A Mumbai tenant who received two flats valued at Rs 1.38 crore as permanent alternate accommodation (PAA) after surrendering tenancy rights for a redevelopment project has won a tax dispute before the Income Tax Appellate Tribunal (ITAT), Mumbai.
The case involved Devshichhadva, who occupied four shops in a Mumbai housing society that was taken up for redevelopment. Under an agreement with the developer, he surrendered his tenancy rights in return for two flats in the reconstructed property.
The stamp duty authorities valued the proposed flats at Rs 1.38 crore. However, the Income Tax Assessing Officer invoked Section 56(2)(x) of the Income Tax Act and treated the entire stamp duty value as income from other sources, arguing that the properties had been received without adequate consideration.
The Commissioner of Income Tax (Appeals) upheld the addition, maintaining that Devshichhadva had obtained ownership rights in the alternate premises through the registered redevelopment agreements.
The matter subsequently reached the Mumbai ITAT, where Chartered Accountant Ketan V. Vajani represented the taxpayer. On July 16, 2026, the tribunal ruled in his favour.
The ITAT noted that Section 56(2)(x) applies when immovable property is actually “received” during the relevant financial year. In this case, the redevelopment project remained incomplete, possession had not been handed over and no occupation certificate had been obtained.
The tribunal also found that the flats were not transferred gratuitously. They were being provided in return for surrendering valuable tenancy rights.
According to tax expert Suresh Surana, “The absence of a separate monetary payment did not mean that the property had been received without consideration.”
Mihir Tanna, associate director at S.K Patodia LLP, said: “Therefore, the transaction squarely falls within the ambit of capital gains and cannot be brought to tax under the residuary provisions of Section 56(2)(x)”
Surana further said: “Mere registration of the redevelopment agreements could neither be treated as actual receipt of the alternate premises nor convert a reciprocal redevelopment arrangement into a gratuitous transfer.”
The ITAT consequently deleted the Rs 1.39-crore addition and allowed the appeal. The ruling, however, was limited to Section 56(2)(x); any separate capital-gains liability arising from surrender of tenancy rights remains a distinct issue.
Source: Economic Times
