Case Law Details
Snchalata Heramb Dhayagude Vs Jurisdictional AO (ITAT Mumbai)
Section 56(2)(x) Cannot Apply Because No Immovable Property Was Actually Received During the Year; No Tax Under Section 56(2)(x) Because Right to Future Flat Is Not Equal to Receipt of Property; Redevelopment Flat Not Taxable Under Section 56(2)(x) Because Possession Was Not Handed Over; Stamp Duty Value Addition Fails Because Receipt of Alternate Accommodation Had Not Occurred; Section 56(2)(x) Addition Deleted Because Possession Is Essential to Constitute Receipt of Immovable Property; Tax on Redevelopment Accommodation Held Premature Because Property Was Not in Habitable State.
The appeal before the Income Tax Appellate Tribunal, Mumbai Bench, concerned the taxability under section 56(2)(x) of the Income-tax Act, 1961, of the stamp duty value of a Permanent Alternate Accommodation (PAA) allotted under a redevelopment agreement. The central dispute related to an addition of ₹1,20,40,750 sustained by the Commissioner of Income-tax (Appeals), representing the assessee’s 50% share in the stamp duty value of the PAA.
The assessee, a senior citizen and an anesthesiologist by profession, filed her return of income for Assessment Year 2018-19 declaring total income of ₹16,10,510. During scrutiny assessment proceedings, it was observed that the assessee, along with her husband, occupied premises in Savitri Niwas at Dadar, Mumbai, measuring 1059.40 sq. ft. carpet area, as co-tenants, and claimed tenancy rights in the said property. The property was subjected to redevelopment by a developer, pursuant to which the assessee and her husband became entitled to receive permanent alternate accommodation on ownership basis in lieu of surrender of their tenancy rights.
The arrangement was governed by an agreement dated 18 September 2017. Under its terms, the assessee and her husband were to receive a residential unit admeasuring 1525.47 sq. ft. carpet area on ownership basis in substitution of their existing tenanted premises. Pending completion of construction, they were entitled to temporary alternate accommodation along with monthly rental compensation of ₹1,39,424. The agreement further provided that upon handing over possession of the PAA, a corpus amount would also be paid, though this was not received during the relevant year. The differential amount between rent received and rent paid for temporary accommodation, aggregating to ₹5,50,725, was offered to tax equally by the assessee and her husband. It was undisputed that possession of the PAA was not handed over during the relevant previous year.
The Assessing Officer invoked section 56(2)(x) and asked why the difference between the stamp duty value adopted by stamp authorities and the consideration recorded in the agreement should not be taxed as income under the head “Income from Other Sources.” The Assessing Officer viewed the consideration as nil and held that the stamp duty value significantly exceeded such consideration. Applying section 56(2)(x), the Assessing Officer treated the differential stamp duty value of Savitri Niwas property at ₹2,40,81,500 and another property at ₹47,07,000 as income from other sources, aggregating to ₹2,87,88,500 added to total income. On appeal, the Commissioner (Appeals) deleted the addition relating to the other property and also deleted 50% of the addition relating to Savitri Niwas, but sustained ₹1,20,40,750 representing the assessee’s 50% share in Savitri Niwas property.
Before the Tribunal, the assessee challenged the sustained addition on several grounds. It was argued that the value adopted for stamp duty purposes did not constitute a revenue receipt chargeable under “Income from Other Sources,” since the consideration received was intrinsically linked to tenancy rights, which constituted a capital asset, and therefore assumed the character of a capital receipt. It was further submitted that although tenancy rights were agreed to be surrendered in consideration of permanent alternate accommodation and corpus compensation, the contractual surrender of tenancy rights was to take effect only upon possession of the new premises being handed over. Since no such possession had been handed over during the relevant year, the assessee continued to hold tenancy rights in the original premises. At best, those rights stood in abeyance and were not extinguished. It was therefore contended that no transfer had taken place during the year.
It was also argued that the transaction was not one of receipt without consideration. The PAA and corpus amount were to be received in lieu of surrender of valuable tenancy rights and therefore constituted consideration flowing from the assessee to the developer under a contractual arrangement involving reciprocal obligations. Consequently, section 56(2)(x), which applies to receipt without consideration or inadequate consideration, was stated to be inapplicable. Alternatively, it was submitted that even if section 56(2)(x) were assumed applicable, the essential condition of “receipt” of immovable property during the relevant previous year was not fulfilled, as possession of the PAA had not been handed over.
The Tribunal examined section 56(2)(x) and held that the sine qua non for its applicability is the “receipt” of immovable property during the relevant previous year. The charge under the provision is triggered only when such receipt takes place without consideration or for inadequate consideration. The dispute therefore turned on the interpretation of the word “receives.” The Tribunal observed that for immovable property to be “received,” there must be transfer of the right to use, occupy and enjoy the property, typically evidenced by possession or title deed.
Applying this interpretation, the Tribunal noted that it was an admitted and undisputed fact that the assessee had not received possession of the permanent alternate accommodation during the year under consideration. The agreement specifically provided that surrender of tenancy rights would take effect only upon the assessee being put in possession or deemed possession of the new premises. Until such possession was handed over, tenancy rights could not be regarded as extinguished or transferred. At best, the assessee’s rights remained in suspension and not cessation. The Tribunal described this contractual clause as establishing a condition precedent, synchronizing surrender of old rights and acquisition of new rights with handing over of possession.
The Tribunal further observed that during Assessment Year 2018-19, the building was still under construction and the assessee continued to reside in temporary alternate accommodation. A mere right to receive property in the future, contingent on completion of construction, did not amount to “receipt of immovable property” as contemplated under section 56(2)(x). The Tribunal held that one cannot be said to have received a flat that does not exist in a habitable state. It found that invoking section 56(2)(x) on a notional or anticipatory basis, without actual receipt of property, was contrary to the plain language of the statute.
In view of these findings, the Tribunal held that section 56(2)(x) had been prematurely and erroneously invoked, since there was no receipt of immovable property during the relevant previous year. Accordingly, the sustained addition of ₹1,20,40,750 was deleted. Since the primary issue was decided in favour of the assessee, the Tribunal did not adjudicate the alternative grounds relating to exemption under section 54F and taxability of hardship compensation. The appeal was allowed.
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