The Income Tax Appellate Tribunal (ITAT) in Mumbai has ruled that if a person receives a new flat in exchange for an old one, they won’t have to pay tax under Section 56 of the Income Tax Act.
This section covers “income from other sources.”
If you exchange your old flat for a new one, you won’t need to pay tax on it. This ruling was given by the Mumbai ITAT.
It clarified that when someone gets a new flat in return for an old one, Section 56 of the Income Tax Act does not apply.
This section usually deals with income from sources other than salary, business, or property. Here’s what the case was about:
What was the case?
Anil Pitale bought a flat in 1997-98 and exchanged it for a new flat in 2017.
The Income Tax Department treated the difference between the stamp duty value of the new flat and the indexed cost of the old flat as taxable income.
The new flat’s stamp duty value was Rs 25.17 lakh, while the indexed cost of the old flat was Rs 5.43 lakh.
The department treated the Rs 19.74 lakh difference as taxable under Section 56(2)(x). The Commissioner of Income Tax (Appeal) also supported this view.
Why did ITAT disagree?
The ITAT disagreed with the tax department. It stated that Section 56(2)(x) should not be applied in redevelopment or exchange cases.
The tribunal said such transactions should be taxed under capital gains rules.
It further explained that if someone uses profits from a property transaction to buy a new home, then they are eligible for capital gains tax exemption.
This decision will benefit many taxpayers
The ITAT also pointed out that the tax authorities wrongly applied Section 56(2)(x) in this case.
This judgment brings relief to many people who get a new flat in exchange for their old one, especially in redevelopment projects.
