Redevelopment compensation as capital receipt, and appellate enhancement requires prior notice and hearing before income is increased.

A redevelopment-related lump-sum paid for hardship, shifting and temporary displacement was treated as a capital receipt rather than consideration for transfer, so it was held not taxable as capital gains in the assessee's hands. The separate addition relating to additional carpet area was introduced at the first appellate stage and amounted to enhancement of income; because enhancement requires a reasonable opportunity of being heard and no such opportunity was shown, that direction was set aside and the matter remitted for reconsideration after due notice and hearing.

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Issues: (i) Whether compensation received on vacating the flat under the redevelopment arrangement was taxable as capital gains; (ii) Whether the direction to compute capital gain on the additional carpet area could stand without prior notice and opportunity under the enhancement power.

Issue (i): Whether compensation received on vacating the flat under the redevelopment arrangement was taxable as capital gains.

Analysis: The lump-sum payment was found to be a predetermined amount paid for hardship, shifting and re-shifting, and for enabling demolition and redevelopment, rather than consideration for sale or transfer of the flat. On the terms of the agreement and the nature of the payment, the receipt was treated as a capital receipt and not as consideration arising from transfer of a capital asset.

Conclusion: The compensation of Rs. 82,00,000 was held not taxable in the assessee's hands.

Issue (ii): Whether the direction to compute capital gain on the additional carpet area could stand without prior notice and opportunity under the enhancement power.

Analysis: The addition relating to the additional carpet area was introduced for the first time at the first appellate stage and therefore amounted to enhancement of income. Since enhancement under the appellate power requires a reasonable opportunity to show cause, and no such opportunity was shown to have been granted, the direction could not be sustained as made.

Conclusion: The enhancement on account of the additional 56% carpet area was set aside and the matter was remitted for reconsideration after affording due opportunity.

Final Conclusion: The assessee succeeded on the taxability of the monetary compensation, while the issue relating to the additional carpet area was sent back for fresh consideration with notice and hearing.

Ratio Decidendi: A redevelopment-related lump-sum paid for hardship and displacement is a capital receipt and not consideration for transfer, and any appellate enhancement of income must be preceded by a reasonable opportunity of being heard.

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