Rental Compensation Paid By Developer Not Liable To Tax, Says ITAT
The tribunal said the amount received by the homeowner was compensation for issues faced due to relocation.
Compensation paid by a property developer to the owner of the house when the house was undergoing redevelopment will not be chargeable to tax, the Mumbai bench of the Income Tax Appellate Tribunal has held.
The tribunal was hearing an appeal made by Ajay Parasmal Kothari, a taxpayer who resides in Mumbai. His building went into redevelopment and therefore, he received a rental compensation of Rs 3.7 lakh from the builder for an alternate accommodation.
When his account was selected for scrutiny by the tax department, it was found that the compensation which was received by him was shown as a capital receipt in his annual return. The tax department, however, alleged that the amount received by Kothari should be treated as income from other sources and brought to tax.
Kothari claimed that he was forced to move to a new place because of the redevelopment work. Hence, the amount received was not added to the total income while filing the tax return.
The case was decided against Kothari by the tax department, which led to the filing of the appeal before the ITAT.
The tribunal said that the amount received by the homeowner is compensation for the hardships that he faced due to relocation. The taxpayer has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period, the ITAT said.
Citing a previous decision of the same bench, it held that such a compensation would not be liable to tax.
Apart from this, the appeal was marred by a delay of 1,566 days from the date of the order of the tax department. However, this was not held against the taxpayer, since the tribunal noted that the delay was on account of misguided advice, tendered to him by his counsel.
