Hardship compensation received from builder not taxable being capital receipt – ITAT

Hardship compensation received from builder not taxable being capital receipt – ITAT 

In a recent judgment, ITAT Mumbai has held that hardship compensation received from builder on redevelopment of flat was not taxable being in the nature of a capital receipt.

ABCAUS Case Law Citation:
4202 (2024) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition of hardship compensation received from the builder on account of hardship faced due to redevelopment of the flat.

The appellant assessee was a member of MIG Co-operative Housing Society Limited which had entered into development agreement with a builder for renovation. The assessee was given a hardship compensation on account of hardship faced due to dislocation pending renovation of the flat.

The case of the assessee was re-opened u/s. 147 of the Income Tax Act 1961 (the Act) and was issued notice u/s 148 to the assessee to file return of income. In response to the notice. the assesse filed the return of income on the same income as per original return of income.

During the assessment proceedings, when the assessee was asked to explain the nature of the payment received, the assessee submitted that this is the hardship compensation received by the assessee on account of hardship caused due to the redevelopment project and is a capital receipt and hence not liable to tax.

The AO, however, added the amount received as a share of compensation u/s. 143(3) r.w.s. 147 of the Act on the ground that the activities, carried out by the assessee, were in the nature of commercial activities and the monetary consideration arising out of it, is directly distributed to its members as a dividend, being shareholders, and, therefore, chargeable to income tax in the hands of the assessee under the head ‘income from other sources’.

Before the Tribunal, the assessee placed reliance on several judgments of the coordinate Benches of ITAT, wherein identical issue of hardship compensation was considered and was allowed as a capital receipt in the hands of the assessee.

The Tribunal noted that the Co-ordinate Bench has held that where the assessee being a flat owner in a housing society receives certain sum from developer as corpus fund towards hardship caused to flat owners on redevelopment, impugned amount has to be treated as capital receipt simplicitor which as per Section 2(24)(vi) of the Act is not taxable as income of the assessee. It was also 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 was a capital receipt, which cannot be treated as revenue receipt for taxing as income.

Following the decision of the Co-ordinate Benches the Tribunal also deleted the addition made by the AO and allowed the appeal of the assessee.

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