Bombay High Court Diary


The real estate sector has witnessed an upswing today after experiencing a lull during the coronavirus pandemic. Buildings which are dilapidated and in a precarious condition and hence unfit for habitation, out of no choice are undergoing redevelopment rapidly today, as the costs and expenses for undertaking repairs to such buildings are beyond the reach of the residents.

Redevelopment of such old buildings has become a necessity in order to prevent any kind of damage and/or loss to the lives and limbs of the tenants/occupants as well as to the building property.

Emphasizing upon the idea of redevelopment, it is an admitted fact that when a society appoints a developer for the redevelopment of their society property, the developer allots to each and every member of the society, permanent alternate accommodation free of any cost and on ownership basis in the proposed new building accompanied with providing transit compensation to the members of the society during the period of construction of the new building.

[1]A single bench of Justice Rajesh S. Patil of the Bombay High Court was hearing a petition filed by a resident of South Mumbai building pertaining to the issue of transit compensation.

Facts of the case

The building was redeveloped in the year 2017 and subsequently some legal disputes arose between the petitioner and his stepbrothers, who claimed rights over the property and the transit rent payable. The petitioner knocked the doors of the Hon’ble Bombay High Court aggrieved by an order passed by the Small Causes Court, restraining him from withdrawing transit rent deposited by the developer/builder during the property dispute. The court, taking into cognizance the petitioner’s age and financial hardships, permitted him to withdraw 50% of the transit rent.

The court directed the remaining sum to be withdrawn by his stepbrothers. Subsequently, the developer/builder requested for a photocopy of the petitioner’s PAN Card to deduct Tax Deducted at Source (for short, “T.D.S”) from the payable amount as “transit rent.”

Issue in the case

Whether there should be deduction of T.D.S. on the amount payable as ‘Transit Rent’ by the developer/builder?

Contentions canvassed by the parties

The petitioner’s counsel strongly objected to the deduction of T.D.S. from the transit compensation citing precedents set by two Income Tax Appellate Tribunal (for short, “ITAT”) orders.

Observations of the bench

Justice Patil carefully scrutinized Section 194(I) of the Income Tax Act and observed that it makes a reference of Rent and in explanation to the section, the term ‘Rent’ is clarified. The bench also considered the orders passed by the ITAT in the cases of Smt. Delilah Raj Mansukhani and Ajay Parasmal Kothari, which established that such transit compensation is not taxable.

Judgment of the Hon’ble Bombay High Court

After examining Section 194(I) of the Income Tax Act accompanied with the explanation to the section, the Bombay High Court passed the following judgment.

“The ordinary meaning of Rent would be an amount which the Tenant/ Licensee pays to the Landlord/Licensor. In the present proceedings, the term used is “Transit Rent”, which is commonly referred as Hardship Allowance/Rehabilitation Allowance/Displacement Allowance, which is paid by the Developer/Landlord to the tenant who suffers hardship due to dispossession.

Hence, ‘Transit Rent’ is not to be considered as revenue receipt and is not liable to be taxed, as a result there will be no question of deduction of T.D.S. from the amount payable by the developer to the tenant.”

Analysis of the judgment of the Hon’ble Bombay High Court

The tenants/residents of the buildings/societies undergoing redevelopment will breathe a sigh of relief as the judgement endorses the correct proposition of law. It shall help to protect and safeguard their rights and interests in the process of redevelopment undertaken by the developers. It shall act as precedent with respect to the future redevelopment projects.

But however, the question which remains unanswered is, will the tenants/residents of the buildings/societies who have already been victimized in the past due to the wrongful interpretation of the provisions of the Income Tax Act (for short, “I.T. Act”) by the I.T. authorities, be entitled to refund of the T.D.S. on the Transit Compensation paid to them?

[1] Sarfaraz S. Furniturewalla v/s Afshan Sharfali Ashok Kumar & Ors. – Writ Petition No. 4958 of 2024

The article is authored by Mrs. Nirali Yash Desai. she is a real estate lawyer working with Damji Shamji Shah Group, Mumbai  (in house legal department).