Recently in a case, the Income Tax Appellate Tribunal (ITAT) of Mumbai held that hardship and rehabilitation allowances received from housing developers as compensation for the hardship endured due to dispossession cannot be taxed as revenue receipt.
The assessee, Sonal Samit Vartak, did not file any return of income for the Financial Year (FY) 2010-11
The Assessing Officer (AO) received information that the assessee being member of MIG Co-op Housing Society Ltd., had received a payment of Rs. 25,21,508/- during the F.Y. 2010-11 from D.B. MIG Realtors and Builders when that co-operative society has gone for re-development.
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Consequently, Notice under section 148 of Income Tax Act 1961 (ITA) was issued to the assessee. The Assessee, in response, submitted that the above sum was hardship allowance received from the builder.
She also submitted the development agreement between the co-operative housing society and the builder. The AO questioned this, as according to him the above amount is not exempt from tax.
The assessee further submitted that it was a capital receipt and relied upon several judicial precedents to justify the same.
However, the AO rejected the submissions and made the addition of the amount. The total income of the assessee was assessed at Rs. 25,16,780/- by re-assessment order passed under section 143(3) read with section 147 of ITA by order dated 17.12.2018.
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Aggrieved, the assessee appealed against the order before the Commissioner of Income Tax (Appeals) [CIT (A)].
However, the CIT(A) held that the assessee wrongly claimed the compensation received as capital receipt and accordingly, dismissed the appeal.
Aggrieved again, the assessee appealed against the aforementioned decision before the ITAT.
Before the tribunal, the assessee submitted that the issue was squarely covered in favor of the assessee by the decision of the Bombay High Court in the case of Sarfaraz S. Furniturewalla dated 15.04.2024, wherein it was held that the hardship allowance paid by the developer is not to be considered, or to be taxed as revenue receipt.
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After examining the facts of the case, the single bench of Mr Prashant Maharishi reiterated the Bombay High Court’s ruling in the case of Sarfaraz S. Furniturewalla.
The tribunal observed that it was an undisputed fact that the assessee did in fact, received the hardship allowance from the developer and hence, the amount of hardship allowance received by the assessee of Rs. 25,21,508/- was not held as the income of the assessee.
Therefore, respectfully following the decision of the Bombay High Court, the Tribunal directed the AO to delete the addition of Rs. 25,21,508/- made in the hands of the assessee.
In the result, the appeal filed by the assessee was allowed.
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