In a key ruling, the Income Tax Appellate Tribunal (ITAT) Mumbai has clarified that a new flat received under a redevelopment project won’t be taxed as ‘Income from Other Sources’ under Section 56(2)(x) of the Income Tax Act. The judgment comes amid a growing wave of redevelopment in Mumbai, with more than 31,000 projects approved as of May last year.
Chartered accountants say the ITAT ruling brings much-needed clarity for homeowners involved in redevelopment projects. It protects them from being taxed unfairly on the flats they receive in exchange.
The case involved A. Pitale, who had purchased a flat in a housing society back in 1997–98. After the society went for redevelopment, he was allotted a new flat in December 2017. However, during the assessment for the financial year 2017–18, the Income Tax officer calculated the stamp duty value of the new flat at ₹25.1 lakh and compared it with the indexed cost of the old flat, which was ₹5.4 lakh. The officer then treated the difference—₹19.7 lakh—as taxable income under the category ‘Income from Other Sources’.
The ITAT ruling reversed the earlier tax assessment, bringing relief to many homeowners in similar situations. The tribunal stated that receiving a new flat in exchange for an old one amounts to an ‘extinguishment’ of property rights, not a taxable income. It clarified: “This is not a case of receipt of immovable property for inadequate consideration. It is a legitimate transaction involving replacement of an existing asset with a new one”.
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