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Transit rent paid by the developer is not a revenue receipt and so not taxable: Bombay HC

CA Adityavikram Banka

Transit rent paid by the developer is not a revenue receipt and so not taxable: Bombay HC

Sarfaraz S. Furniturewalla vs. Afshan Sharfali Ashok Kumar & Ors. (WP No: 4958 OF 2024)

Facts:

1. The landlord of a building decided to re-develop his building (consisting of several tenants) through a developer. Accordingly, a Permanent Alternate Accommodation Agreement was signed on 31.03.2017 between the landlord, developer and the tenants.

2. Intermittent question which arose before the Hon’ble High Court was whether tax was required to be deducted on ‘transit rentals’? Obliquely, whether rent paid by builder to tenant for alternate accommodation taxable?

Hon Bombay HC held as below:

1. The ordinary meaning of Rent would be an amount which the Tenant / Licensee pays to the Landlord / Licensor.

2. 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.

3. Hence the ‘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.

CA Adityavikram Banka
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