Rent Compensation Received from Builder Is Not a Taxable Income: ITAT

Moneylife Digital Team 28 April 2023

Economy & Nation

The compensation received as rent from a builder due in a redevelopment project cannot be taxable income for the former flat owner, the Mumbai bench of the income-tax appellate tribunal (ITAT) has recently held.

This particular case of Ajay Parasmal Kothari (assessee) was identified for scrutiny under the computer-aided scrutiny selection (CASS) mechanism for the financial year (FY)12-13. The assessing officer observed that Mr Kothari had received Rs3.7 lakh from the builder toward rental compensation.

Mr Kothari's flat in a cooperative housing society in Malad had gone for redevelopment, and the builder paid Rs3.7 lakh to him as monthly rental compensation. As per the assessing officer, this amount was not utilised by Mr Kothari for the purpose of alternate accommodation and, thus, he proceeded to treat it as taxable income under the head' income from other sources'. In other words, this additional income would be taxable at the applicable slab rate.

The commissioner of I-T (appeals) upheld the order of the assessing officer, prompting Mr Kothari to file an appeal with ITAT.

Mr Kothari submitted that he received compensation of Rs3,73,191 from Rohan Infrastructure, the builder, since his building in Satsang Bharti CHS Ltd is under redevelopment, due to which he had to move forcefully to a new place for his stay. This resulted in inconvenience and hardship to him, and he claimed that the amount received from the builder was on account of hardship compensation and, thus, is a capital receipt. There he did not add this amount to his total income while filing tax returns.

The I-T department contended that although Mr Kothari received compensation from the builder, he did not utilise it for the accommodation and was living with his parents.

However, the ITAT observed that even though Mr Kothari has not utilised the rent received for his accommodation, he faced hardship by vacating the flat for redevelopment and adjusting himself during the period. It also noted that the coordinate bench has considered a similar issue and adjudicated in the case of Delilah Raj Mansukhani vs ITO (ITA.No. 3526/Mum/2017 dated 29.01.2021).

“The receipt of compensation for hardship is in the nature of capital receipt. Accordingly, the addition made by the assessing officer is deleted. Ground raised by the assessee is allowed,” the ITAT says.

(ITA NO.2823/MUM/2022 A.Y: 2013-14 Date: 3 April 2023)

Comments

User

rakeshmodi14

3 years ago

What if the builder is separately giving us the hardship money, deposit money, shifting and brokerage charges apart from rent. Also what about interest received as compensation from builder for delay in paying rents and project. Will that also be an income?

prvaidya

Replied to rakeshmodi14 comment 3 years ago

Actually the argument should have gone via a different logic. The issue of parity before Law. If Mr A goes and stays with his parents but Mr B goes and hires a house, the latter becomes eligible for tax rebate bit Mr A does not. That is unfair disadvantage to him; the amount he received is actually the hardship compensation to his parents, who had to accommodate him in their life routine. We can imagine Mr A compensating this by making payment of certain facilities in the joint household.