Shri Kishre D. P Vs ITO (ITAT Mumbai)
In a case offering clarity on the tax treatment of compensation received by property owners for inconvenience caused by building work, the Income Tax Appellate Tribunal (ITAT), Mumbai bench, has ruled that such receipts are capital in nature and not taxable income. Also Read: Flat Allotment as Nuisance Compensation Is Capital Receipt, Not Taxable
The ruling came in the appeal filed by assessee Kishre D. P. against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2008-09. The central issue in the appeal was the taxability of an amount of ₹2,41,333 received by the assessee from a developer. This compensation was paid to the assessee, a flat owner in a building named “Kailas Jyot No. 2,” to offset the nuisance and inconvenience caused during the extension work undertaken by the developer on the building.
The Assessing Officer, in the original assessment order passed under Section 143(3) of the Income Tax Act, 1961, had treated this amount as casual income taxable under the head ‘Income from other sources’ under Section 56 of the Act. This treatment was subsequently upheld by the Commissioner of Income Tax (Appeals).
Before the ITAT, the assessee argued that the compensation received was a capital receipt directly related to the inconvenience faced due to the construction activities impacting their capital asset, the flat. As a capital receipt, it was contended, the amount should not be subject to income tax unless specifically made taxable by a provision of the Act, such as capital gains. The assessee asserted there was no transfer of any right or interest in the property that would trigger capital gains tax; hence the amount should be treated as a non-taxable capital receipt.
