Subhash Suryakant Phadkar Vs ITO (ITAT Mumbai)
ITAT Mumbai Holds Redevelopment Compensation / Hardship Allowance as Capital Receipt, Not Taxable as Income
The Mumbai ITAT allowed the assessee’s appeal and held that compensation of ₹53.50 lakh received from a developer in connection with redevelopment of a residential flat constitutes a capital receipt, not chargeable to tax as “income from other sources.” The amount comprised ₹25 lakh paid as compensation for the developer’s failure to adhere to agreed redevelopment terms and ₹28.50 lakh towards members’ beneficial rights, corpus interest, and hardship/nuisance suffered due to displacement during redevelopment.
The Assessing Officer had taxed the entire receipt as income from other sources under section 56, which was summarily upheld by the CIT(A). The Tribunal observed that the CIT(A) failed to pass a reasoned order and ignored binding judicial precedents. Relying on decisions of the Bombay High Court and coordinate benches, the ITAT reiterated that redevelopment-related compensation, hardship allowance, transit rent, or rehabilitation allowance paid for displacement and inconvenience is capital in nature and not taxable.
Accordingly, the ITAT set aside the orders of the lower authorities and directed deletion of the entire addition, holding that such redevelopment compensation cannot be brought to tax merely because it is not expressly exempt under section 10
FULL TEXT OF THE ORDER OF ITAT MUMBAI
