In a groundbreaking decision, the Bombay High Court has declared transit rent received from builders during redevelopment projects as non-taxable, liberating individuals from Tax Deducted at Source (TDS) obligations.
The ruling, delivered by Justice Rajesh S Patil, signifies a significant shift, categorising rental compensation, often termed ‘Transit rent,’ as a ‘capital receipt’ rather than a ‘revenue receipt.’ This pivotal distinction exempts it from TDS requirements, offering a sigh of relief to many residents amidst the city’s flurry of redevelopment endeavors.
Justice Patil elucidated, ‘Transit rent is commonly referred to as Hardship Allowance/Rehabilitation Allowance/Displacement Allowance, which is paid by the Developer/Landlord to the tenant who suffers hardship due to dispossession.’ He affirmed its non-taxable nature, dispelling any ambiguity regarding its fiscal treatment.
The case that spurred this landmark judgment involved Sarafraz Sharafali Furniturewalla, a resident entangled in a property dispute concerning transit rent. Facing legal hurdles amidst redevelopment, Furniturewalla petitioned the High Court seeking recourse against a Small Cause Court order inhibiting him from accessing deposited transit rent.
Considering Furniturewalla’s predicament, Justice Patil granted partial relief, allowing him to withdraw 50% of the transit rent, easing his financial burden. However, the developer’s attempt to withhold TDS from the remaining sum was rebuffed by Furniturewalla’s counsel, Advocate Rustom Pardiwala, citing precedent from two Income Tax Appellate Tribunal orders.
Referencing Section 194(I) of the Income Tax Act and previous ITAT decisions, Justice Patil underscored the non-taxable nature of transit rent, further fortifying the ruling’s legal standing.
This verdict sets a precedent for similar cases, offering clarity on the tax treatment of transit rent and alleviating financial strains for many individuals embroiled in property disputes. As the city continues its redevelopment journey, this decision brings much-needed assurance to affected residents.
