Case Law Details
Snchalata Heramb Dhayagude Vs Jurisdictional AO Ward 16(3)(1) (ITAT Mumbai)
The appeal arose from the order of the Commissioner of Income Tax (Appeals) for AY 2018-19 sustaining an addition of ₹1,20,40,750 under Section 56(2)(x) of the Income Tax Act, 1961, representing the assessee’s 50% share of the stamp duty value of a Permanent Alternate Accommodation (PAA) allotted under a redevelopment agreement.
The assessee, a senior citizen and anesthesiologist, filed her return declaring total income of ₹16,10,510. She and her husband were co-tenants of premises at Savitri Niwas, Dadar, Mumbai. Pursuant to a redevelopment agreement dated 18.09.2017 with the developer, they became entitled to receive a residential flat on ownership basis as Permanent Alternate Accommodation in place of their existing tenanted premises. Pending completion of construction, they were entitled to temporary alternate accommodation and monthly rental compensation of ₹1,39,424. A corpus amount was also payable upon handing over possession of the PAA but was not received during the relevant year. The difference between rent received and rent paid for temporary accommodation amounting to ₹5,50,725 was offered to tax equally by the assessee and her husband. It was undisputed that possession of the PAA had not been handed over during the relevant previous year.
The Assessing Officer observed that the stamp duty value of the PAA exceeded the declared consideration, which was treated as nil, and invoked Section 56(2)(x). The AO treated the stamp duty value of the Savitri Niwas property at ₹2,40,81,500 and another redevelopment property, Bakul Niwas, at ₹47,07,000 as income from other sources, making an aggregate addition of ₹2,87,88,500.
On appeal, the CIT(A) deleted the addition relating to Bakul Niwas and also deleted 50% of the addition relating to Savitri Niwas, but sustained an addition of ₹1,20,40,750 representing the assessee’s 50% share in the stamp duty value of the Savitri Niwas property.
Before the Tribunal, the assessee contended that the stamp duty value represented consideration linked to tenancy rights, which were capital assets, and therefore could not be taxed as income from other sources. It was submitted that although tenancy rights, consideration, and the agreement existed, no transfer had taken place during the relevant year because Clause 13 of the redevelopment agreement provided that surrender of tenancy rights would occur only upon delivery of possession of the new premises. Since possession had not been handed over, the tenancy rights continued and no transfer within the meaning of Section 2(47) had occurred.
The assessee further argued that the transaction was not one of receipt without consideration because the Permanent Alternate Accommodation and corpus were to be received in exchange for valuable tenancy rights under reciprocal contractual obligations. Alternatively, it was submitted that even if Section 56(2)(x) were applicable, the essential condition of receipt of immovable property during the relevant previous year was absent because possession had not been delivered. It was also argued, without prejudice, that if the transaction were treated as a transfer, it would fall under the head “Capital Gains” and exemption under Section 54F would be available. The assessee also submitted that rent for temporary alternate accommodation and hardship compensation were not taxable.
The Departmental Representative relied upon the orders of the lower authorities.
The Tribunal examined Section 56(2)(x) and observed that its applicability depends upon the receipt of immovable property during the relevant previous year. The Tribunal held that the provision taxes receipt of immovable property without or for inadequate consideration and that the dispute turned on the interpretation of the word “receives.” According to the Tribunal, receipt of immovable property requires transfer of the right to use, occupy, and enjoy the property, ordinarily evidenced by possession or title.
The Tribunal noted that it was an admitted fact that possession of the Permanent Alternate Accommodation had not been handed over during AY 2018-19. Clause 13 of the redevelopment agreement expressly provided that surrender of tenancy rights would occur simultaneously with the assessee being put in possession or deemed possession of the Permanent Alternate Accommodation. The Tribunal held that this clause created a condition precedent, synchronising surrender of tenancy rights with delivery of possession of the new flat. Until possession was delivered, the tenancy rights remained in suspension and had not been extinguished or transferred under Section 2(47).
The Tribunal further observed that the redevelopment building was still under construction during AY 2018-19 and the assessee continued to occupy temporary alternate accommodation. It held that deeming provisions must be construed strictly and that a mere right to receive a property in the future, contingent upon completion of construction, does not amount to receipt of immovable property under Section 56(2)(x). It concluded that invoking Section 56(2)(x) on a notional or anticipatory basis without actual receipt of the property was contrary to the statutory language.
Accordingly, the Tribunal held that Section 56(2)(x) had been invoked prematurely and erroneously, deleted the addition of ₹1,20,40,750 sustained by the CIT(A), and allowed the appeal. In view of its decision on the primary issue, the Tribunal held that the alternative grounds, including the claim under Section 54F and the treatment of hardship compensation, had become academic and did not require adjudication.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is directed against order dated 24.11.2025, passed by the Learned Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for Assessment Year (in short ‘A.Y’) 2018-19, arising following grounds: –
“1. The learned Commissioner of Income Tax Appeals erred in not confirming the addition to the extent of Rs.1,20,40,750/ -u/s 56(2)(x) of the Income Tax Act, 1961 made by the learned AO, by a gross misunderstanding of fact and total misapplication of law.
2. The learned Commissioner of Income Tax Appeals erred in not appreciation that in terms of the agreement with developers that the appellant had not received the permanent alternate accommodation at anytime during the relevant previous year, and therefore the provisions of section 56(2)(x) were not attracted during the previous
3. Strictly in the alternative and without prejudice to above, the learned Commissioner of Income Tax Appeals erred in fact and law by confirming an addition of the stamp duty value said in the appellant’s total income without appreciating the fact that the stamp duty value is inclusive of rent compensation which has been duly offered to tax during the financial year.
4. Strictly in the alternative and without prejudice to above, if one takes the view that the transfer took place during the year under consideration and the same is exigible to tax then the computation would have to be made under the head “Capital Gains”, and the Appellant would be entitled to exemption u/s 54F, as the “consideration” sought to be taxed would have been fully reinvested in the permanent alternate accommodation.
5. Strictly in the alternative and without prejudice to the above, out of the stamp duty value sought to be taxed both rent for temporary alternate accommodation, and hardship compensation is not exigible to tax in terms of a number of judicial pronouncements, and consequently the learned Commissioner of Income Tax Appeals erred is confirming the addition to that extent.
6. The appellant previously to add alter or amend any of the grounds of appeal prior to or at the time of hear”
2. The central controversy involves an addition of ₹1,20,40,750/-sustained by the Ld. CIT(A) under Section 56(2)(x) of the Income Tax Act, 1961 (‘the Act’), representing the Assessee’s 50% share in the stamp duty value of a Permanent Alternate Accommodation (PAA) under a redevelopment agreement.
3. Briefly stated, facts of the case are that the assessee, a senior citizen and an anesthesiologist by profession, filed her return of income for the year under consideration on 31.07.2018 declaring a total income of ₹16,10,510/ -. The return was selected for scrutiny, and statutory notices issued under the Income-tax Act, 1961 (hereinafter referred to as “the Act”) were duly complied with.
3.1 During the course of assessment proceedings, it was observed that the assessee, along with her husband, was in occupation of premises being Room Nos. 10 and 11 on the 3rd Floor of Savitri Niwas, situated at Dadar Matunga Estate, Hindu Colony, Mumbai, admeasuring 1059.40 sq. ft. (carpet area), as co-tenants. The assessee claimed to have tenancy rights in said property along with her husband. The said property was subjected to redevelopment by M/s. Sugee Six Developers, pursuant to which the assessee and her husband, in lieu of their tenancy rights, became entitled to receive permanent alternate accommodation (PAA) on ownership basis
3.2 The terms governing the aforesaid arrangement were embodied in an agreement dated 18.09.2017 entered into with the developer. In terms thereof, 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.
3.3 Pending completion of construction, the assessee, jointly with her husband, was entitled to temporary alternate accommodation, along with monthly rental compensation of ₹1,39,424/ -. It was further stipulated that, upon handing over possession of the PAA, a corpus amount would also be paid, which, however, was not received during the year under consideration. The differential amount between rent received and rent paid for temporary accommodation, aggregating to ₹5,50,725/-, was duly offeed r to tax in equal proportion by the assessee and her husband. It is an admitted position that possession of the PAA was not handed over during the relevant previous year.
3.4 It is further noted that the assessee’s husband was also a tenant in another premises situated in the building, namely Bakul Niwas, in respect of which a separate redevelopment agreement was executed on 17.03.2016. Under the said agreement, the husband was entitled to receive PAA; however, the assessee was neither a party to the said agreement nor connected therewith. Further, even in respect of the said premises, possession of the alternate accommodation was not received either in the earlier year or during the year under consideration. In these circumstances, the assessee contended that no taxable event had arisen in the relevant previous year, either in her hands or in the hands of her husband.
3.5 The learned Assessing Officer invoked section 56(2)(x) of the Act and asked the assessee as why the difference in the market value of the property adopted by the Stamp Duty Value Authorities and the consideration recorded in the agreement should be treated as income of the assessee under “Income from Other Sources”.
3.6 The submissions of the assessee were considered but the Assessing Officer was not convinced. The Assessing Officer (AO) noted that the stamp duty value of the PAA significantly exceeded the declared consideration (which the AO perceived as nil). Invoking the deeming provisions of Section 56(2)(x), the AO treated the differential stamp duty value of property namely Savitri Niwas’ at Rs.2,40,81,500/- and another property namely ‘Bakul Niwas’ at Rs.47,07,000/- as “Income from Other Sources and added aggregating to Rs.2,8 7,88,500/- to the total income for the year under consideration.
4. On further appeal the learned CIT(A) partly allowed the appeal by deleting the addition of Rs.47,07,000/ – with respect to ‘Bakul Niwas’ property and deleting 50% of the addition amounting to Rs.1,20,40,750/- with respect to the ‘Savitri Niwas ’ property and sustained addition to the extent of Rs.1,20,40,750/ – to the extent of 50% share of the assessee’s property namely ‘Savitri Niwas ’.
5. Aggrieved, the assessee is in appeal before the Tribunal by way of raising the grounds as reproduced above.
6. Before us the learned counsel for the assessee filed a paper book containing pages 1 -49 comprising inter-alia copy of the agreement for permanent alternate accommodation on ownership basis in respect of ‘Savitri Niwas ’.
7. The learned counsel for the assessee assailed the order of the learned CIT(A) on multi fold counts
7.1 Firstly, it was contended that the value adopted for stamp duty purposes does not partake the character of a revenue receipt chargeable to tax under the head “Income from Other Sources”. It was submitted that the consideration received is intrinsically linked to a capital asset, namely, tenancy rights, and therefore assumes the character of a capital receipt. The learned counsel submitted that for a receipt to be brought to tax under the head “Capital Gains”, the essential conditions must be satisfied, viz., (i) existence of a capital asset, (ii) transfer of such asset, (iii) consideration for such transfer, and (iv) such transfer taking place during the relevant previous year.
7.1.1 It was further submitted that while the first three conditions stand satisfied, inasmuch as tenancy rights constitute a valuable property and hence a capital asset, and the same were agreed to be surrendered in consideration of permanent alternate accommodation (PAA) and corpus compensation, the fourth condition remains unfulfilled. But as far as the fourth condition is concerned, the learned counsel for the assessee referred to clause 13 of the agreement and submitted that the surrender of tenancy rights was contractually stipulated to take effect only upon the assessee being put in possession of the new premises. It was emphasized that, admittedly, no such possession was handed over during the year under consideration. Consequently, the assessee continued to hold tenancy rights in the original premises. It was argued that, at best, the rights of the assessee stood in abeyance during the interregnum period and were not extinguished. In the event of failure of the redevelopment project, such rights would stand revived. On this basis, it was contended that no “transfer” within the meaning of section 2(47) of the Act had taken place during the relevant year, and therefore no capital gains could be said to have accrued.
7.2 Secondly, it was submitted that the transaction in question was not one of receipt without consideration. The PAA and the corpus amount were received in lieu of surrender of valuable tenancy rights, and thus constituted consideration flowing from the assessee to the developer. The arrangement, being contractual in nature, imposed reciprocal obligations on both parties. It was argued that there was no element of gratuitous receipt, and therefore, the provisions of section 56(2)(x) of the Act were inapplicable at the threshold.
7.3 Thirdly , and in the alternative, it was contended that even assuming section 56(2)(x) to be applicable, the fundamental condition of “receipt” of immovable property during the year was not satisfied, as possession of the PAA had not been handed over during the relevant previous year.
7.4 Lastly, without prejudice, it was further submitted that if the transaction were to be regarded as a “transfer” exigible to tax, the same would fall for consideration under the head “Capital Gains”, in which event the assessee would be entitled to exemption under section 54F of the Act, thereby resulting in no taxable liability.
7.5 It was also contended that the rent received towards temporary alternate accommodation and hardship compensation is not exigible to tax in view of settled judicial precedents.
8. On the other hand the learned DR relied on the order of the Lower Authority.
9. We have heard rival submissions of the parties and perused the relevant material on record. The AO has made addition invoking section 56(2)(x) of the Act, holding that assessee received immovable property during the year under consideration without any consideration and accordingly he assessed the stamp duty valuation of the property, one half of the share of which has been sustained by the learned CIT(A). For ready reference provision of section 56(2)(x) is reproduced as under:-
“X) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017, —
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property, — ”
A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;”
9.1 A plain reading of section 56(2)(x) makes it abundantly clear that the sine qua non for its applicability is the “receipt” of immovable property during the relevant previous year. The charge under the said provision is triggered only when such receipt takes place without consideration or for inadequate consideration. Therefore, the resolution of dispute in the case of assessee rests on the interpretation of the word “receives” as appearing in Section 56(2)(x). The Section 56(2)(x) is a deeming provision that taxes the “receipt” of any sum of money or immovable property without adequate consideration. For an immovable property to be “received,” there must be a transfer of the right to use, occupy, and enjoy the property, typically evidenced by possession or a title deed.
9.2 In the present case, it is an admitted and undisputed fact that the assessee has not received possession of the permanent alternate accommodation during the year under consideration. The agreement itself clearly stipulates that the surrender of tenancy rights would take effect only upon the assessee being placed in possession of the new premises. Thus, till such possession is handed over, the tenancy rights cannot be said to have been extinguished or transferred in terms of section 2(47) of the Act. At best, the rights of the assessee remain in a state of suspension and not cessation. We have perused Clause 13 of the PAA Agreement, which states as under: –
“13. The Tenant shall in consideration of being provided with the Permanent Alternate Accommodation on ownership basis and simultaneously of being put in possession/deemed possession of the said Permanent/alternate Accommodation, shall be deemed to have surrendered the tenancy rights of the said Existing Premises to the Developer and after that the Tenant shall have no claim against the Developer in respect of the said tenancy right of the said Existing Premises except the entitlement to the new ownership Flat as specified above.”
9.3 This clause establishes a “condition precedent.” The surrender of the old right and the acquisition of the new right are synchronized with the handing over of possession. So the immovable property i.e. a Flat in the Savitri Niwas was to be received on completion of the said building. It is an undisputed fact that during AY 2018 -19, the building was still under construction. The Assessee continued to reside in temporary alternate accommodation. Deeming provisions must be construed strictly. One cannot “receive” a flat that does not exist in a habitable state. A mere right to receive a property in the future—contingent upon the completion of construction—does not equate to the “receipt of immovable property” as contemplated u/s 56(2)(x ). The approach of the lower authorities in invoking section 56(2)(x) on a notional or anticipatory basis, without actual receipt of property, is contrary to the plain language of the statute.
9.4 In light of the above, we hold that the provisions of Section 56(2)(x) were prematurely and erroneously invoked. There was no receipt of immovable property during the previous year relevant to AY 2018-19. Thus, the addition sustained by the learned CIT(A) stands deleted. Consequently, the addition of ₹1,20,40,750/-sustained by the Ld. CIT(A) is hereby deleted. As the primary issue is decided in favor of the Assessee, the alternative grounds (including claims u/s 54F and treatment of hardship compensation) are rendered academic and do not require adjudication.
10. In the result the appeal of the assessee is allowed.
Order pronounced in the open Court on 21/04 /2026.
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