Benefits received from Developer for Hardships caused on Redevelopment not subject to Income Tax: ITAT [Read Order]

The Indore bench of the Income Tax Appellate Tribunal (ITAT) has held that the amount of benefits received from the developer due to the hardships caused by the assessee on redevelopment is not subject to tax under the Income Tax Act, 1961.

During the assessment proceedings for the relevant year, the Assessing Officer asked regarding receipt of Hardship compensation of Rs.27,73,108/- from M/s DB MIG Realtors and Builders Pvt. Ltd. The assessee contended that he has not offered money receipt as Hardship Compensation for taxation for the relevant assessment year as Hardship Compensation for taxation is not a revenue receipt but a capital receipt. However, the AO did not accept the above contention of the assessee and treated that the compensation received by the assessee during the period under consideration as income of the assessee from other sources and charged to tax accordingly.

While considering the second appeal filed by the assessee, the Tribunal bench comprising Accountant Member Mr. Manish Borad and Judicial Member Mr. C M Garg relied on various decisions of the Tribunal wherein it was held that where the assessee being a flat owner in a housing society receives a certain sum from the developer as corpus fund towards hardship caused to flat owners on redevelopment, the 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.

Relying on the above orders in various cases, the Tribunal accepted the contention of the assessee and held that “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 the amount received as hardship allowance from the developer is a capital receipt, which cannot be treated as revenue receipt for taxing as income.”

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