In a significant ruling for property owners involved in redevelopment projects, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that merely signing and registering a redevelopment agreement does not amount to receiving an immovable property and, therefore, cannot trigger taxation under the anti-abuse provisions of the Income Tax Act.
The decision comes at a time when redevelopment activity is accelerating across Mumbai, where thousands of ageing buildings are being redeveloped.
The tribunal, comprising Judicial Member Siddhartha Nautiyal and Accountant Member Vikram Singh Yadav, allowed the appeal filed by taxpayer Manoj Devshichhadva against a tax addition of ₹1.38 crore. The Income Tax Department had treated the stamp duty value of two alternative flats allotted under a redevelopment agreement as “income from other sources” because the agreement had been registered.
However, the tribunal ruled that Section 56(2)(x) of the Income Tax Act applies only when an assessee actually “receives” an immovable property. It observed that registration of a redevelopment agreement merely creates a contractual right to receive a property in the future and does not amount to actual receipt when construction is incomplete and possession has not been handed over.
“This decision rightly brings the focus back to the ordinary meaning of the word ‘receives’,” chartered accountant Ashish Karundia said.
He further explained that a future right to receive an immovable property cannot be treated as the same as actually receiving the property, as both represent distinct capital assets.
“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.”
The ruling provides important clarity on the tax treatment of redevelopment agreements and is expected to offer relief to homeowners awaiting possession of new homes under ongoing redevelopment projects.
Source: The Economic Times
