Rental compensation received from a builder for a redevelopment project is not taxable for the former flat owner, the Income-Tax Appellate Tribunal’s (ITAT) Mumbai bench stated in a recent ruling. Usually, when a building is set to be redeveloped, the flat owners are either given a monthly rental compensation or provided with alternate accommodation. The ITAT has declared that the rental compensation is not a ‘revenue stream of income’, but a ‘capital receipt’. This means it is not taxable in the hands of the former flat owner.
The decision came in a case where the former flat owner had not opted for another rented accommodation, but moved in with his parents, reported the Times of India. The order will come as a huge relief for people in Mumbai, where a large number of redevelopment projects are being done.
The case of Ajay Parasmal Kothari was chosen under the computer-aided scrutiny selection (CASS) mechanism for FY 2012-13. During the course of the scrutiny, it was found that Kothari had received Rs 3.7 lakh. The sum was given by the builder of Kothari’s cooperative housing society as rental compensation for alternate accommodation when the place was being redeveloped.
The I-T officer in the case noted that Kothari had not utilised the money for alternate accommodation. The taxpayer had treated the money as ‘income from other sources’, which meant that the sum would be taxed at the applicable slab rate. The commissioner (appeals) upheld this move. Kothari then filed an appeal with ITAT.
The ITAT noted that though the taxpayer had lived with his parents, he still faced hardships due to vacating his flat for redevelopment. The ITAT also condoned the fact that Kothari had made a delay by 1,566 days in filing an appeal with the tax tribunal. The ITAT believed that the tardiness was because the taxpayer was not guided correctly by his counsel.
Relying on an earlier case decided by the ITAT, the tribunal held that the compensation for rent does not come under taxable income.
The Mumbai bench of ITAT had recently ruled on two conflicting provisions that foreign investors in unlisted Indian companies were subject to. The tax tribunal, in a plea by Dubai-based entity Legatum Ventures, stated that Section 112 on the IT-Act is applicable. This means foreign companies might have to pay more capital gains taxes.
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