The Mumbai Income Tax Appellate Tribunal (ITAT) recently issued a judgement in the case of Ajay Parasmal Kothari v. ITO concerning the taxability of receipts received by an individual from a builder for alternate accommodation and hardship during redevelopment. The ITAT allowed the Assessee’s appeal and held that the receipt from the builder is compensation for hardship in the form of alternate accommodation in the event of redevelopment of Assessee’s flat and is in the nature of a capital receipt. The ITAT observed that even though the Assessee did not utilise the rent received for his accommodation, he still faced hardship by vacating the flat for redevelopment and adjusting himself in his parents’ house during the period. Therefore, the ITAT opined that the said receipts are not taxable in the Assessee’s hand and deleted the addition made by Revenue under the head income from other sources.
In this case, the Assessee-Individual filed the return of income for the Assessment year 2013-14 declaring income of Rs. 16.90 Lacs. During the assessment procedure, the Revenue noted that the Assessee received Rs. 3.73 Lacs from a builder and treated the same as a capital receipt. The Assessee submitted that his flat is under redevelopment, and the said amount is a monthly rental compensation from the builder for the rent of alternate accommodation. The Assessee submitted that the said receipt is a capital receipt in the nature of hardship compensation, thus not taxable in the Assessee’s hand. However, the Revenue rejected the Assessee’s submission, held that the receipt is clearly a Revenue receipt and brought it to tax under the head of income from other sources, which was confirmed by the CIT(A). Aggrieved, the Assessee preferred the present appeal.
The ITAT relied on a co-ordinate bench ruling in Smt Delilah Raj Mansukhani v. ITO (ITA.No. 3526/Mum/2017 dated 29.01.2021), wherein it was held that amounts received as compensation for hardship, rehabilitation, and for shifting are not liable to tax. The ITAT also observed that the receipts for compensation for hardship are in the nature of capital receipts and deleted the addition made by the Revenue. Furthermore, the ITAT also condoned the delay of 1566 days in filing the present appeal by the Assessee, noting that the Assessee was not properly guided by his counsel. The ITAT relied on a co-ordinate bench ruling in Midas Polymer Compounds (P) Ltd., v. ACIT in ITA.No. 288/Coch/2017, wherein the delay of 2819 days was condoned.
In conclusion, the Mumbai ITAT allowed the Assessee’s appeal and held that the receipt from the builder for alternate accommodation and hardship during redevelopment is compensation for hardship in the form of alternate accommodation in the event of redevelopment of Assessee’s flat and is in the nature of a capital receipt. The ITAT opined that the said receipts are not taxable in the Assessee’s hand and deleted the addition made by Revenue under the head income from other sources. Additionally, the ITAT also condoned the delay in filing the appeal by the Assessee, noting that the Assessee was not properly guided by his counsel.
