Compensation Received for Hardship Faced Due to Vacating Flat for Redevelopment Is Capital Receipt | ITAT

Case Details: Ajay Parasmal Kothari vs. Income Tax Officer - [2024] 159 taxmann.com 570 (Mumbai - Trib.)

Judiciary and Counsel Details

• Kuldip Singh, Judicial Member & S. Rifaur Rahman, Accountant Member
• Ashwin Chhag for the Appellant
• Ashish Kumar Deharia for the Respondent

Facts of the Case

The assessee had a flat in a building. During the year under consideration, the said building had gone for redevelopment, and the assessee received compensation for moving to a new place as it resulted in inconvenience and hardship to the assessee. The assessee contended that the amount received from the builder was on account of hardship, and thus, it was a capital receipt in nature. Accordingly, it was not included in the total income while furnishing the return of income.

The Assessing Officer (AO) observed that the assessee had not utilized any amount of its receipt for his alternate accommodation. Contending that it was a revenue receipt in the form of alternate accommodation rent provided by the builder for the development of his residence, AO continued to treat such amount as income of the assessee and taxed it under the head ‘income from other sources’.

On appeal, CIT(A) upheld the order of the AO. Aggrieved by the order, the assessee filed an appeal to the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee received compensation from the builder for alternate accommodation. However, the assessee did not utilize these funds for accommodation; instead, he adjusted and lived with his parents. It indicated that even though the assessee did not utilize the rent received for his accommodation, he faced hardships by vacating the flat for redevelopment and adjusting himself during the period.

ITAT followed the decision of the coordinate bench in the case of Smt. Delilah Raj Mansukhani v. ITO (ITA No. 3526/Mum/2017 dated 29-1-2021), wherein it was held that the compensation paid by the builder on account of hardship faced by the owner of the flat due to displacement of the occupants of the flat is in the nature of hardship allowance or rehabilitation allowance and same was not liable to tax.

Accordingly, the receipt of compensation for hardship was in the nature of capital receipt, and the additions made were to be deleted.

List of Cases Reviewed

• Smt. Delilah Raj Mansukhani v. ITO (ITA No. 3526/Mum/2017, dated 29-1-2021) (para 13) followed.