Rent received from a real estate developer during a redevelopment project is not taxable, the Bombay High Court (HC) has ruled. That way, there is no question of such rent attracting TDS (tax deducted at source), the high court has said in a recent judgement.
According to the HC, rental compensation received from a developer during the redevelopment of an ongoing project constitutes a ‘capital receipt’ rather than a ‘revenue receipt’.
“The ordinary meaning of rent would be an amount which the tenant/ licensee pays to the landlord/licensor. In the present proceedings, the term used is transit rent, which is commonly referred as hardship allowance/rehabilitation allowance/displacement allowance, which is paid by the developer/landlord to the tenant who suffers hardship due to dispossession. Hence, in my opinion ‘Transit Rent’ is not to be considered as revenue receipt and is not liable to be tax, as a result there will be no question of deduction of TDS from the amount payable by the developer to the tenant,” a single Judge Bench of Justice Rajesh S Patil ruled while delivering its order in the Sarfaraz S Furniturewalla versus Afshan Sharfali Ashok Kumar & Ors case.
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