2021 (3) TMI 252 - AT - Income Tax

Nature of receipt - Compensation received by the assessee towards displacement in terms of Development Agreement - revenue receipt OR capital receipt as the property has gone into re-development - HELD THAT - We find that compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re-development. In such scenario, the compensation is normally paid by the builder on account of hardship faced by owner of the flat due to displacement of the occupants of the flat. The said payment is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax. We set aside the findings of the ld. CIT(A) on this issue and direct the AO to delete the addition made.

Summary

Issues:
1. Enhancement of assessment on account of rental income for alternate accommodation of ?2,60,000 by CIT(A).
2. Jurisdiction of CIT(A) to enhance income of the assessee by ?2,60,000.

Analysis:
1. The appeal was filed against the CIT(A)'s order enhancing the assessment on account of rental income for alternate accommodation of ?2,60,000. The Co-ordinate Bench initially decided the appeal but omitted to adjudicate on grounds 5 & 6. The assessee filed a Miscellaneous Application which was allowed to address the omitted grounds. Ground 5 challenged the enhancement as bad in law, while ground 6 challenged the assessment holding the rent received for alternate accommodation as taxable. The CIT(A) found that the compensation received by the assessee was over and above the rent paid, leading to the enhancement. The assessee argued that the compensation was for family displacement and hardship, a capital receipt not liable for tax. The ITAT held that the compensation was a capital receipt due to property redevelopment, akin to hardship or rehabilitation allowance, following a similar decision by a Co-ordinate Bench in another case.

2. The ITAT analyzed the compensation received by the assessee for property redevelopment, considering elements like hardship, rehabilitation, and shifting. Referring to a Co-ordinate Bench decision in a similar case, the ITAT concluded that such compensation is not taxable. The ITAT reversed the CIT(A)'s decision, allowing the appeal partly and directing the AO to delete the addition of ?2,60,000. As the issue was decided on merit, the jurisdictional aspect of the CIT(A) to enhance the income was not addressed. The ITAT modified the previous order to reflect the decision, allowing the appeal in part.

In conclusion, the ITAT ruled in favor of the assessee, holding that the compensation received for alternate accommodation due to property redevelopment was a capital receipt and not taxable. The decision was based on the nature of the compensation as a hardship or rehabilitation allowance, following a precedent set by a Co-ordinate Bench. The ITAT directed the AO to delete the addition of ?2,60,000, allowing the appeal in part and modifying the previous order accordingly.