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Mumbai: The Income Tax Appellate Tribunal‘sit at) Mumbai The Bench had recently held that the compensation for rent received from a builder is a redevelopment project Not taxable in the hands of the former flat owner. The ITAT adopted this stand even when the taxpayer, the erstwhile flat owner, had not taken any other accommodation on rent but had moved to live with his parents.
Usually, when a building goes in for redevelopment, flat owners are either provided with alternative accommodation by the builder or paid compensation, usually monthly rent. The ITAT held that rental compensation is a ‘capital receipt’ and not a ‘revenue stream of income’, thus not taxable in the hands of the former flat owner.
The order, which followed a similar order passed by a Mumbai bench earlier, will come as a relief to Mumbaikars, given the large number of redevelopment projects across the city.
This case of Ajay Parasmal Kothari was taken up for scrutiny under the Computer Aided Scrutiny Selection (CASS) system for the financial year 2012-13. During the scrutiny assessment, the Income Tax (IT) officer observed that Kothari had received Rs 3.7 lakh from the builder.
Kothari had a flat in a cooperative housing society in Malad and the building had gone for redevelopment. This amount of Rs 3.7 lakh included compensation for monthly rent received for alternative accommodation. The IT officer further observed that the taxpayer had not utilized this amount for alternative accommodation. Thus, he proceeded to treat it as taxable income under the head ‘Income from other sources’. In other words, it means that the amount will be taxable at the applicable slab rate. The Commissioner (Appeals) upheld this course of action, which led Kothari to file an appeal with the ITAT.
The tax tribunal noted that the taxpayer had adjusted and lived with his parents, yet he faced difficulty in vacating his flat for redevelopment. Relying on an earlier decision taken by the Tax Tribunal, the ITAT in this case also held the rental compensation not taxable.
Incidentally, in this case, the ITAT also condoned the delay of 1,566 days in filing the appeal with the ITAT on the ground that the taxpayer was not properly guided by his earlier tax counsel.
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