Section 56(2)(x) of the Income Tax Act – Redevelopment – New Flat in lieu of old flat – Tax liability

The flat of the appellant – assessee purchased in 1997-98 in the housing society underwent redevelopment and as per the development agreement with the developer, he got new flat registered vide agreement dated 26.12.2017 in lieu of surrendered old flat.

 The stamp duty value of new flat was Rs.25,17,700/- and the indexed cost of old flat was Rs.5,43,040/-.  The Assessing Officer assessed the difference of Rs.19,74,660/- as income under Section 56(2)(x) of the Income Tax Act.

HELD that the assessee got a new flat in the redeveloped property in lieu of old flat.   It is a case of extinguishment of old flat.  Thus, it is not a case of receipt of immovable property for inadequate consideration that would fall within the purview of Section 56(2)(x).   The provisions of section 56(2)(x) will not be applicable to the facts of the present case.  

At the most, this transaction may attract the provisions of capital gains, in which case, the assessee should be entitled for deduction of cost of new flat under Section 54 of the IT Act.   In that case, there will be no tax liability upon the assessee on account of these transactions.

 Order dated 17.3.2025 of the ITAT (Mumbai) in ITA No.465/Mum/2025 of Anil Dattaram Pitale   Vs.  Income Tax Officer-16(2)(1), Mumbai