2024 (5) TMI 163 - HC - Income Tax

TDS u/s 194I - deduction of TDS on the amount payable as Transit Rent , by the developer/builder - HELD THAT - 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 tax, as a result there will be no question of deduction of T.D.S. from the amount payable by the Developer to the tenant. Assessee appeal allowed.

Summary

Issues involved: Interpretation of paragraph No. 10 (viii) of an order dated April 2, 2024 regarding the payment of interest, and whether there should be a deduction of TDS on the amount payable as "Transit Rent" to the petitioner and respondent nos. 1 & 2 by the developer/builder.

Interpretation of paragraph No. 10 (viii): The petitioner sought clarification regarding the deletion of the words "with the interest" in the order, arguing that if amounts are to be returned, they cannot include interest. The court clarified that the decision on whether interest would be payable rests with the Judge of the Court of Small Causes.

Deduction of TDS on "Transit Rent": The court considered Section 194(I) of the Income Tax Act which pertains to the deduction of income tax on rent payments. The term "Rent" was explained in the Act. Referring to previous tribunal judgments, the court held that "Transit Rent" is akin to hardship or rehabilitation allowance and is not a revenue receipt liable to tax, hence no TDS deduction is necessary.

Authorities cited: The court considered the decisions of Income Tax Appellate Tribunal in cases related to compensation for displacement due to development agreements, concluding that such compensation is not taxable. The judgments highlighted that amounts received as hardship, rehabilitation, or shifting compensation are not subject to tax, supporting the view that "Transit Rent" falls under a similar category.

Conclusion: The court determined that "Transit Rent" is not a revenue receipt and therefore not subject to taxation, aligning with the tribunal judgments on similar compensation scenarios. Consequently, there is no requirement for TDS deduction from the amount payable by the developer to the tenants facing hardship.