For tenants living in old housing societies, redevelopment can sometimes mean surrendering existing tenancy rights in exchange for new accommodation. In one such case, a resident of Matunga, Mumbai, got two flats in lieu of surrendering his tenancy rights in a housing society, but subsequently received a tax notice.
This case concerns Manoj Devshi Chhadva, who was renting four shops in a housing society in Mumbai. When the society decided to redevelop the property, the builder entered into a permanent alternate accommodation agreement with Chhadva. Under the agreement, he received two flats in the redeveloped building, valued at ₹1.38 crore, in exchange for surrendering his tenancy rights.
However, the income tax assessing officer (AO) from Parel invoked Section 56(2)(x) and treated the entire stamp duty value of ₹1.38 crore as “income from other sources” in the assessee’s hands, making the amount taxable.
Why was the amount added to Chhadva’s income?
Section 56(2)(x) of the Income-tax Act, 1961, applies to the receipt of money or property (both movable or immovable) without consideration, or for inadequate consideration, if the value exceeds ₹50,000.
Introduced to curb tax evasion, this provision took effect on April 1, 2017. It taxes the full value of such receipts when they are transferred without sufficient consideration, applying to both individuals and entities. The provision is widely applicable to gifts, property transfers, and other transactions intended to avoid legitimate taxation.
Why did CIT A reject his appeal earlier?
The Commissioner of Income Tax (Appeals) upheld the tax addition, saying that Chhadva had effectively received valuable immovable property in return for giving up his tenancy rights.
The CIT(A) observed that by executing and registering the redevelopment agreements, the assessee had acquired ownership rights over the alternate premises, which could not be changed without his consent. It therefore treated the flats as having been received during the relevant assessment year, even though physical possession had not yet been handed over.
The appellate authority also agreed with the Assessing Officer that Section 56(2)(x) was applicable, holding that Chhadva had received valuable property without paying adequate monetary consideration. It consequently upheld the ₹1.38 crore addition to his taxable income.
Tenant approaches ITAT Mumbai
Aggrieved by the decision, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai. After a long legal battle, the tribunal ruled in his favour on July 16, 2026.
In its ruling, the tribunal said that a Section 56(2)(x) tax notice cannot be sent to a tenant since he got two flats in exchange for surrendering his tenancy rights in a redevelopment building.
Citing previous judgements about similar cases, ITAT Mumbai said: “In view of the foregoing discussion…We hold that the Assessing Officer was not justified in invoking the provisions of section 56(2)(x) of the Act.”
