2024 (2) TMI 451 - AT - Income Tax

Nature of receipt - compensation for displacement in terms of re-development agreement as Hardship Compensation - surrender of flats by members pursuant to the re-development agreement of the society - as per AO action of the housing society handing over payment from builder to the individual member/assessee was not in accordance with the Principle of Mutuality since the same was received from the developer (a third party) - Treating the Hardship Compensation Fund as Dividend Income received from the residential society - According to the assessee, the amount received was in the nature of capital receipt and not as such taxable in the hands of the assessee it is nothing but rehabilitation allowance and constitutes capital receipt as the property has gone into re-development HELD THAT - We find that Co-ordinate Bench of this Tribunal in the case of Kushal K. Bangia 2012 (2) TMI 29 - ITAT MUMBAI have answered the question in favour of the assessee by holding it to be capital receipt not liable to tax. Hardship Compensation given to the assessee pursuant to the re-development agreement is a capital receipt and cannot be treated as revenue receipt as held by the AO/Ld. CIT(A). The reliance placed by AO/Ld. CIT(A) on the case law of the Hon ble Supreme Court in the case of M/s. Bangalore Club v CIT 2006 (7) TMI 146 - KARNATAKA HIGH COURT is not relevant on the issue in hand. Therefore, the AO/Ld. CIT(A) erred in law holding that hardship compensation received by the assessee from the builder was in nature of the dividend in the hands of the assessee/member of the housing society - the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account when occasion arises for computing capital gains in respect of the said asset. Appeal of assessee is allowed.

Summary

Issues involved: Appeal against addition of Hardship Compensation Fund as "Dividend Income" by Ld. CIT(A) for assessment year 2011-12.

Summary:
The appellant, an individual (Retired Person), appealed against the Ld. CIT(A)'s decision confirming the addition of Rs. 25,21,508/- as "Dividend Income" from the residential society. The appellant received this amount from a developer/builder as "Hardship Compensation" due to a re-development agreement. The AO treated this amount as revenue in nature and added it under "income from other sources". The appellant contended that the compensation was a capital receipt and not taxable. The ITAT, after considering the arguments, held in favor of the appellant.

Assessee's Argument:
The appellant received the Hardship Compensation as part of a re-development agreement, which was a capital receipt and not taxable as income. The appellant relied on a Tribunal decision stating that capital receipts are not taxable unless specified under the Income Tax Act. The compensation was for displacement due to re-development and constituted a capital receipt.

ITAT's Decision:
The ITAT agreed with the appellant, stating that the Hardship Compensation was a capital receipt and not revenue in nature. The ITAT referred to a previous Tribunal decision and held that the compensation reduced the cost of acquisition of the asset. Therefore, the amount was not considered income under section 2(24) of the Act. The ITAT allowed the appeal, emphasizing that the compensation was a capital receipt and not subject to tax.

Conclusion:
The ITAT allowed the appeal, ruling in favor of the appellant and stating that the Hardship Compensation received was a capital receipt and not taxable as income. The decision was based on the nature of the compensation as part of a re-development agreement, reducing the cost of acquisition of the asset.