• T.S. Tijoriwala
• Updated: Thursday, October 16, 2025, 02:21 PM IST

Mumbai News: ITAT Rules Redevelopment Flat Not Taxable Under 'Income From Other Sources'

The judgment came in favour of Anil Dattaram Pitale, a resident of Lokhandwala Complex, Andheri, who had challenged an addition made by the assessing officer, treating the value of his new flat in a redeveloped society as income from “other sources”.

Mumbai: In a significant ruling that brings clarity and relief to flat owners involved in redevelopment projects, the Income Tax Appellate Tribunal (ITAT), Mumbai, has held that the difference in value between the old and new flat received in redevelopment cannot be taxed under section 56 (2) (x) of the Income Tax Act, 1961.

About The Judgment

The judgment came in favour of Anil Dattaram Pitale, a resident of Lokhandwala Complex, Andheri, who had challenged an addition made by the assessing officer, treating the value of his new flat in a redeveloped society as income from “other sources”. Pitale had originally purchased a flat in Mahavir Nagar Tristar Co-op Housing Society in 1997–98. As the society underwent redevelopment, he surrendered the old flat and received a new one under a registered agreement.

The assessing officer treated the stamp duty value of the new flat minus the indexed cost of the old flat as taxable income under the Act. The Finance Act, 2017, introduced a new clause (x) in Section 56(2) of the Income Tax Act, providing that property received by a person without any consideration, upon crossing a particular threshold, would be liable to tax in the hands of the receiver under the head ‘Income from Other Sources’. In its judgment, the ITAT bench comprising Sandeep Gosain and BR Baskaran ruled, “It is not a case of receipt of immovable property for inadequate consideration that would fall within the purview of the provisions of the act.”

The tribunal emphasised that what occurred was not a free gain, but rather a swap. The ‘extinguishment’ of the old asset and acquisition of the new one was a natural part of a redevelopment agreement, not a taxable event under the Act. The tribunal also pointed out that even if capital gains provisions were invoked, the assessee would be eligible to claim exemption under section 54.

“At the most, this transaction may attract the provisions relating to capital gains, in which case, the assessee should be entitled for deduction of cost of new flat u/s 54 of the Act,” the tribunal noted. The ITAT ultimately concluded that the tax authorities erred in taxing the transaction. It directed the assessing officer to delete the addition.

Note: The above article is only for information only. Advice from a practising chartered accountant on applicable tax provisions should be taken.

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