The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that Hardship Allowance received by assessee from Developer as ‘compensation towards displacement’ is not a ‘revenue receipt’ . The bench held that the hardship compensation is a ‘capital receipt.
The assessee, Monica Parmanand Mirchandani is an individual and is a tuition teacher by profession and had filed her return of income for the year under consideration, declaring total income at Rs.2,77,800/- as ‘income from other sources’. The assessee’s case was reopened vide notice under section 148 of the Act dated 29.03.2019 and the assessee had filed her return of income on 16.04.2019, pursuant to the said notice and had declared the same income as that of her returned income. The assessee was issued and served notices under section 143(2) and 142(1) of the Act.
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The Assessing Officer (‘A.O.’) had passed the assessment order under section 143(3) r.w.s. 147 of the Act on 30.11.2019, determining total income at Rs.74,12,272/-, after making an addition of Rs.71,34,472/- on the amount received from DB MIG Realtors & Builders Pvt. Ltd. as ‘revenue receipt’. The assessee filed appeal before the first appellate authority who upheld the addition made by the A.O. on the ground that the assessee has failed to prove the source of the said receipt. The assessee challenged the order of the CIT(A).
The Authorised Representative ( AR ) for the assessee contended that the Middle Income Group Housing Society Ltd. consisting of 176 members had entered into a development agreement with DB MIG Builders & Pvt. Ltd., wherein the existing apartments of the members of the society will be rebuilt by the developer after duly vacating the existing members who were to hand over the vacant position to the developer for reconstruction of the housing society.
Further stated that as per the said agreement, hardship compensation was to be paid by the developers to all the residents of the society where the assessee also received the first installment during A.Y. 2012-13 and due to the delay in commencement of the project, there was modification of the said agreement. As per the modified terms and condition, the balance hardship compensation was to be received by the members of the society in seven installments.
Departmental Representative (DR), on the other hand, controverted the said fact that the hardship compensation should have been received by the assessee as onetime payment, whereas in the present case in hand, the assessee has received the hardship compensation in three years ranging from A.Ys. 2012-13, 2015-16 & 2016-17.
The question to be adjudicated is whether the amount received by the assessee from the developer is in the nature of hardship compensation and if so whether the same is ‘capital receipt’ or ‘revenue receipt’.
The dispute was only related to the nature of receipt as ‘revenue receipt’ and has not brought anything on record to show that the amount received by the assessee from the builder is anything other than the hardship compensation.
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In light of the various other decisions of the co-ordinate bench , the two member bench of Ms. Kavitha Rajagopal, JM and Girish Agrawal, AM viewed that the hardship compensation is nothing but a ‘capital receipt’ which is towards the hardship caused to the assessee as the name suggests, due to the displacement which is inevitable during redevelopment of the property where the developer compensates the assessee. The terms and conditions of the payment of such transit rent/displacement allowance/rehabilitation allowance depends upon the terms and conditions of the development agreement entered into by the developer and the assessee. While allowing the appeal, the bench held that the hardship compensation is a ‘capital receipt’ and directed the A.O. to delete the addition made in the hands of the assessee in respect of the same. IMahavir Atal appeared for the assessee and Mahita Nair appeared for the respondent.
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