In a significant ruling for property owners involved in redevelopment projects, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the execution and registration of a redevelopment agreement does not amount to the receipt of immovable property and, therefore, does not attract tax under the anti-abuse provisions of the Income Tax Act.
The ruling comes at a time when redevelopment activity is accelerating across Mumbai, with thousands of residential buildings undergoing reconstruction.
The tribunal, comprising Judicial Member Siddhartha Nautiyal and Accountant Member Vikram Singh Yadav, allowed the appeal filed by taxpayer Manoj Devshichhadva, setting aside an addition of ₹1.38 crore made by the Income Tax Department under the head “Income from Other Sources.”
The Assessing Officer had treated the stamp duty value of two alternative residential units allotted to the taxpayer under a redevelopment agreement as taxable income under Section 56(2)(x) of the Income Tax Act. The department argued that since the redevelopment agreements had been registered, the taxpayer had effectively received the property.
However, the tribunal disagreed, holding that Section 56(2)(x) applies only when an assessee actually receives an immovable property. It observed that the registration of a redevelopment agreement merely creates a contractual right to receive a property in the future. Where construction is incomplete and possession has not been handed over, the recipient cannot be said to have received the property.
The tribunal noted that the anti-abuse provision was introduced to curb tax evasion and money laundering through the transfer of property at undervalued consideration or as disguised gifts. Extending the provision to future rights arising from redevelopment agreements would go beyond the language of the law.
The decision provides clarity for homeowners and developers engaged in redevelopment projects, particularly in Mumbai, where such projects often take several years to complete. It confirms that tax liability under Section 56(2)(x) arises only upon the actual receipt and possession of the redeveloped property, and not merely on the execution or registration of the redevelopment agreement.
