MUMBAI: In a significant decision, Income Tax Appellate Tribunal (ITAT), Mumbai, has held that the value of a new flat received in a redevelopment project cannot be taxed as ‘Income from Other Sources‘ under Section 56(2)(x) of Income Tax (I-T) Act.
Mumbai is witnessing a surge in redevelopment projects. As of last May, over 31,000 redevelopment projects had been approved. According to chartered accountants, the ITAT order provides clarity to flat owners who have opted for redevelopment or plan to do so. It will ensure they are not unfairly taxed.
In this case, A Pitale purchased a flat in a housing society in 1997-98. When the society underwent redevelopment, he received a new flat in Dec 2017.
However, for financial year 2017-18, during the course of assessment, the I-T officer treated the difference between the stamp value of the new flat (Rs 25.1 lakh) and the indexed cost of the old flat (Rs 5.4 lakh), which works out to Rs 19.7 lakh, as taxable in Pitale’s hands under the head ‘Income from other sources’.
ITAT ruled in favour of the taxpayer, emphasising that receiving a new flat in lieu of an old one is a case of ‘extinguishment’ of property rights rather than an income-generating transaction. It observed: “This is not a case of receipt of immovable property for inadequate consideration. It is a legitimate transaction involving replacement of an existing asset with a new one.”