'Redevelopment agreement not a property receipt, so not taxable': ITAT

Mumbai: 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, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held.

This ruling on the tax treatment of redevelopment transactions comes at a time when Mumbai is witnessing an unprecedented boom in redevelopment projects.

The tribunal, comprising judicial member Siddhartha Nautiyal and accountant member Vikram Singh Yadav, in its order last week allowed 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". The assessing officer treated the stamp duty value of two alternative premises allotted to him under a redevelopment agreement as taxable on the ground that the agreements had been registered.


"This decision rightly brings the focus back to the ordinary meaning of the word 'receives'," chartered accountant Ashish Karundia said.

A mere right to receive immovable property in the future cannot be equated with actual receipt of the property; the two are distinct capital assets, Karundia said. "Where Parliament has intended to include rights in or relating to immovable property, it has expressly provided for the same. Such an extension cannot be read into a deeming provision when the statutory language does not support it."

Setting aside the tax demand, the tribunal 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.

It observed that registration of a redevelopment agreement merely creates a contractual right to receive a flat in the future and does not amount to receipt of property where construction is incomplete and possession has not been handed over.