Redeveloped flat received in exchange for surrendered flat is outside section 56(2)(x) and not taxed as inadequate consideration.

Receipt of a redeveloped flat in exchange for a surrendered old flat under a redevelopment agreement is not treated as receipt of immovable property for inadequate consideration under section 56(2)(x). The transaction is characterised as extinguishment of the old rights and substitution of rights in the new flat, so the deeming provision does not apply. The addition under section 56(2)(x) was deleted. The matter may instead fall for consideration under the capital gains regime, where relief under section 54 may be relevant.

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Issues: Whether the value difference arising on receipt of a redeveloped flat in exchange for the old flat was chargeable as income under section 56(2)(x) of the Income-tax Act, 1961.

Analysis: The assessee surrendered the old flat under a redevelopment agreement and received a new flat in lieu of it. The transaction was treated as an extinguishment of the old flat and a substitution of rights under the redevelopment arrangement, not as a case of receipt of immovable property for inadequate consideration. On that footing, the provisions of section 56(2)(x) were held inapplicable. It was further observed that, at the highest, the matter could fall for consideration under the capital gains regime, where relief under section 54 would be relevant.

Conclusion: The addition made under section 56(2)(x) was deleted and the assessee succeeded.

Ratio Decidendi: Receipt of a new flat under a redevelopment agreement in lieu of the surrendered old flat is not receipt of immovable property for inadequate consideration within section 56(2)(x) of the Income-tax Act, 1961.

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