The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that mere execution and registration of a redevelopment agreement does not amount to receipt of an immovable property, and therefore, cannot trigger tax under an anti-abuse provision of the Income Tax Act.

Background of the Case

This ruling comes at a time when Mumbai is witnessing an unprecedented boom in redevelopment projects, with the tribunal allowing the appeal of a taxpayer, Manoj Devshichhadva, who challenged an addition of ₹1.38 crore made by the tax department as 'income from other sources'.

Key Findings of the Tribunal

The tribunal, comprising judicial member Siddhartha Nautiyal and accountant member Vikram Singh Yadav, held that Section 56(2)(x) of the I-T Act applies only when an assessee actually 'receives' immovable property. The provision is designed to prevent tax evasion and money laundering through disguised gifts.

Registration of a redevelopment agreement merely creates a contractual right to receive a flat in the future.
It does not amount to receipt of property where construction is incomplete and possession has not been handed over.
The tribunal set aside the tax demand, stating that a mere right to receive immovable property in the future cannot be equated with actual receipt of the property.

Implications for Taxpayers and Developers

Chartered accountant Ashish Karundia said that this decision rightly brings the focus back to the ordinary meaning of the word 'receives', and that a mere right to receive immovable property in the future cannot be equated with actual receipt of the property.

Conclusion and Future Outlook

This ruling is expected to have significant implications for taxpayers and developers involved in redevelopment projects in Mumbai, providing clarity on the tax treatment of such transactions. As the city's redevelopment boom continues, this decision is likely to have a positive impact on the market.

via etrealty

Income Tax Act

ITAT Rules: Redevelopment Pacts Not Taxable