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| DATE: | February 1, 2012 (Date of publication) |
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| Click here to download the judgement (kushal_bagia_society_redevelopment_gains.pdf) |
Gains on housing society redevelopment is non-taxable capital receipt
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 AO & 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 s. 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
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