2023 (2) TMI 923 - AT - Income Tax

Nature of receipt - addition on account of Hardship Compensation received - revenue receipt or capital receipt - assessee is a member of the MIG Co-operative Housing Society Ltd. - As per assessee payment is a hardship allowance to cover the cost of prospective loss of place of residence and the consequential hardship thereof, including loss of furniture, fixtures, and other inbuilt conveniences like fresh gas connections and various other facilities including relocation of residence - HELD THAT - We find that while dealing with a similar issue of taxability of hardship compensation, the coordinate bench of the Tribunal in Lawrence Rebello 2021 (10) TMI 63 - ITAT INDORE held that the benefit received by the assessee in the form of bigger size of flat and amount received as hardship allowance from the developer is a capital receipt, which cannot be treated as revenue receipt for taxing as income - Decided in favour of assessee.

Summary

Issues Involved:
Taxability of hardship compensation as revenue receipt or capital receipt.

Analysis:
The appeal was filed by the assessee challenging the order passed under section 250 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals) for the assessment year 2011-12. The main ground raised by the assessee was regarding the addition of Rs. 25,21,508 on account of Hardship Compensation received, treated as revenue receipt instead of capital receipt. The Assessing Officer had initiated reassessment proceedings under section 147 of the Act based on information received regarding the receipt of the said amount by the assessee. The Assessing Officer treated the amount as income from other sources, denying the claim of the assessee that it was a capital receipt. The learned CIT(A) dismissed the appeal filed by the assessee on both jurisdictional grounds and merits of the addition made by the Assessing Officer.

The Tribunal considered the facts of the case where the assessee, a member of a housing society, received an amount as compensation for surrendering the old flat in a redevelopment project. The Tribunal referred to a similar case where it was held that such compensation should be treated as a capital receipt and not as taxable income. The Tribunal observed that the amount received by the assessee was a capital receipt, not a revenue receipt, based on previous decisions and the nature of the compensation received. Therefore, the addition made by the Assessing Officer was set aside and ordered to be deleted. The appeal by the assessee was allowed based on the taxability of the hardship allowance as a capital receipt.

The issue on merits was covered in favor of the assessee by various decisions of the Tribunal, leading the Authorized Representative to withdraw the application challenging the invocation of reassessment proceedings under section 147 of the Act. Consequently, the application was dismissed, and the appeal by the assessee was allowed.