Taxpublishers.in - Monday Corner Answer to the Quiz for the week (06 Jan 2025)

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Quiz for the week (06 Jan 2025): Harris is a resident Indian. He is one of the owners who occupied a residential unit in an apartment building which consisted of 30 residential units. He had to temporarily vacate the premises for the builder to demolish the block and do fresh construction. The resident's welfare association had permitted the developer to demolish and perform construction in stages. Harris received Rs. 55,000 per month from Dum LLP being the developer during the entire financial year 2024-25. The developer wants to deduct tax at source on such payment and Harris wants to know about the taxability of the receipt. Decide. Best Answer : The above query has to be answered both from the perspective of the recipient Harris who is eligible to receive Rs.55,000 per month throughout the financial year 2024-25 and the tax deduction at source obligation if any, for the payer viz. Dum LLP. The residents welfare association has entered into an agreement with the developer and handed over the possession. All the occupants displaced due to such demolition and fresh construction might have received some amount from the developer which is known as 'transit rent' which is commonly referred as rehabilitation / displacement allowance paid by the developer to the occupant who has some hardship due to the demolition and reconstruction of the buildings. There are legal precedents to hold that such amount so received by the occupant for the displacement or hardship is not a revenue receipt. Accordingly, the payer need not deduct tax at source since the payment is not having the character of income for the purpose of tax deduction. In Sarfaraz S Furniturewalla v. Afshan Sharfali Ashok Kumar & Others (2024) 467 ITR 230 (Bom) it was held so. Similar decision could be found in Smt. Delilah Raj Mansukhani v. ITO (2021) SCC Online ITAT 2440 and Ajay Parasmal Kothari v.ITO (ITA No.2823/Mum/2022). The observation of the tribunal in a similar case in the case of Shri Devshi Lakhamsi Dedhia v. Asstt.CIT (ITA No.5350/Mum/2012) is given below: "……the amounts received as compensation for hardship, rehabilitation and for shifting are not liable to tax. We, therefore, respectfully, following the above decisions are of the considered view that the amounts received by the assessee as hardship compensation, rehabilitation compensation and for shifting are not liable to tax". In Sarfaraz S Furniturewalla's case the court held when the transit rent is not to be considered as revenue receipt and is not liable to tax, there will be no question of TDS from the amount payable by the developer to the tenant. AKSHAY JAIN Jamshedpur

Quiz for the week (06 Jan 2025):

Harris is a resident Indian. He is one of the owners who occupied a residential unit in an apartment building which consisted of 30 residential units. He had to temporarily vacate the premises for the builder to demolish the block and do fresh construction. The resident's welfare association had permitted the developer to demolish and perform construction in stages. Harris received Rs. 55,000 per month from Dum LLP being the developer during the entire financial year 2024-25. The developer wants to deduct tax at source on such payment and Harris wants to know about the taxability of the receipt. Decide.

Best Answer :

The above query has to be answered both from the perspective of the recipient Harris who is eligible to receive Rs.55,000 per month throughout the financial year 2024-25 and the tax deduction at source obligation if any, for the payer viz. Dum LLP. The residents welfare association has entered into an agreement with the developer and handed over the possession. All the occupants displaced due to such demolition and fresh construction might have received some amount from the developer which is known as 'transit rent' which is commonly referred as rehabilitation / displacement allowance paid by the developer to the occupant who has some hardship due to the demolition and reconstruction of the buildings.

There are legal precedents to hold that such amount so received by the occupant for the displacement or hardship is not a revenue receipt. Accordingly, the payer need not deduct tax at source since the payment is not having the character of income for the purpose of tax deduction.

In Sarfaraz S Furniturewalla v. Afshan Sharfali Ashok Kumar & Others (2024) 467 ITR 230 (Bom) it was held so. Similar decision could be found in Smt. Delilah Raj Mansukhani v. ITO (2021) SCC Online ITAT 2440 and Ajay Parasmal Kothari v.ITO (ITA No.2823/Mum/2022).

The observation of the tribunal in a similar case in the case of Shri Devshi Lakhamsi Dedhia v. Asstt.CIT (ITA No.5350/Mum/2012) is given below:

"……the amounts received as compensation for hardship, rehabilitation and for shifting are not liable to tax. We, therefore, respectfully, following the above decisions are of the considered view that the amounts received by the assessee as hardship compensation, rehabilitation compensation and for shifting are not liable to tax".

In Sarfaraz S Furniturewalla's case the court held when the transit rent is not to be considered as revenue receipt and is not liable to tax, there will be no question of TDS from the amount payable by the developer to the tenant.

AKSHAY JAIN
Jamshedpur