A receipt ends up reducing the cost of acquisition of the asset should be treated as ‘Capital Receipt’ says Mumbai ITAT.
The Mumbai bench of the Income Tax Appellate Tribunal recently held that the corpus fund received by the assessee for meeting the hardships on redevelopment is to be treated as capital receipt for the reason that such receipt ends up reducing the cost of acquisition of the asset.
The assessee received an income of Rs.22 lacs as corpus fund and had rental income of Rs.8,55,800/-. The AO completed the assessment by categorizing these incomes as “income from other sources” for the reason that the assessee failed to explain the reason for non-disclosure of such income.
The assessee maintained that Rs.22 lacs received as corpus fund was received towards hardship caused to assessee on redevelopment and as such receipt was in the nature of capital receipt and therefore, is not taxable. Regarding the addition of Rs. Rs.8,55,800/-, it was contended that the assessee has made expenditure of Rs.6,80,000/- towards rent while development activity of the project was taken place. Therefore, the addition is not justifiable.
Regarding the the nature of corpus fund received, the Tribunal noticed that the Mumbai ITAT in the case Kushal K Bangia vs. ITO, has concluded the case in favour of the assessee.
Following the above decision, the Tribunal observed that “Nothing contrary was brought to my knowledge on behalf of Revenue. Facts being similar, so following same reasoning, I find that consideration for which the amount hasbeen paid by the developer are, therefore, not relevant indetermining the nature of receipt in the hands of theassessee. In view of these discussion, in my considered view,assessee could not be said to be of revenue nature, and,accordingly, the same is outside the ambit of income undersection 2(24) of the Act. The impugned receipt ends upreducing the cost of acquisition of the asset, i.e. flat, and,therefore, the same will be taken into account as such, as andwhen occasion arises for computing capital gains in respect ofthe said asset. Subject to these observations, the appeal ofassessee is allowed.”
Regarding the second addition, it was observed that “Next issue in this appeal is regarding addition of Rs.8,55,800/-. In fact, this amount was given by Developer for paying rent while development of the project was taking place. In fact, assessee submitted before me that he has made expenditure of Rs.6,80,000/- towards rent while development activity of the project was taken place. So, Assessing officer is directed to allow the claim of assessee to same extent because it is nothing but compensation receivedby assessee for paying rent. This cannot be said to be income of assessee. Assessing Officer is directed accordingly.”
Read the full text of the order below.
