Non-resident receives alternate accommodation rent during property redevelopment - ITAT rules capital receipt, not taxable income

ITAT Mumbai held that rent for alternate accommodation received by a non-resident assessee from a developer during property redevelopment constitutes capital receipt, not taxable income. Following precedent in Smt. Delilah Raj Mansukhani, the tribunal determined such payments are hardship allowances for displacement, not income from other sources. The assessee had already offered partial amount for taxation but disputed the full addition. ITAT directed deletion of the addition for alternate accommodation rent. Appeal allowed in favor of assessee.

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Issues Involved:
1. Reopening of assessment under section 147.
2. Addition of rent for alternative accommodation.
3. Addition of corpus/monetary consideration.
4. Taxation under the head long term capital gain.
5. Taxation of only the appellant's share in rent and corpus/monetary consideration.

Issue-wise Detailed Analysis:

Reopening of Assessment under Section 147:
The assessee initially challenged the reopening of the assessment under section 147 of the Income Tax Act, 1961. However, the learned Senior Counsel for the assessee chose not to press this ground. Consequently, this ground was dismissed.

Addition of Rent for Alternative Accommodation:
The assessee, a non-resident Indian, received Rs.10,85,679 as rent for alternative accommodation from the Developer/Builder due to a Re-development Agreement. The Assessing Officer (AO) initially accepted the assessee's claim that only Rs.1,31,800 was taxable as 'Income from Other Sources' based on the assessee's share. However, the Dispute Resolution Panel (DRP) directed the AO to enhance the total income by Rs.8,93,672, treating the entire rent received as taxable. The Tribunal found that the rent for alternative accommodation is in the nature of hardship allowance and should be considered a capital receipt, not taxable as income. Therefore, the addition of Rs.8,93,672 was directed to be deleted.

Addition of Corpus/Monetary Consideration:
The assessee received Rs.64 lakhs as corpus from the Developer/Builder, which was treated as a capital receipt by the assessee. The AO, however, treated this amount as 'Income from Other Sources' and added it to the assessee's income. The Tribunal, referencing similar cases, concluded that such compensation is a capital receipt and not taxable as income. Consequently, the addition of Rs.64 lakhs was set aside and ordered to be deleted.

Taxation under the Head Long Term Capital Gain:
The assessee argued that the rent for alternative accommodation and corpus/monetary consideration should be taxed under the head long term capital gain in the year of transfer of the capital asset. However, since the Tribunal allowed the grounds related to the nature of these receipts, this issue was rendered academic and left open.

Taxation of Only the Appellant's Share:
The assessee contended that only his share of the rent and corpus/monetary consideration should be taxed. Given the Tribunal's findings on the nature of these receipts, this ground also became academic and was left open.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the deletion of additions related to the corpus/monetary consideration and rent for alternative accommodation. The stay application filed by the assessee became redundant and was dismissed. The order was pronounced in open court on 10/05/2023.

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