Additional Compensation and new house received for displacement from old house is not taxable

Kushal K. Bangia v. ITO(2012) 50 SOT 1 (Mum.)(Trib.)

The assessee was the member of a housing society. The housing society and it’s members entered into an agreement with a developer pursuant to which the developer demolished the building

owned by the housing society and reconstructed a new multistoried building by using the FSI

arising out of the property and the outside TDR available under Development Control

Regulations. The assessee, as a member of the housing society, received a larger flat in the new

building, displacement compensation of Rs. 6 lakhs (at Rs.34,000/- p.m. for the period of

construction of the new building) and additional compensation of Rs.11.75 lakhs. The Assessing

Officer &CIT(A) held that the said “additional compensation” was assessable as income in the

assessee’s hands. On appeal by the assessee, held allowing the appeal:

In principle, though the scope of “income” in section 2(24) is very wide, a capital receipt is not

chargeable to tax as income unless there is a specific provision to that effect. As the residential

flat owned by the assessee in the society’s building was a capital asset in his hands, the

compensation was a capital receipt. The department’s argument that the cash compensation was a

“share in profits earned by the developer” is not acceptable because it proceeds on the fallacy that

the nature of payment in the hands of the payer determines the nature in the hands of the recipient. However, as the said receipt reduced the cost of acquisition of the new flat, it had to be

taken into when computing the gains from a transfer thereof in the future.