Rent received by flat owners who give up their property for redevelopment would qualify as capital receipt, and would not be taxable, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled. The rent in such cases is not a revenue stream of income, the tribunal said while passing its order in a case where a former flat owner moved in with his parents after his house was picked up for development.
Capital receipts are cash inflows that arise from financial activities instead of operating activities.
In redevelopment projects, builders typically offer residents monthly rent to shift to a new dwelling during the construction work or provide them with an alternate living space. The recent ruling by the ITAT comes as a model for thousands of residents in Mumbai where a large number of redevelopment projects are currently under various stages of construction.
Case study
Computer-aided scrutiny showed that one Ajay Parasmal Kothari received Rs 3.7 lakh in FY2013 from the builder of his Malad-based cooperative housing society as rental compensation for alternate accommodation when the society was being redeveloped. Since Kothari had not utilised this money for renting and shifted with his parents instead. The assessment officer (AO) said that since Kothari treated the money as income from other sources, the money would be taxed at the applicable slab rate. Kothari filed an appeal with the ITAT after the commissioner (appeals) upheld the AO move.
The ITAT said that Kothari has to make several adjustments due to the move and the compensation rent received does not qualify as revenue generation.
Earlier, in the Delilah Raj Mansukhani versus ITO, the ITAT Mumbai had said that the compensation received by the taxpayer towards displacement is not a revenue receipt and constitutes capital receipt.
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An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
sunita.mishra@proptiger.com
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