HC: Transit rent not income, can’t be taxed

In a landmark decision, Bombay HC has held that transit rent, which is paid by a developer to a flat owner/tenant on dispossession of the flat, is not a revenue receipt. It cannot be taxed in the hands of the recipient. Thus, the question of deduction of tax at source (TDS) by the developer from the amount payable to the flat owner/tenant does not arise, it said.

On a writ filed by Sarfaraz S Furniturewalla, the issue before HC was whether there should be a deduction of TDS on the amount payable to him as transit rent by the builder.

TOI has earlier covered orders passed by ITAT, which have held that transit rent is a ‘capital receipt’ and it is not a revenue stream of income. Thus, it is not taxable in the hands of the recipient.

HC said transit rent, which is commonly referred to as hardship/rehabilitation/displacement allowance, is paid by the developer or landlord to a flat owner/tenant who suffers hardship due to dispossession of his/her house. Transit rent is not to be considered as a revenue receipt and is not liable to tax. Thus, there will be no question of deduction of tax from the amount paid by the developer.

A tax expert attached to a developer company said the HC order provides clarity. It is beneficial not only to flat owners or tenants who receive transit fees but also developers.