In a significant ruling by the Income Tax Appellate Tribunal (Mumbai), the tribunal ruled that the assessee (petitioner) who exchanged his old flat for a new one in the redevelopment process as per the agreement with the developer will not be required to treat the value of the new flat as income from other sources. This ruling provides relief to the owners of redevelopment flats, ensuring they are not unfairly taxed.
Facts of the case
. The assessee, Anil Dattaram Pitale, had bought a flat in 1997-98 in Mahavir Nagar Tristar Corporate Housing Society.
. The housing society underwent redevelopment according to the agreement entered into with the developer. According to the terms and of the agreement, the assessee surrendered the old flat and got a new flat in return.
. The new flat was officially registered on 26th December 2017.
. The stamp duty value of the new flat was Rs. 25,17,700/- The old flat was bought for a lower price, and after adjusting for inflation, its indexed cost, i.e a calculation done in accounts for inflation was Rs. 5,43,040.
. The difference in values between the new flat (Rs. 25,17,700) and the indexed cost of the old flat (Rs. 5,43,040) is Rs. 19,74,660.
. The Assessing Officer (AO) considered this Rs. 19,74,660 difference as income taxed under the Income from other sources.
. The assessee appealed the decision, but the Commissioner of Income Tax Appeals confirmed the AO’s assessment.
. Now the appeal lied before the Income Tax Appellate Tribunal - Mumbai
Section 56, clause 2, sub-clause x, S-56(2)(x) of The Income Tax Act, 1961 deals with the income generated from gifts or property transactions. It states that if someone acquires property at a price lower than its market value, the difference between the two amounts is considered taxable income.
Decision
The appellate tribunal set aside the order passed by the Commissioner of Income Tax appeals and directed the Assessing Officer (AO) to delete the addition made by him under 56(2)(x) of the 1961 Act.
The appellate tribunal ruled that Section 56(2)(x) of the 1961, Act will not be applicable in the present case as the assessee gave up his old flat and received a new one in the redevelopment of the property, according to the agreement with the developer. This is not a case where the assessee received property for less than its value, so the rule under Section 56(2)(x) of the 1961, Act doesn't apply in the present case. Therefore, the assessee will not be required to pay any tax due to these transactions.
