The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that Section 56(2)(x) of the Income Tax Act cannot be invoked merely because a redevelopment agreement has been executed and registered if the assessee has not yet received possession of the alternate accommodation. 

The bench of Siddharth A Nautiyal (Judicial Member) and Vikram Singh Yadav (Accountant Member) ruled that registration of a redevelopment agreement creates only a contractual right to receive a property in the future and does not amount to the “receipt” of immovable property required to trigger taxation under the provision. 

The assessee, an individual, had filed his income tax return for Assessment Year 2018-19 declaring a total income of ₹12.47 lakh. During scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had entered into two registered redevelopment agreements in December 2017 for permanent alternate accommodation in a redevelopment project.

Buy Now: INCOME TAX E-COMPILATION – JUNE 2026

The stamp duty values of the two premises aggregated to ₹1.38 crore. The AO took the view that since the redevelopment agreements had been registered, the assessee had received immovable property without consideration during the relevant previous year. Consequently, the AO proposed to tax the entire stamp duty value under Section 56(2)(x) as “Income from Other Sources.” 

The assessee challenged the proposed addition by arguing that the redevelopment project was still under construction. Physical possession of the alternate premises had never been handed over. The new premises were allotted in exchange for surrender of tenancy rights in existing premises. The allotment was therefore supported by valid consideration and could not be regarded as a gift or property received without consideration.

According to the assessee, mere execution and registration of redevelopment agreements could not be equated with receipt of immovable property. 

The Commissioner of Income Tax (Appeals) rejected these submissions.

The appellate authority observed that registration of the redevelopment agreements vested valuable ownership rights in favour of the assessee and that such rights constituted “immovable property” within the meaning of Section 56(2)(x). Since the agreements had been executed and registered, the CIT(A) concluded that the assessee had effectively received the property during the relevant assessment year despite the absence of physical possession.

Accordingly, the addition of ₹1.38 crore was confirmed. 

The principal question before the Mumbai ITAT was whether execution and registration of redevelopment agreements, without completion of construction or delivery of possession, amount to “receipt” of immovable property for the purposes of Section 56(2)(x).

The Tribunal carefully examined the language of Section 56(2)(x), emphasizing that the provision is attracted only where an assessee “receives” immovable property during the relevant previous year.

According to the Tribunal, the existence of actual receipt of property is a jurisdictional requirement before the deeming fiction under Section 56(2)(x) can operate.

The Bench observed that the redevelopment project remained incomplete even on the date of hearing. Material placed before the Tribunal, including the project’s status on the RERA portal, showed that construction had not been completed, no occupation certificate had been obtained, and possession continued to remain with the developer.

Therefore, the assessee had not acquired possession or enjoyment of the alternate premises. 

Rejecting the reasoning adopted by the Assessing Officer, the Tribunal held that registration of a redevelopment agreement merely creates a contractual right to obtain a flat in future after completion of construction.

It observed that such registration does not result in receipt of immovable property, particularly where construction remains incomplete, possession has not been delivered, and the property cannot yet be enjoyed by the allottee.

The Tribunal emphasized that one cannot receive a flat that is not yet available in a habitable state, and a future contractual entitlement cannot be equated with present receipt of immovable property under Section 56(2)(x). 

The Tribunal also rejected the Revenue’s contention that the alternate accommodation had been received without consideration.

It noted that the redevelopment arrangement was a commercial exchange in which the assessee surrendered valuable tenancy rights in return for permanent alternate accommodation. Such reciprocal obligations constitute valid consideration.

Accordingly, the Tribunal held that the allotment of alternate premises in exchange for surrender of tenancy rights cannot be characterized as receipt of immovable property without consideration so as to attract Section 56(2)(x). 

While arriving at its conclusion, the Tribunal relied upon its earlier decisions in: Snehalata Heramb Dhayagude v. Jurisdictional AO (ITA No. 258/Mum/2026), Anil Dattaram Pitale v. ITO [(2025) 173 taxmann.com 51], and Amar Narendra Joshi v. ITO [(2026) 186 taxmann.com 318]. These decisions consistently held that redevelopment flats allotted in exchange for surrender of existing rights do not attract Section 56(2)(x), particularly where possession has not yet been handed over and the redevelopment project remains incomplete. 

Allowing the appeal, the Mumbai ITAT held that the Assessing Officer had prematurely invoked Section 56(2)(x). Since the assessee had neither actually received the alternate accommodation nor received property without consideration, the essential conditions for applying the provision were absent.

The Tribunal consequently directed deletion of the entire addition of ₹1.38 crore, reiterating that registration of a redevelopment agreement, without actual receipt and possession of the property, cannot trigger taxation under Section 56(2)(x) of the Income Tax Act.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: CBDT Circular Can’t Override Jurisdictional Defect: ITAT Refuses to Recall Low Tax Effect Dismissal