S. 45 : Capital gains-Income from other sources-Transfer of Development Rights-Compensation received under a redevelopment agreement is assessable as Capital Gains and not as Income from Other Sources. Exemption under section 54EC is allowable. [S. 2(14), 2(47), 54EC, 56, 50C & 147]
The assessee, a co-owner of a property, entered into a Development Agreement with a developer for redevelopment of the property and received ₹50 lakh as consideration for granting development rights. The Assessing Officer held that since ownership of the property remained with the assessee and the amount was a non-refundable payment, it constituted a revenue receipt taxable under the head “Income from Other Sources” under section 56 and denied the claim for exemption under section 54EC. The CIT(A) affirmed the assessment. On appeal, the Tribunal held that development rights are valuable rights forming part of the bundle of ownership rights and constitute a “capital asset” within the meaning of section 2(14). The amount received under the Development Agreement was contractual consideration directly attributable to the transfer of development rights and, therefore, could only be assessed under the head “Capital Gains”. Merely because the assessee retained ownership in the redeveloped property or the developer treated the payment as revenue expenditure in its books would not alter the character of the receipt. Section 56, being a residuary provision, cannot be invoked where the receipt is chargeable under a specific head of income. Accordingly, the addition made under the head “Income from Other Sources” was deleted, and the Assessing Officer was directed to assess the receipt as Capital Gains and allow the assessee’s claim for exemption under section 54EC in accordance with law. (AY. 2011-12) (ITA No. 7107/Mum/2025, dt. 04.06.2026)
Sherlyn Dias (Mrs.) (Legal Heir of Late Mrs. Dorothy Lawrence Pereira) v. ITO (Mum.)(Trib.)
[Coram : Hon’ble Shri Amit Shukla, JM & Hon’ble Shri Makarand Vasant Mahadeokar, AM]