Compensation for Nuisance is Non-Taxable Capital Receipt: ITAT Mumbai

 

Recently, ITAT Mumbai in the case of Mohammed Fakhre Alam Shaikh -against an order passed by CIT(A)-52, Mumbai, for AY 2016-17, has held that compensation for Nuisance is Non-Taxable Capital Receipt.

Let us have a Short Overview of the case:

The assessee challenged the addition of Rs. 2.59 crores under Section 56(2)(vii)(b) and disallowance of deduction under Section 54F.

The assessee claimed he occupied a shed illegally on land developed by M/s. Neel Kamal Realtors. Through a court settlement, he was allotted a flat worth Rs. 2.59 crores as compensation, which he argued was a non-taxable capital receipt.

The AO contended the assessee was an illegal occupant not recognized by MCGM or MHADA. The flat was taxed under Section 56(2)(vii)(b) and deduction under Section 54F was disallowed, which CIT(A) upheld.

The Tribunal referred to Shri Kishre D.P. vs. ITO, where compensation for nuisance was considered a non-taxable capital receipt. It ruled the flat received by the assessee was compensation for nuisance, not taxable as income.

The appeal was allowed, and the Tribunal directed the AO to delete the addition of Rs. 2.59 crores. The decision was based on established principles and previous judgments on similar issues.

The Copy Of the order is as under: