Section 56(2)(x) Inapplicable to Surrender of Tenancy Rights: ITAT Mumbai Upholds Deletion of ₹1.97 Crore Addition

Overview of the Dispute

The Income Tax Appellate Tribunal, Mumbai Bench, recently adjudicated upon an important question concerning the scope of Section 56(2)(x) of the Income Tax Act, 1961 — specifically, whether its provisions can be triggered when an assessee surrenders tenancy rights and receives alternative premises in return. In ACIT Vs Ashok Narendra Mehta (ITAT Mumbai), ITA No. 3373/Mum/2024, the Tribunal dismissed the Revenue's appeal and upheld the deletion of an addition of ₹1.97 crore that had been made by the Assessing Officer under Section 56(2)(x).

The assessment year involved was 2018-19, and the order was pronounced on 28/08/2024.

Background Facts

The assessee, an individual, filed his return of income for AY 2018-19 declaring total income of ₹94.70 lakhs. During assessment proceedings, the Assessing Officer observed that the assessee, along with his spouse Smt. Kinjal A. Mehta, held tenancy rights in Shop No. 11, Building No. 30, Sk. Sukhand Chal, Khatargali, C.P. Tank, Mumbai.

These tenancy rights had been acquired by way of an agreement dated 21-08-2017 for a sum of ₹30 lakhs from the previous tenant, Dr. Satyajit Chowdhary. Subsequently, the building underwent redevelopment by M/s. Shreepati Jewels. Pursuant to the redevelopment agreement, the assessee surrendered the tenancy rights to the builder and received in exchange an alternative non-residential premises — No. 503, 5th Floor, Wing E, Shreepati Jewels Pearl, C.P. Tank, Mumbai — along with paying an additional amount of ₹20 lakhs for extra area.

The assessee received 76.63 sq. mtrs. of constructed area in place of the original shop measuring 14.95 sq. mtrs.

The Assessing Officer's Position

The stamp authorities valued the newly received premises at ₹2,47,93,300/-. The Assessing Officer noted that the assessee had paid only ₹50 lakhs in total — ₹30 lakhs to the original tenant and ₹20 lakhs to the builder. On this basis, the AO concluded that Section 56(2)(x) was attracted, and proceeded to treat the shortfall of ₹1,97,93,300/- as income chargeable to tax in the hands of the assessee.

Relief Before CIT(A)

Before the Commissioner of Income Tax (Appeals) – NFAC, Delhi, the assessee contended that the provisions of Section 56(2)(x) have no application to transactions involving tenancy rights. The CIT(A) accepted this argument and deleted the addition in its entirety, prompting the Revenue to file the present appeal before the Tribunal.

The Tribunal examined the statutory language of Section 56(2)(x) as applicable to AY 2018-19:

"56(2)(x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property,—
(A) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(B) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration."

The term "property" is defined under clause (d) of Section 56(2)(vii) as follows:

"56(2)(vii)(d) 'property' means the following capital asset of the assessee, namely:—
(i) immovable property being land or building or both;
(ii) shares and securities;
(iii) jewellery;
(iv) archaeological collections;
(v) drawings;
(vi) paintings;
(vii) sculptures;
(viii) any work of art; or
(ix) bullion;"