2024 (1) TMI 599 - AT - Income Tax

Nature of receipt - receipt of compensation - capital receipt or income from other sources - assessee submitted that he has received certain sum from the developer as the shifting compensation - compensation received by the assessee which is the corpus amount payable by the developer a compensation payable by the developer to the individual members to meet the expenses for shifting / re-shifting and compensation to the individual members to meet the cost for temporary transit accommodation to be arranged by the individual members during the period of construction of the proposed building HELD THAT - It is fact on record that assessee has entered into development agreement through the society and only due to the fact that the assessee being member and consigning party to the re-development Agreement, assessee was compensated with the shifting compensation for personal belongings as well as accommodation for an initial period of 24 months including corpus amount. It clearly shows that the above payments made by the developer only to compensate the assessee towards the shifting as well as the additional burden on the corpus funds. Therefore, it clearly shows that it is a compensation towards hardship faced by the assessee. As relying on Smt Delilah Raj Mansukhani 2021 (3) TMI 252 - ITAT MUMBAI we are inclined to agree with the submissions of the Ld. AR of the assessee and hold that the above receipt of compensation for hardship is in the nature of capital receipt. Further, we observe that assessee has submitted that the corpus fund received by her was already declared as additional income subsequently on receipt basis in A.Y. 2015-16. Therefore, we direct the AO to verify the same and if it is found proper, the addition on corpus fund may be deleted. Accordingly, the addition made by the AO is deleted. Ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Taxability of compensation received from the developer.
2. Nature of the compensation received (capital receipt vs. revenue receipt).
3. Validity of the notice under Section 148 of the Income-tax Act, 1961.
4. Levy of interest under Sections 234B and 234C.

Summary:

1. Taxability of Compensation Received from the Developer:
The assessee received Rs. 52,88,045 from a developer as part of a redevelopment agreement. The Assessing Officer (AO) reopened the case under Section 148 of the Income-tax Act, 1961, and treated the entire amount as taxable income. The AO argued that the compensation was in the nature of dividends and thus taxable under "income from other sources."

2. Nature of the Compensation Received (Capital Receipt vs. Revenue Receipt):
The AO held that the compensation received by the assessee was a revenue receipt, taxable as income from other sources. The AO's reasoning was based on the fact that the compensation was routed through the cooperative housing society, which he considered a commercial activity. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, stating that the compensation was a diversion of funds and a colorable device to avoid taxation.

3. Validity of the Notice Under Section 148:
The assessee challenged the validity of the notice issued under Section 148, arguing that the reassessment proceedings were bad in law. However, the Tribunal did not specifically address this issue in its final judgment.

4. Levy of Interest Under Sections 234B and 234C:
The assessee also contested the levy of interest under Sections 234B and 234C. The Tribunal did not specifically address this issue in its final judgment.

Tribunal's Decision:
The Tribunal observed that the compensation received by the assessee was for hardship faced due to displacement and was in the nature of a capital receipt. The Tribunal relied on previous decisions, such as Smt Delilah Raj Mansukhani v. ITO and Shri Devshi Lakhamshi Dedhia vs. ACIT, which held that compensation for hardship is not liable to tax. The Tribunal directed the AO to verify if the corpus fund received by the assessee was already declared as additional income in a subsequent assessment year and to delete the addition if found proper.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal held that the compensation received for hardship is a capital receipt and not taxable. The AO was directed to verify the declaration of the corpus fund and delete the addition accordingly.