Dedicated locality research platform
Dedicated locality research platform
Enter your email address and you will receive
a link to reset your password
The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has ruled that the compensation received by flat owners from builders for rent during redevelopment cannot be taxed. The decision came after a computer-assisted scrutiny select (CASS) mechanism found Mr Ajay Parasmal Kothari liable to pay tax for FY 2012-13 on a sum of money received from the builder as rent compensation while his society was being redeveloped. IT officials had categorized the sum received to be ‘income from various sources’ and therefore liable to be taxed as per the applicable bracket rate.
Mr Kothari is a resident of Malad in Western Suburbs of Mumbai. In 2012, the co-operative housing society in which he owns a flat opted for redevelopment and engaged a builder to execute the project. The builder provided all residents of the co-operative housing society rent compensation for the period of redevelopment. The builder gave Mr Kothari approximately Rs 3.7 lacs towards rent compensation. However, he chose to live with his parents and therefore did not need to utilise the money towards rent.
IT officials argued that because Mr Kothari did not use the rent compensation provided by the builder to procure alternative accommodation and instead saved the money, the same amount was to be constructed as ‘income from various source’ and therefore taxable. When a commissioner confirmed the same, Mr Kothari lodged an appeal with the ITAT.
Mr Kothari’s defence summed up the difficulties he had to endure because of being forced to vacate his flat for redeveloped which was noted by the tax tribunal. Eventually the ITAT upheld the non-taxability of rent compensation by citing a previous ruling made by the tax tribunal. In this particular case, the ITAT forgave a delay of 1,566 days in submitting an appeal to them due to the taxpayer receiving inadequate guidance from their previous tax advisor.
Normally, during the process of revamping a building, the occupants of the apartments are offered either substitute housing by the developer or more frequently granted monetary compensation on a monthly basis. The ITAT ruled that the amount received as rental compensation should be considered a capital receipt rather than a revenue stream of income. Therefore, the former flat owner is not liable to pay any taxes on it.
Revenue receipts come from core operational activities of the business. Capital receipts are those that come from the financial activities of the business. Receipts from sale of goods or services offered by the business constitute revenue receipts. Receipts from sale of assets of the business are capital receipts.
ITAT is a quasi-judicial institution set up in January 1941 that specializes in dealing with appeals under the Direct Taxes Acts. The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination.
Propscience is India’s dedicated property news portal. We cover the latest events, news, trends, deals, new launches and more.
All our services and tools are completely free of cost and available 24X7!
