In a Landmark Ruling, The ITAT Has Determined That Rent Paid by The Developer in Redevelopment Cases is Not Taxable

The ITAT Rules That Rent Paid by Developer in Redevelopment Cases is Not Taxable

The Income-Tax Appellate Tribunal (ITAT) Mumbai tribunal ruled recently that rental recompense received from a contractor as a result of redevelopment is not taxable in the hands of the erstwhile flat owner.

ITAT took this position despite the fact that the taxpayer, the former flat proprietor, had moved in with his parents and not rented another apartment.

Typically, when a building undergoes redevelopment, the unit proprietors are either relocated or compensated with a monthly rental payment. The ITAT ruled that rental compensation is a 'capital receipt' and not a revenue source, so it is not taxable in the possession of the erstwhile flat owner.

This order, which followed a similar order granted by the Mumbai bench previously, will be a relief to Mumbai residents, given the large number of redevelopment projects throughout the city.

This case was selected for review using the computer-assisted scrutiny selection (CASS) mechanism for the 2012-2013 fiscal year. The income-tax (I-T) investigator discovered that Kothari had received Rs. 3,7 lakh from the contractor during the course of the surveillance assessment.

Kothari owned a flat in a co-op housing society in Malad, and the building had been redeveloped. This amount of Rs 3,75,000 represented the monthly rental compensation received for alternative housing. In addition, the I.T. officer observed that the taxpayer had not used this amount to pay for alternative housing. 

In other terms, the amount was taxable at the pertinent slab rate. The appeals commissioner upheld this course of action, prompting the individual to file an appeal with ITAT.

The tax tribunal observed that despite the fact that the taxpayer had adapted and was living with his parents, he still confronted hardship because he had to vacate his apartment for redevelopment. In this case, the ITAT relied on a prior ruling by the tax tribunal to conclude that the rental compensation was not taxable.

Moreover, in this case, the ITAT excused a delay of 1,566 days in submitting an appeal with the ITAT on the grounds that the tax payer was not properly guided by his prior tax counsel.