Mumbai: The Bombay High court recently clarified that transit rent received from builders during redevelopment projects is not a revenue receipt and is therefore not taxable like normal rent.
A single bench of Justice Rajesh S Patil, in an order clarifying the difference between transit rent and rent, observed, “The ordinary meaning of rent would be an amount which the tenant pays to the landlord. The term transit rent is commonly referred as ‘hardship allowance, rehabilitation allowance, displacement allowance’, which is paid by the developer or landlord to the tenant who suffers hardship due to dispossession.”
The court further stated, “Transit rent is not to be considered as revenue receipt and is not liable to be taxed. As a result, there is no question of tax deducted at source (TDS) from the amount payable by the developer to the tenant.”
The order was passed on the plea filed by a resident of Saigal House in south Mumbai, in dispute with the original landlord and the builder, who took up the building’s redevelopment project in 2017.
The petitioner, Sharafali Furniturewalla, was already in dispute with step brother over claim to the property after their father’s death. As a result, the builder deposited the transit rent in the small causes court where the claim is being fought. On the issue of who will claim the transit rent, the petitioner approached the High Court, which allowed each brother to withdraw 50% of the amount, which was nearly Rs1,35,000. However, the one who will lose the claim would have to deposit the money back with the court with “interest and tax”.
When the developer sought the claimants’ PAN and Aadhaar details for taxation, they petitioned for a clarification, when the court said that transit rent can’t be taxed.
