Recently, on April 15, 2024 in Writ Petition No. 4958 of 2024 the Bombay High Court in Sarafraz S. Furniturewalla v. Afsan Sharfali Ashok Kumar & Ors, has held that no TDS is required to be deducted on the amount payable as compensation for hardhip, rehabilitation and shifting as the same are not taxable in the hands of deductee.
In the said judgements, the Bombay High Court has approved the decisions of Mumbai Tribunal in (i) Smt. Delilah Raj Mansukhani (bearing ITA No. 3526/Mum?2017 for assessment year 2010-2011) and (ii) Ajay Parasmal Kothari (bearing ITA No. 2823/Mum/2022 for assessment year 2013/14)
The Mumbai Tribunal in Para 5 of the Delilah Mansukhani observed as:
“After hearing the rival submissions and perusing the material on record, we find that compensation received by the assessee towards displacement in terms of Development Agreement is not a revenue receipt and constitute capital receipt as the property has gone into re- development. In such scenario , the compensation is normally paid by the builder on account of hardship faced by owner of the flat due to displacement of the occupants of the flat. The said payment is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax. The case of the assessee is squarely supported by the decision of the Co-ordinate Bench in the case of Shri Devshi Lakhamshi Dedhia v. ACIT in ITA No.5350/Mum/2012 wherein similar issue has been decided in favour of the assessee, the relevant operative portion from the said decision is reproduced hereunder:-
We have considered the rivals submissions and perused the materials on records. We note that the assessee received compensation of Rs. 19,50,873/- from the developer when the building in which the assessee owned flat went for re-development as per the agreement between the developers and flat owners dated 28.03.2008. The said compensation was paid towards hardship Rs, 13,45,273/-; rehabilitation Rs, 5,90,625/- and for shifting Rs. 15,000/-.We also note that the assessee paid Rs. 18,63,000/- to Joys Developers for acquiring additional area of 138 Sq Ft. It was also noted that the assessee shifted to his own house when the building went for re-development. Now the question before us whether the compensation upon re-development of property towards hardship, rehabilitation and shifting received by the assessee is taxable if the potential TDR/FSI is available to the land owner or society which owns the land depending upon the terms of the re-development agreement without transferring the land . In the present case the assessee who was flat owner in the building was member of the society, As per the agreement each member of the society including the assessee was to be given a flat in lieu of the old one and the each member including the assessee was given compensation. We also note that In the decisions in 1TA No 72/Mum/2012 assessment year 2008-09 Bench E and ITA No 5271/Mum/2012 assessment year 2008-09 Bench “D” the Tribunal held that the amounts received as compensation for hardship, rehabilitation and for shifting are not liable to tax”
After considering the aforesaid decisions of the Mumbai Tribunal, the Bombay High Court has held that no TDS on alternative accommodation and other sum paid as a part of development agreement being hardship allowance for inconvenience caused to the assessee.