated as capital gain. From the facts on record, it is clear that the amount of Rs.53,50,500 was received by the assessee only because of handing over the old flat for the purpose of re-development. Therefore, the amount of Rs. 53,50,500, received by the assessee is integrally connected with the transfer of his old flat to the developer for re- development in lieu of which he received the amount of Rs. 53,50,500, and a new residential flat. Therefore, the amount of Rs. 53,50,500, has to be treated as income under the head “Capital Gain”. The decision of the Co-ordinate Bench in Rajnikant D. Shroff v/s ACIT, ITA no.4424/Mum./ 2014, dated 23rd September 2016, supports this view. In view of the aforesaid, we hold that the amount of Rs. 53,50,500, has to be assessed under the head “Capital Gain”. It is relevant to observe, in course of hearing the learned Authorised Representative has submitted before us that in case assessee’s claim that the amount of Rs. 53,50,500 is assessable under the head “Capital Gain”, is accepted, the alternative claim that the amount is in the nature of capital receipt, hence, not taxable would not be contested. Considering the aforesaid submission of the learned Authorised Representative, we do not find the necessity to deliberate on the nature of receipt.
- In the result, assessee’s appeal is partly allowed.
Order pronounced in the open Court on 17.01.2020 Sd/- Sd/-
RAJESH KUMAR SAKTIJIT DEY
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 17.01.2020
Copy of the order forwarded to:
(1) The Assessee;
(2) The Revenue;
(3) The CIT(A);
(4) The CIT, Mumbai City concerned;
(5) The DR, ITAT, Mumbai;
(6) Guard file.
True Copy
By Order
Pradeep J. Chowdhury
Sr. Private Secretary
Assistant Registrar
ITAT, Mumbai
