Mohammed Fakhre Alam Shaikh v. Assessing Officer

Case snapshot

Sections / provisions: 2(24); 4; 54F; 56(2)(vii)(b)

Questions before the Court / Tribunal

• Flat received as compensation for surrender/removal from premises: The reported Tribunal ruling treats a flat received as compensation for surrendering/removing an occupation-related nuisance as a capital receipt on the facts rather than ordinary taxable income. The underlying rights and compensation instrument require primary review.

Material facts and background

dt.17-10-2024 passed by the Ld. Commissioner of Income Tax (Appeals)-52, Mumbai [„Ld.CIT(A)‟] and it relates to AY.2016-17. The assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the addition of Rs. 2.59 crores made by the AO u/s. 56(2)(vii)(b) of the Income Tax Act, 1961 („the Act‟) and also in confirming the disallowance of deduction claimed u/s. 54F of the Act.

declared in the return of income. 2.1. The AO, however, noticed that the assessee was an illegal occupant in the said land.

allotted a flat having a value of Rs. 2.59 crores. The AO also noticed that the assessee has not claimed any deduction u/s. 54F of the Act in the return of income. The AO also took the view that the illegal occupation of the assessee was not approved by MCGM and/or MHADAas per the list of tenants certified by those Government authorities. Accordingly, the AOtook the view that the assessee was not able to prove the existence of any asset, if any, and the long term nature of the asset. Accordingly, the AO held that the assessee will not be eligible for deduction u/s. 54F of the Act and also took the view that the value of new flat allotted (i.e., Rs. 2.59 crores) is assessable to tax u/s. 56(2)(vii)(b) of the Act.

income as the income of the assessee and also denied the deduction claimed u/s. 54F of the Act. The Ld.CIT(A) confirmed the order passed by the AO and hence, the assessee filed this appeal before the Tribunal.

illegally in the land proposed to be developed by M/s. Neel Kamal Realtors and Builders Pvt. Ltd. Since the assessee‟s name was not included in the list of tenants that was submitted to the MCGM and/or MHADA, the assessee filed a suit against the builder claiming to be a lawful occupant. When the suit was pending, a court settlement was reached between the assessee and the said builder, as per which the assessee was allotted a flat.

the assessee was not shown as a certified tenant, he was denied any flat in the re-developed property. Hence, he filed a suit against the builder and finally the dispute was resolved in a court settlement, as per whichthe assessee was allotted a flat worth of Rs. 2.59 crores.

above facts would show that the assessee has created nuisance to the developer/builder and the said flat was allotted to the assessee as compensation for removing nuisance created by the assessee. The question that arises is whether the compensation so received by the assessee is liable for taxation under the Income Tax Act?

Appellant / assessee submissions

noticed from AIR information that the assessee has carried out a property transaction for a value of Rs. 2.59 crores. When questioned about the same, the assessee submitted that he was occupying a portion of land in Survey No. 243 of Tardeo Division and the above said land underwent development. The developer was M/s. Neel Kamal Realtors and Builders Pvt. Ltd.The assessee surrendered his rights on that property and in lieu of the same, the said developer has allotted a flat on ownership basis in the building named, „Orchid Enclave‟. Accordingly, the assessee submitted that there was Long Term Capital Gain of Rs. 2.45 crores against which the deduction u/s. 54F of the Act was claimed.

that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of Shri Kishre D.P. vs. Income Tax Officer (supra); wherein it was held that the compensation received for creating a nuisance is a capital receipt. For the sake of convenience, we extract below the decision rendered by the Co-ordinate Bench of the Tribunal in the above said case:“3. The only surviving issue remains is as against the order of CIT(A) confirming the action of the AO in treating the receipts of compensation from developer to compensate for a nuisance / inconvenience due to extension of work untaken by the builder for building "Kailas Jyot No.2", as income from other sources u/s 56 as against the claim of the assessee being capital receipt. For this assessee has raised following ground No.1: "The Honorable CIT (A) -10, erred in upholding that the receipt of Rs.2,41,333/being compensation received from Developers to compensatefor nuisance/ inconvenience caused due to extension work undertaken of the Building "Kailas Jyot No. 2", as casual income u/s 56 of the Income Tax Act, 1961, ax against charging it as Long Term Capital Gain by holding the cost as Nil by the 40 22 (1),...

Revenue / respondent submissions

exactly on identical facts, Tribunal has held the similar receipt as capital receipt in taxable by observing in Para 4 as under: "In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes "any capital gains chargeable under section 45", and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon'ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that "...we hold that the amounts received by the assessee during the financial years in question have to beregarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act... This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific...

Court / Tribunal analysis and reasoning

that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of Shri Kishre D.P. vs. Income Tax Officer (supra); wherein it was held that the compensation received for creating a nuisance is a capital receipt. For the sake of convenience, we extract below the decision rendered by the Co-ordinate Bench of the Tribunal in the above said case:“3. The only surviving issue remains is as against the order of CIT(A) confirming the action of the AO in treating the receipts of compensation from developer to compensate for a nuisance / inconvenience due to extension of work untaken by the builder for building "Kailas Jyot No.2", as income from other sources u/s 56 as against the claim of the assessee being capital receipt. For this assessee has raised following ground No.1: "The Honorable CIT (A) -10, erred in upholding that the receipt of Rs.2,41,333/being compensation received from Developers to compensatefor nuisance/ inconvenience caused due to extension work undertaken of the Building "Kailas Jyot No. 2", as casual income u/s 56 of the Income Tax Act, 1961, ax against charging it as Long Term Capital Gain by holding the cost as Nil by the 40 22 (1),...

exactly on identical facts, Tribunal has held the similar receipt as capital receipt in taxable by observing in Para 4 as under: "In our considered view, it is only elementary that the connotation of income howsoever wide and exhaustive, take into account only such capital receipts are specifically taxable under the provisions of the Income tax Act. Section 2(24)(vi) provides that income includes "any capital gains chargeable under section 45", and, thus, it is clear that a capital receipt simplicitor cannot be taken as income. Hon'ble Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has observed that "...we hold that the amounts received by the assessee during the financial years in question have to beregarded as capital receipts, and, therefore, (emphasis supplied by us), are not income within meaning of section 2(24) of the Income tax Act... This clearly implies, as is the settled legal position in our understanding, that a capital receipt in principle is outside the scope of income chargeable to tax and a receipt cannot be taxed as income unless it is in the nature of revenue receipt or is brought within the ambit of income by way of a specific...

5.1. Accordingly, following the above said decision of the Co-ordinate Bench of the Tribunal, we hold that the value of flat received by the assessee as compensation for removing nuisance shall constitute capital receipt in the hands of the assessee and the same is not taxable. Accordingly,we set aside the order passed by the Ld.CIT(A) and direct the AO to delete the cost of new flat amounting to Rs. 2.59 crores. 6.

Operative decision and relief

above facts would show that the assessee has created nuisance to the developer/builder and the said flat was allotted to the assessee as compensation for removing nuisance created by the assessee. The question that arises is whether the compensation so received by the assessee is liable for taxation under the Income Tax Act?

that an identical issue has been considered by the Co-ordinate Bench of the Tribunal in the case of Shri Kishre D.P. vs. Income Tax Officer (supra); wherein it was held that the compensation received for creating a nuisance is a capital receipt. For the sake of convenience, we extract below the decision rendered by the Co-ordinate Bench of the Tribunal in the above said case:“3. The only surviving issue remains is as against the order of CIT(A) confirming the action of the AO in treating the receipts of compensation from developer to compensate for a nuisance / inconvenience due to extension of work untaken by the builder for building "Kailas Jyot No.2", as income from other sources u/s 56 as against the claim of the assessee being capital receipt. For this assessee has raised following ground No.1: "The Honorable CIT (A) -10, erred in upholding that the receipt of Rs.2,41,333/being compensation received from Developers to compensatefor nuisance/ inconvenience caused due to extension work undertaken of the Building "Kailas Jyot No. 2", as casual income u/s 56 of the Income Tax Act, 1961, ax against charging it as Long Term Capital Gain by holding the cost as Nil by the 40 22 (1),...

Authorities and precedents appearing in the judgment

• Bench of the Tribunal in the case of Shri Kishre D.P. vs. Income Tax
• Tribunal in the case of Shri Kishre D.P. vs. Income Tax Officer
• Kushal K Bangla v. Income Tax Officer (2012) 50 SOT 1 (MUM)
• Supreme Court in the case of Padmraje R. Kardambande vs CIT (195 ITR 877) has
• Dr. George Thomas K vs CIT(156 ITR 412)
• CIT vs. Kamal Behari Lal Singha (82 ITR 460)

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Flat received as compensation for surrender/removal from premises. The operative result is classified as Quashed / set aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Flat received as compensation for surrender/removal from premises. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

Related Finin2min guidance