REAL ESTATE UPDATE
30th May, 2024
Issue No. 05/24-25
BOMBAY HIGH COURT RULES TRANSIT RENT NOT SUBJECT TO TDS
BACKGROUND
In Sarfaraz S. Furniturewalla v/s Afshan Sharfali Ashok Kumar & Ors on 15th April 2024, before the Bombay High Court, the Petitioner Sarfaraz S. Furniturewalla sought clarification on whether “Transit Rent” received from a builder during a redevelopment project should be subject to Tax Deducted at Source (TDS).
JUDGMENT
Justice Rajesh S. Patil of the Bombay High Court in its order addressed whether TDS should be deducted from “Transit Rent” paid by the developer. The court examined Section 194-I of the Income Tax Act, 1961 which specifies TDS conditions on rent payments, and its explanation that defines “rent” to include payments for the use of land and buildings. Justice Patil ruled that “Transit Rent” is a capital receipt, not a revenue receipt, and therefore not subject to TDS, distinguishing it as compensation for hardship and displacement allowance rather than traditional rent. The decision was supported by Income Tax Appellate Tribunal (ITAT) rulings in Smt. Delilah Mansukhani and Ajay Kothari, which established that compensation received during redevelopment is non-taxable. The judgment clarified that the term “rent” in Section 194-I typically refers to payments from a tenant to a landlord, whereas “Transit Rent” compensates for the inconvenience caused by dispossession during redevelopment. Consequently, the court concluded that “Transit Rent” is exempted from TDS, consistent with previous ITAT decisions.
In conclusion, Justice Rajesh S. Patil determined that “Transit Rent” qualifies as a capital receipt rather than a revenue receipt, thereby exempting it from TDS obligations.
The detailed judgement can be accessed here.
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