| Question And Answer | |
|---|---|
| Subject: | Sec 56(2)(x) of Income Tax Act |
| Category: | Income-Tax |
| Querist: | Nilesh Parikh |
| Answered by: | Law Intern |
| Tags: | redevelopment |
| Date: | May 28, 2026 |
A company is owner of a shop on which depreciation is claimed and allowed. The market value of the said shop is say 10 lacs. The building where the shop is located goes for redevelopment and the developer builder enters into an exchange agreement wherein he allots a shop worth Rs.20 lacs on the adjoining plot where he is constructed shops in exchange of the old shop. Possession of the old shop will have to be given on receiving possession of new shop. Whether the company has to deduct 20 lacs from block of assets as the old shop is sold and add 20 lacs as new office is given without any payment being made and claim depreciation on the opening wdv? Further whether the department can say that the company is liable to include income of Rs. 10 lacs under section 56 as it has not paid the market value of the new shop? The company is paid more than what similar persons in the same building are paid ( some persons have accepted consideration only and not any property and the value of which is less than what the company is given in form of the shop)and the builder would be stuck if the company doesn’t agree for the deal. Instead of entering into an agreement for relinquishing rights in the old shop for the purpose of redevelopment, the developer is entering into an exchange agreement.The developer and the company are not related to each other.
The transaction here is an “exchange”. U/s 50, the consideration for the transferred shop (FMV of the new shop) will have to be reduced from the WDV of the block of assets. The new shop will have to be added to the block. The surplus, if any, will have to be offered to tax.
As regards s. 56(2)(x), in Anil Dattaram Pitale v. ITO, the Mumbai Bench of the Tribunal has held that if the transaction is part of a redevelopment agreement, resulting in the extinguishment of the old flat and acquisition of the new flat, it is not a receipt of immovable property for inadequate consideration. Therefore provisions of section 56(2)(x) is not applicable.