No Income Tax Payable on New Flat Received in Exchange for Old One: ITAT deletes Addition u/s 56(2)(x) [Read Order]

In a recent ruling, The Income Tax Appellate Tribunal ( ITAT ) of Mumbai ruled that income tax is not applicable under Section 56(2)(x) of the Income Tax Act, 1961, where a new flat is received in exchange for an old one as part of a redevelopment project. The bench deleted additions made by the authorities.

The assessee, Anil Dattaram Pitale had originally purchased a flat—Flat No. C-5/28 in Mahavir Nagar Tristar Co-operative Housing Society—during the financial year 1997–98. Subsequently, the housing society entered into a redevelopment agreement with a developer. As per the terms of the redevelopment, the assessee surrendered his old flat and received a new flat—Flat No. B-1102—through a registered agreement dated December 26, 2017. The stamp duty value of the new flat was determined to be ₹25,17,700, while the indexed cost of acquisition of the old flat stood at ₹5,43,040.

Don’t Let Your Income Get Clubbed! Understand the hidden rules now, Click here

The Assessing Officer treated the difference between these two amounts i.e., ₹19,74,660 as taxable income under Section 56(2)(x), which deals with the receipt of immovable property for inadequate consideration. This view was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The bench of Sandeep Gosani and B.R. Baskaran heard both sides. The Tribunal noted that the new flat was received strictly in lieu of the old flat, surrendered as part of the redevelopment agreement. The transaction, therefore, constituted an exchange, more specifically, the extinguishment of rights in the old flat in consideration for the allotment of the new one. As such, it did not fall within the ambit of "receipt of property for inadequate consideration" envisaged under Section 56(2)(x).

Don’t Let Your Income Get Clubbed! Understand the hidden rules now, Click here

The Tribunal further observed that, at best, the transaction may attract the provisions relating to capital gains, wherein the assessee would be eligible for exemption under Section 54 of the Act, subject to fulfillment of specified conditions. In such a scenario, no tax liability would arise.

The bench decided that the tax authorities had erred in applying Section 56(2)(x) to the present case, the Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates