In an assessee-friendly ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the compensation received from the builder for facing hardships on vacating the falt for redevelopment is not taxable under the Income Tax Act, 1961 as the same constitute “capital receipt.”
Assessee, Mr. Ajay Parasmal Kothari is an individual and dealing in shares, trading business and also receives commission and consultancy income. During the assessment proceedings, Assessing Officer observed from the capital account submitted by the assessee that assessee has shown a receipt of of ₹.3,73,191/- as a capital accounts receipt from the builders.
The assessee contended that he was having a flat in Satsang Bharti CHS Ltd., Malad (E), Mumbai and the said building has given for redevelopment and this amount is basically a monthly rental compensation from the builder for rent of alternate accommodation, which is a capital receipt and thus not taxable in the hands of the assessee.
After considering the facts of the case, a two-member ITAT comprising Shri Kuldip Singh, Judicial Member and Shri S. Rifaur Rahman, Accountant Member observed that the assessee has received ₹.3,73,191/- from the builder for alternate accommodation.
“However, assessee has not utilized these funds for any accommodation. However, he adjusted and lived with his parents. It clearly indicates that even though assessee has not utilized the rent received for his accommodation, however, he has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period,” ITAT held.
Relying on the ITAT decision in the case of Smt Delilah Raj Mansukhani v. ITO, the ITAT held that “the above receipt of compensation for hardship is in the nature of capital receipt. Accordingly, the addition made by the Assessing Officer is deleted.”
The assessee was represented by Shri Ashwin Chhagand the Department was represented by Shri Ashish Kumar Deharia.
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