Redevelopment Agreement: Benefit received by Flat Owner in Society from developer on redevelopment is not taxable

Redevelopment Agreement: Benefit received by Flat Owner in Society from developer on redevelopment is not taxable

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Redevelopment Agreement: Benefit received by Flat Owner in Society from developer on redevelopment is not taxable

Redevelopment of the housing scheme is the latest trend with reference to old buildings and flats.
Here is an interesting case before ITAT Indore in Lawrence Rebello Vs ITO – ITA No.132/Ind/2020 wherein the ITAT observed as under: 
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, 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 simpliciter 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 the 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.
The case is an interesting one and one may refer
ITAT Indore
Lawrence Rebello Vs ITO
ITA No.132/Ind/2020

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