Transit Rent Exempt from TDS: Bombay HC
The Bombay High Court has ruled that transit rent, received by displaced owners for temporary alternative accommodation during redevelopment projects, is not considered income and therefore not taxable. Both the High Court and the Income Tax Appellate Tribunal (ITAT) have affirmed this decision.
In the case of Sarfaraz S. Furniturewalla vs Afshan Sharafali Ashok Kumar & Others, the High Court emphasized that transit rent cannot be classified as revenue receipt and is thus not subject to taxation.
Specifically, in an order dated 15th April 2024, the Bombay High Court addressed the issue of Tax Deducted at Source (TDS) on transit rent or hardship allowance paid by developers to property owners or occupants affected by redevelopment projects. The HC clarified that such payments are not considered income and therefore not subject to TDS.
Despite the significant benefits of redevelopment projects, the tax implications of transit rent have been a topic of debate. Owners or occupants of buildings undergoing redevelopment are often required to vacate their premises and are provided transit rent or hardship compensation to cover temporary accommodations. While tax authorities rarely consider this payment as taxable income, developers have erred on the side of caution, treating transit rent as revenue and deducting TDS accordingly. Naturally, owners or occupants have objected to this treatment.
In a specific case before the HC involving Sea Rock Construction LLP, the developer requested PAN card copies from owners to deduct TDS from transit rent payments. However, one of the owners, Sharafali, contested this, arguing that TDS was not applicable to transit rent.
