MUMBAI: The mere execution and registration of a redevelopment agreement does not constitute the receipt of immovable property, and thus, cannot trigger taxation under the anti-abuse clause of the Income Tax Act, according to a ruling by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT).
This decision regarding tax implications for redevelopment transactions comes amidst a significant surge in redevelopment projects in Mumbai.
The tribunal, consisting of judicial member Siddhartha Nautiyal and accountant member Vikram Singh Yadav, ruled last week in favor of taxpayer Manoj Devshichhadva, who contested an addition of ₹1.38 crore labeled as “income from other sources”. The assessing officer had considered the stamp duty value of two alternate properties assigned to him under the redevelopment agreement as taxable on the premise that the agreements were registered.
Chartered accountant Ashish Karundia remarked, “This decision correctly emphasizes the fundamental meaning of the term ‘receives’.” He added that merely having a right to acquire immovable property in the future should not be equated with the actual receipt of the property, as the two represent distinct capital assets. “When Parliament intends to encompass rights related to immovable property, it does so explicitly. Such a broad interpretation should not be inferred from a legal presumption when the statutory language does not substantiate it.”
By nullifying the tax demand, the tribunal clarified that Section 56(2)(x) of the I-T Act pertains only when an individual actually “receives” immovable property. This provision aims to inhibit tax evasion and money laundering through concealed gifts. The tribunal noted that the registration of a redevelopment agreement simply establishes a contractual right to receive a property in the future, which does not equate to the actual receipt of property when construction remains unfinished and possession has not been granted.
