Redevelopment payments to members: project cost, capital and TDS

This is Part 2 of a three-part study of how a developer is taxed on a redevelopment project. Part 1 covers the four scheme types and the characterisation of what the developer acquires and gives. Part 2 covers what the developer pays the members and how it is taxed and withheld. Part 3 covers revenue recognition, Ind AS 115, the minimum tax and the slum-scheme deductions.

A redevelopment agreement in Ahmedabad or Mumbai is, in large part, a schedule of payments. The developer pays the members rent while their building is down, pays them to move out and to move back, pays a corpus to the society or to each member, and often pays a lump sum described as hardship or displacement compensation. In a slum scheme it pays every eligible hutment dweller a monthly sum until a rehab tenement is ready. These are not small amounts. In a society of forty members paid Rs 25,000 a month for thirty months, the rent alone is three crore rupees before a single unit has been sold.

Two questions follow for the developer, and they are separate. The first is how the payments enter the computation of its income: as part of the cost of its stock, deductible only when that stock is sold; as expenses of the year in which they are paid; or as capital outlay never deductible at all. The second is whether the developer should have deducted tax at source when it paid them, and if it did not, whether part of the expense is disallowed. The Revenue has pressed the second question far harder than the first, and the case law on it is substantial. This Part takes the payments in turn, then the allocation of rehab cost with a worked example, then the four withholding provisions.

Key points

• Corpus, hardship compensation, rent for alternate accommodation and shifting charges are part of the cost of the development rights that are the developer’s stock in trade. They are carried in work in progress and deducted when the revenue they produce is recognised.
• They are not capital outlay in a developer’s hands. They would be capital only for a payer that holds the rights as a capital asset, such as a landowner clearing a title before a sale.
• The cost of constructing the rehab component is part of the cost of the free-sale component, FSI or TDR. The Mumbai Tribunal has allocated common cost by saleable area and has rejected a notional cap on cost. No High Court decision was traced.
• The Mumbai Tribunal has held in at least seven decisions that monthly payments to members or slum dwellers for alternate accommodation are not rent under section 194-I. The Bombay High Court agreed in April 2024 in a civil writ, and a Division Bench applied that ruling in April 2026 and directed a developer to pay over the tax it had deducted.
• Alternate accommodation charges and hardship allowance are not consideration under a specified agreement for section 194-IC, on two Mumbai decisions. Genuine cash paid to an individual owner under a registered joint development agreement is.
• Section 194-IA applies to a cash buy-out of a member and, arguably, to corpus paid to the society as the price of development rights. It does not apply to monthly displacement payments.
• Where tax was deductible and not deducted, section 40(a)(ia) disallows thirty per cent, and the second proviso removes the disallowance where the payee has returned and paid tax on the income.
• No ITAT Ahmedabad or Gujarat High Court decision on any of these payments was traced.

What the developer pays, and what the agreements call it

The payments fall into five groups. The names vary from agreement to agreement and the tax analysis does not depend on the name.

Rent for alternate accommodation. A monthly sum paid to each member, or to each eligible slum dweller, from the date of vacating to the date of possession of the new unit. Gujarat agreements commonly call it rent; Mumbai agreements call it rent, transit rent, displacement compensation or alternate accommodation charges. It is sometimes paid with a deposit and a month’s rent in advance, as in the Gujarat Housing Board scheme in Hansaben Ratubhai Prajapati, where the developer offered a rent deposit of Rs 27,000 and advance rent of Rs 13,500 and then Rs 13,500 a month. In a slum scheme the developer may instead build transit accommodation, which is a construction cost and not a payment.

Shifting charges. A lump sum paid at each end, or the cost of a transporter engaged by the developer. Rule 23 of the Gujarat Ownership Flats Rules of 2019 lists shifting charges among the items the development agreement must deal with. In Hansaben the figure was Rs 10,000.

Corpus. A sum paid either to the society, to fund the maintenance of the new building, or to each member, often computed by reference to the area of the member’s flat. Rule 23 lists the “corpus fund, if any”. Where it is paid to the society it is usually the society’s consideration for granting the development rights; where it is paid to members it is often indistinguishable from hardship compensation.

Hardship or displacement compensation. A lump sum paid to each member for agreeing to the redevelopment and enduring its disruption. In Ranjana Hemant Pendharkar v. ITO, discussed below, the agreement described a payment of Rs 82 lakh, at Rs 5,500 a square foot, as a lump sum “for having given concurrence and consent for the redevelopment” inclusive of compensation for alleviating hardship, for allowing the developer to demolish the flats, and for agreeing to share the common areas.

Payments to others. Premium to the planning authority or to MHADA, payments to the slum authority, brokerage paid to secure consents, and the costs of the project management consultant. These are developer costs in the ordinary sense and are mentioned here only where they interact with the payments to members.

How the member is taxed, and why it matters to the developer

This study is about the developer, and member-side taxability is dealt with only where it drives the developer’s position. It drives it in one important respect: the courts that have decided the developer’s withholding obligation have reasoned from the character of the receipt in the member’s hands. If the payment is not income of the member, the argument goes, there is nothing on which to deduct tax. That reasoning is not always correct (the obligation to deduct turns on the words of the withholding provision, not on the payee’s eventual liability) but it is the reasoning the Bombay High Court adopted, and it has to be understood.

The capital receipt line. In Smt. Delilah Raj Mansukhani v. ITO, ITA 3526/Mum/2017, decided on 29 January 2021 for assessment year 2010-11, the Tribunal held 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”, and that the payment “is in the nature of hardship allowance / rehabilitation allowance and is not liable to tax”. In Ranjana Hemant Pendharkar v. ITO, ITA 7825/Mum/2025, decided on 25 March 2026 for assessment year 2016-17, the Assessing Officer had taxed Rs 82 lakh of “Member’s Compensation” as capital gains on a transfer; the Tribunal held at paragraph 11 that “such compensation cannot be treated as consideration for transfer of any right in the immovable property” and at paragraph 12 that it was not taxable. The same line runs through Narayan Devarajan Iyengar, Kunnama V. Balakrishna, Jitendra Kumar Soneja, Haresh Damji Shah and others in Mumbai, and has been followed in Indore and Kolkata.

The cost reduction qualification. In Kunnama V. Balakrishna v. ITO, ITA 2577/Mum/2023, decided on 12 December 2023, the Tribunal held that “the impugned receipt ends up reducing the cost of acquisition of the asset, i.e. flat, and, therefore, the same will be taken into account as such, as and when occasion arises for computing capital gains”, recording that the Tribunal had taken the same view in Kushal K. Bangia v. ITO, ITA 2349/Mum/2011, reported at (2012) 50 SOT 1; the Bangia order itself was not read. On this view the receipt is not income when received, but it is not free of tax forever; it reduces the member’s cost when the new flat is eventually sold.

The Revenue’s argument. In Smt. Urmila Dhelia v. ITO, ITA 4259/Mum/2025, decided on 6 January 2026, the Assessing Officer had treated a corpus of Rs 62.05 lakh as income from other sources, reasoning that the society’s activities were commercial and that the monetary consideration was in substance a distribution to its members. That is the Revenue’s best argument and it is recorded here for that reason; the Tribunal’s own operative holding in that case was not checked. No Tribunal or High Court decision upholding the taxation of hardship compensation as income could be traced.

The new flat. In Rajesh Shamji Furia v. ITO, ITA 1672/Mum/2026, decided on 16 July 2026 for assessment year 2018-19, the Tribunal held at paragraph 10 that “a redevelopment scheme does not result in extinguishment of the owner’s proprietary rights followed by acquisition of an altogether fresh capital asset”, and at paragraph 16 that the redeveloped flat “was continuation of the existing capital asset and not acquisition of a fresh capital asset”; it recorded that the Assessing Officer had accepted that section 56(2)(x) did not apply to the flat received. That reasoning supports the developer’s position in Part 1 that the rehab flat is not a sale: if the member acquires nothing new, the developer has sold nothing.

Why this matters to the developer. Two consequences. A developer that deducts tax on a payment the member is not liable to tax on will face the member’s demand for the money, and after Ganga Appa Mhaskar, discussed below, possibly a court’s direction to pay it over. And a developer that does not deduct will rely, before the Assessing Officer, on decisions whose reasoning starts from the member’s side. Both make the member’s position part of the developer’s file.

In the developer’s hands: cost of stock, expense of the year, or capital outlay

The developer’s income is computed under the head profits and gains of business or profession. The question is how each payment enters that computation, and the answer follows from the characterisation in Part 1: the development rights are stock in trade.

The principle. The cost of inventory includes every cost incurred in bringing it to its present condition. For a developer, the inventory is the free-sale area, FSI or TDR, and its cost includes the cost of acquiring the right to build it. The 2012 Guidance Note on Accounting for Real Estate Transactions says so expressly, including “rehabilitation costs” in the cost of land and development rights at paragraph 2.2(a). Every payment the developer makes to secure vacant possession and the members’ consent is part of what it paid for that right. Those payments are therefore carried in work in progress and charged to the profit and loss account, and deducted for tax, when the revenue from the inventory is recognised, whether that is on completion or progressively under the percentage of completion method discussed in Part 3.

That is how the developers in the reported cases treated them, and the Revenue did not object to the treatment as such. In the first Shivalik Ventures appeal, ITA 3429/Mum/2024, pronounced on 16 September 2024 (the cover page gives 19 September 2024) for assessment year 2012-13, Rs 2,33,65,500 paid to slum dwellers until they received rehab units had been carried in work in progress; the Assessing Officer recorded that “this expenditure forms part of the Work in Progress shown by the assessee”, disallowed it under section 40(a)(ia) and reduced the work in progress accordingly, and the Commissioner (Appeals), confirmed by the Tribunal, directed that the work in progress “shall be restored by the extent of disallowance”. In ITO v. Royal Fantasy Construction Pvt. Ltd., ITA 2968/Mum/2022, decided on 23 January 2023, hardship, shifting and temporary accommodation payments under a slum arrangement were shown as project cost in work in progress and not debited to the profit and loss account; the order states the amount in three inconsistent ways, so the figure should not be relied on.

Rent for alternate accommodation. The payment is made because the developer needs vacant possession for the whole construction period. It is a cost of the development rights and belongs in work in progress. A developer may argue that rent paid after the free-sale units are complete and sold, for example because rehab possession is delayed, is a period cost of the year. The Tribunal accepted a similar argument for interest in Triple Securities, where the part occupancy certificate had been obtained in an earlier year, relying at paragraph 33 on DCIT v. Sanathnagar Enterprise Ltd., (2022) 196 ITD 89 (Mum), where a coordinate Bench held that interest on borrowings for stock in trade is allowable under section 36(1)(iii) “irrespective of its capitalization as WIP”, and in Sunteck Realty Ltd., ITA 7882 and 7883/Mum/2025, decided on 15 September 2026, it allowed interest decapitalised from work in progress on the adoption of Ind AS 115 and Ind AS 23, holding at paragraph 17 that the change “does not render a real expenditure fictitious”. The Revenue’s answer is that rent is incurred for the project and for nothing else, so it can never be a period cost; the analogy with interest, which is allowed under its own section, is imperfect.

Corpus and hardship compensation. These are the clearest case of cost of development rights. They are paid to obtain consent to the redevelopment, and without that consent there is no stock. They belong in work in progress.

Shifting charges. The same, being the cost of obtaining and returning possession.

Penalty for delay. A sum paid to members for delay in delivering the rehab flats is compensatory, not penal, and is a revenue expense of the business. Whether it is a project cost or a period cost depends on the developer’s accounting; the better view is that a delay payment arising after the free-sale revenue has been recognised is a cost of the year in which it accrues. The Revenue may argue that a delay payment fixed in the development agreement is part of the price of the development rights and so belongs in work in progress, and that it is contingent until the delay occurs; no decision was traced. Explanation 1 to section 37(1), which disallows expenditure for a purpose that is an offence or prohibited by law, has no application to a contractual delay payment.

Capital outlay. In a developer’s hands the payments are not capital outlay as long as the development rights are stock in trade, which is the position on every Tribunal decision traced. The Revenue can argue otherwise in two situations: where the developer holds the rights as an investment, for example a group company that acquires them and later assigns them to an affiliate; and where a payment buys an enduring advantage separate from the project, such as a payment to extinguish a tenancy in a building the developer will keep and lease. The developer’s answer in an ordinary redevelopment is that it keeps nothing; every unit is either delivered to a member or sold. The question arises mainly for a payer that holds the land or rights as a capital asset, typically a landowner that clears occupants before selling. In Skyline Greathills, ITA 3554 and 3905/Mum/2025, decided on 1 July 2026, a provision of Rs 15 crore for clearing slum encroachments was examined as an expense on transfer in a capital gains computation, and the Tribunal upheld the claim in principle at paragraph 36, where the expense is “directly and intrinsically connected with conveying a clear, marketable and unencumbered title”, remitting only the amount for verification. That is the capital gains question, and it is not the developer’s.

Cash payments and genuineness. Payments to slum dwellers are often made in cash, and section 40A(3) disallows expenditure where a payment exceeding ten thousand rupees in a day is made otherwise than by an account payee cheque or bank draft, the electronic clearing system through a bank account or another prescribed electronic mode, subject to the exceptions in rule 6DD. The decisions traced are all remands or estimate cases: in Shreedham Construction Pvt. Ltd., ITA 2948/Mum/2017, decided on 14 November 2017, cash payments of Rs 25,89,156 to slum dwellers had been cut from work in progress and the matter was remanded on evidence that they were in fact made by cheque; in ITO v. Abdul Kayum Ahmed Mohd. Tamboli, ITA 5851/Mum/2018, decided on 6 July 2020, the Tribunal held at paragraph 4 that “once the income is estimated, no further disallowance u/s 40A(3) would be warranted”; and in Rafat Saiyed Abdullah Shaikh, ITA 6535/Mum/2025, decided on 20 April 2026, an ad hoc disallowance of Rs 15 lakh, out of Rs 75.8 lakh claimed as commission paid in cash to 298 persons for vacating encroached land, was restored with the whole appeal to the Commissioner (Appeals) for fresh decision. The other side of the coin appears in DCIT v. Resonant Realtors Projects Pvt. Ltd., ITA 819-820/Mum/2021, decided on 13 February 2023, where on-money in a slum project was taxed at a gross profit rate of 17.5 per cent rather than in full, the Tribunal observing at paragraph 25 that “in the line of such business, lot of cash expenditure is incurred”, including “additional compensation to slum dwellers for their extended premises”. No decision applying section 40A(2)(b) to payments to members was traced.

Is the rehab cost a cost of the free-sale component? A worked example

The most consequential allocation question in redevelopment is whether the cost of constructing the rehab component is part of the cost of the free-sale component. If it is, the developer’s profit on the free-sale units is the sale price less the whole cost of the project. If it is not, the free-sale units carry only their own construction cost, the profit on them is much larger, and the rehab cost is deductible, if at all, on some other basis and in some other year.

The authority. The Mumbai Tribunal has consistently treated the rehab cost as part of the cost of what the developer sells. In Akruti City the Commissioner (Appeals), confirmed by the Tribunal, held that the “cost of FSI formed part of the cost of construction of sale component”. In Shafaa Construction the actual cost of the slum scheme was deducted against the sale proceeds of FSI, TDR and free-sale flats. In Siddharth Developers, ITA 707/Mum/2022, decided on 3 January 2023, where the rehab area was 69,815 square feet out of 1,24,753, the Tribunal rejected the Assessing Officer’s notional cap on cost. And in Skylark Build the cost of the transit buildings was deducted against the income from the TDR they generated. A different allocation dispute shows the key the Tribunal accepts. In Heritage Housing & Development Corporation v. ACIT, ITA 2607/Mum/2011 and connected appeals, decided on 11 March 2015 for assessment years 2005-06 to 2007-08, a section 80-IB(10) case on a slum scheme, the Tribunal upheld, in favour of the Revenue, the Assessing Officer’s allocation of maintenance expenses between the residential and commercial buildings on the basis of saleable area (paragraph 13). It decides nothing about rehab cost, but it shows saleable area being accepted as an allocation key. No High Court decision on the allocation of rehab cost was traced.

The worked example. A developer redevelops a Gujarat society of forty members under section 41A. The numbers below are illustrative only.

Item	Area or basis	Amount (Rs crore)
Rehab component, forty flats	30,000 sq ft built-up at Rs 3,200	9.60
Free-sale component	45,000 sq ft built-up at Rs 3,200	14.40
Rent for alternate accommodation	40 members, Rs 25,000 a month, 30 months	3.00
Corpus	40 members at Rs 5 lakh	2.00
Shifting charges	40 members at Rs 40,000	0.16
Premium, approvals and consultants		4.00
Total project cost		33.16
Free-sale revenue	45,000 sq ft at Rs 9,000	40.50

Approach A, the developer’s: everything is cost of the free-sale component. The rehab construction, the payments to members and the premium are all the price of the right to build and sell the 45,000 square feet. Profit on completion is 40.50 less 33.16, which is Rs 7.34 crore, a margin of about eighteen per cent on revenue. If by the year end only sixty per cent of the free-sale area had been sold and the developer recognises revenue unit by unit on completion, the matching cost is sixty per cent of 33.16, which is 19.90, against revenue of 24.30, giving a profit of Rs 4.40 crore, with the balance of cost carried in closing stock.

Approach B, the Revenue’s first line: the rehab component is not cost of the free-sale units. The Assessing Officer allows the free-sale construction and the premium against the free-sale revenue and treats the rehab construction and member payments as unrelated to it. Profit on the free-sale units becomes 40.50 less 14.40 less 4.00, which is Rs 22.10 crore. The remaining Rs 14.76 crore would then have to be deductible somewhere else; but the developer does not sell the rehab flats, so on this approach it is never deducted at all, and the developer is taxed on Rs 22.10 crore against an economic profit of Rs 7.34 crore. That result is why the Tribunal has rejected it: the rehab cost was incurred for one purpose only, to obtain the right to build what is sold, and the Act does not tax gross receipts.

Approach C, the Revenue’s second line: the rehab handover is a sale. The Assessing Officer accepts that the rehab cost is deductible, but treats the handover of the rehab flats as a transfer of stock for the development rights and applies section 43CA. Suppose the rehab flats are handed over in year two and their stamp duty value is Rs 6,000 a square foot, or Rs 18.00 crore. Year two income is 18.00 less the rehab construction and member payments of 14.76, which is Rs 3.24 crore. The development rights are then stock costing Rs 18.00 crore, and year three profit on the free-sale units is 40.50 less 14.40 less 4.00 less 18.00, which is Rs 4.10 crore. Total profit over the two years is 3.24 plus 4.10, which is Rs 7.34 crore, the same as Approach A.

What the example shows. Approach C does not increase the developer’s total income; it accelerates part of it to the year of the rehab handover, before a single free-sale unit may have been sold, and it can do so only by computing a consideration for the rehab flats that no document records. Approach B does increase total income, by denying a real cost, and is wrong in principle. Approach A is the only one that taxes the profit actually made in the year it is made. The example also shows why the barter argument matters more for the minimum tax than for normal tax: a developer reporting under Ind AS that books revenue on the rehab flats at fair value, with an equal cost, has no additional profit, but if the fair value booked as revenue differs from the cost actually incurred, as it will, the difference passes through the profit and loss account and into book profit. That is taken up in Part 3.

Allocation where the output is mixed. Where the scheme produces both free-sale flats and TDR, the common cost has to be allocated between them. Saleable area is one available basis, the basis upheld for a different allocation in Heritage Housing, and relative sales value is the other. ICDS II, paragraph 9, provides that where a process produces more than one product simultaneously and the costs of conversion of each are not separately identifiable, “the costs shall be allocated between the products on a rational and consistent basis”, which is the statutory footing for either choice. Suppose in the example that 10,000 square feet of the developer’s entitlement is sold as TDR for Rs 4.00 crore and the remaining 35,000 square feet are built and sold for Rs 31.50 crore. The free-sale construction cost then falls to 35,000 square feet at Rs 3,200, or Rs 11.20 crore, and it is the common cost of Rs 18.76 crore (the rehab construction, member payments and premium) that is allocated. By area, the TDR carries 10/45 of the common cost, or Rs 4.17 crore, exceeding its sale price and producing a loss on the TDR. By value, it carries 4.00/35.50 of the common cost, or Rs 2.11 crore, producing a profit. The total is the same either way. What changes is the year, if the TDR is sold and taxed before the flats are completed, which is the timing dispute described in Part 1. Whichever basis the developer adopts should be stated at the outset and applied consistently.

Tax deduction at source: the framework

Four withholding provisions are argued in redevelopment, and the Revenue has tried each of them on the same payments. The framework is common to all four.

The obligation and the sanction. Chapter XVII-B imposes the obligation to deduct on the person responsible for paying. Where tax was deductible and was not deducted, or was deducted and not paid by the due date for the return, section 40(a)(ia) disallows “thirty per cent of any sum payable to a resident”, and the first proviso allows that thirty per cent in the year in which the tax is later paid. The payer is also exposed to proceedings under section 201(1) as an assessee in default, with interest under section 201(1A).

The escape where the payee has paid. The first proviso to section 201(1) provides that the payer is not an assessee in default if the payee “(i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income”, and the payer furnishes an accountant’s certificate in the prescribed form. The second proviso to section 40(a)(ia) then deems the payer to have deducted and paid the tax “on the date of furnishing of return of income by the payee”, which removes the disallowance. In Sugee Seven Developers, discussed below, the Tribunal remanded the case to the Assessing Officer to verify whether the payees had offered the sums to tax and directed him “not to deny the claim on the ground that Form 26A has not been filed”.

The Income-tax Act, 2025. The withholding provisions for residents are consolidated into the Table in section 393(1), headed “for payments to resident”. The disallowance is section 35(b)(i), in terms that track section 40(a)(ia) with its two provisos folded into sub-clauses (A) and (B), and the payee-has-paid escape is section 398(2). The serial numbers are given against each provision below and in the concordance at the end.

A preliminary point on reasoning. The obligation to deduct turns on the character of the payment as the withholding provision defines it, not on whether the payee will ultimately be taxed. The member-side decisions that hardship compensation is a capital receipt are therefore not, by themselves, an answer to a withholding demand; section 194-IA, for example, applies to the consideration for a transfer whether or not the transferor makes a gain. What decides section 194-I is whether the payment is “rent” as that section defines it, and what decides section 194-IC is whether it is consideration under a specified agreement. The Mumbai decisions mostly reason on those terms, but the Bombay High Court’s April 2024 ruling reasons from the receipt, and the distinction matters when the payment in question is not transit rent.

Section 194-I: is rent for alternate accommodation rent?

The provision. Section 194-I requires any person other than an individual or a Hindu undivided family below the turnover limits, “who is responsible for paying to a resident any income by way of rent”, to deduct ten per cent for the use of land, building or furniture and fittings, and two per cent for plant, machinery or equipment. The first proviso, substituted by the Finance Act, 2025 with effect from 1 April 2025, exempts rent that “does not exceed fifty thousand rupees” for a month or part of a month; before that the threshold was two hundred and forty thousand rupees a year. “Rent” is defined in clause (i) of the Explanation as “any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any” land, building, land appurtenant to a building, machinery, plant, equipment, furniture or fittings, “whether or not any or all of the above are owned by the payee”. In the Income-tax Act, 2025 rent is serial 2 of the Table in section 393(1), at the same rates for a specified person and with a threshold of “Rs. 50,000 for a month or part of a month”, and the definition is section 402(29).

The Revenue’s argument. The definition is deliberately wide: “any payment, by whatever name called”, under “any other agreement or arrangement”, for the use of a building, “whether or not” owned by the payee. The developer pays the member a monthly sum so that the member can occupy a building while the old one is rebuilt. The arrangement is for the use of a building, the payment is periodic and computed like rent, the agreement usually calls it rent, and the definition does not require the payer to be the occupier. In ITO (TDS) v. Nathani Parekh Constructions Pvt. Ltd., the Revenue pressed exactly this, relying on the clause of the development agreement that called the payment rent and on a clause in which the developer had agreed to deduct tax on it.

The developer’s argument, and the authority. The developer does not use any land or building. It is not a tenant or licensee of anyone. It pays the member a sum of money, and what the member does with it, whether the member rents a flat, stays with relatives or buys a flat, is the member’s affair. The payment compensates the member for being displaced, and its measure is the inconvenience, not the value of any premises the developer occupies. The Mumbai Tribunal has accepted this argument in every decision traced.

• Sahana Dwellers Pvt. Ltd. v. ITO, ITA 5963/Mum/2013, decided on 24 February 2016 and reported at 158 ITD 78, as cited in Omkar Realtors, a slum redevelopment of a municipal building in which the developer paid displaced tenants monthly compensation, initially Rs 5,000 each. As reproduced in Shree Jalaram Builders, the Tribunal held that “the concerned persons to whom the assessee had made the payment are neither tenants of the assessee nor the assessee has in reality paid rent on behalf of them”. The original order could not be read.
• Shree Jalaram Builders & Developers v. ITO, ITA 1730/Mum/2021, decided on 25 April 2022 for assessment year 2015-16, monthly payments to society members under a redevelopment agreement of 28 March 2013, Rs 41,81,760 disallowed. The Commissioner (Appeals) had shifted the case to section 194-IA. The Tribunal held at paragraph 6 that the issue was covered by Sahana Dwellers, reproducing its finding that the payment was “nothing else but in the nature of compensation” and could not be treated as rent, and at paragraph 7 that section 194-IA “is not at all applicable to the facts here”. It was followed for assessment year 2017-18 in ITA 2592/Mum/2022 on 20 December 2022.
• DCIT (TDS) v. Omkar Realtors & Developers Pvt. Ltd., ITA 2006 and 2007/Mum/2020, decided on 25 May 2022, following the developer’s own earlier order that “this compensation/payment cannot be compared with rent within the meaning of section 194-I”.
• ITO (TDS) v. Nathani Parekh Constructions Pvt. Ltd., ITA 4087, 4088, 4100 and 4101/Mum/2023, decided on 21 May 2024 for assessment years 2013-14 to 2016-17, the redevelopment of a society of more than three hundred tenants, where the Assessing Officer had passed orders under section 201(1) and (1A). The Tribunal held at paragraph 10 that “the payment made by the assessee towards ‘Alternate accommodation charges / rent’ is not liable for tax deduction under section 194I”, notwithstanding the agreement’s language.
• Shivalik Ventures Pvt. Ltd., two decisions: ITA 3429/Mum/2024, decided on 16 September 2024 for assessment year 2012-13, and ITA 1445 and 1477/Mum/2025, decided on 20 June 2025 for assessment years 2021-22 and 2016-17, both on payments to slum dwellers in a slum scheme, both deleting the disallowance under section 40(a)(ia) and both following the Bombay High Court.
• ITO v. Royal Fantasy Construction Pvt. Ltd., ITA 2968/Mum/2022, decided on 23 January 2023, holding at paragraph 6 that “the payment made is of compensatory nature” outside section 194-I.

The Bombay High Court. In Sarfaraz S. Furniturewalla v. Afshan Sharfali Ashok Kumar, Writ Petition 4958 of 2024, decided by a single judge on 15 April 2024, the question arose in a civil dispute between private parties connected with a rent suit, when the developer’s counsel asked for the occupants’ permanent account numbers so that tax could be deducted from transit rent. The Court held at paragraph 10 that “the ordinary meaning of Rent would be an amount which the Tenant / Licensee pays to the Landlord / Licensor”, that transit rent “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”, and that it “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”. The Revenue was not a party, and the ruling is not a tax appeal; the Tribunal has nonetheless treated it as a ruling of the jurisdictional High Court, as in Shivalik Ventures.

The point was then taken further by a Division Bench. In Ganga Appa Mhaskar v. State of Maharashtra, a batch led by Writ Petition 4683 of 2024, decided on 8 April 2026 by M.S. Karnik and S.M. Modak JJ, the developer of a slum scheme had deducted ten per cent from transit rent. The Division Bench quoted paragraph 10 of Sarfaraz and held that the developer “is not justified in deducting the TDS from the amount of rent payable to the petitioners-tenants”, that if the amounts had already been deposited “it is for the respondent no.6 to place the legal position before the Income Tax Department and seek appropriate reliefs”, and directed the deducted amounts to be paid to the tenants within four months. That is the strongest authority in the developer’s favour: a Division Bench of the jurisdictional High Court in Mumbai not merely holding that tax is not deductible but directing a developer that had deducted it to make good the amount to the occupants.

Where the point now stands, and the cases that remain arguable. On transit rent paid by a developer to a member or slum dweller, the Revenue’s argument has failed consistently, and it is difficult to see an Assessing Officer in Mumbai succeeding against a Division Bench. The Ahmedabad position is different only in that no Gujarat authority exists; the Ahmedabad Bench would ordinarily follow the Mumbai Tribunal. Three situations remain arguable:

1. Where the developer itself takes the alternate premises on lease or licence and puts members into them, the developer is the tenant or licensee, the payment to the landlord is rent for the developer’s use of a building, and section 194-I applies on its terms if the monthly threshold is crossed. Nothing in the Mumbai line suggests otherwise.
2. Where the agreement makes the developer responsible for paying a named landlord on the member’s behalf, the Revenue will argue that the developer has assumed the member’s rent obligation, so that the payment is rent paid on the member’s behalf. Sahana Dwellers answered that argument on its facts, holding that the developer had not “in reality paid rent on behalf of them”. A developer that pays the landlord directly under a tripartite document is in a weaker position than one that pays the member.
3. Where the agreement calls the payment rent and records the developer’s undertaking to deduct tax, as in Nathani Parekh, the Revenue will rely on the developer’s own characterisation. That argument failed in Nathani Parekh, but a developer drafting today has no reason to give it to the Revenue.

Section 194C: shifting charges and the contractor

Section 194C requires a specified person paying a resident contractor “for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract” to deduct one per cent where the contractor is an individual or a Hindu undivided family and two per cent otherwise, subject to a threshold of thirty thousand rupees for a single sum and one lakh rupees in aggregate in the year. “Work” includes “carriage of goods or passengers by any mode of transport other than by railways”. A “specified person” includes, in clause (e) of the Explanation, “any co-operative society”. In the Income-tax Act, 2025 the provision is serial 6 of the Table in section 393(1), and the list of payers is the definition of “designated person” in section 402(11).

Shifting allowance paid to the member. The member does not carry out any work for the developer under a contract; the developer pays the member a sum to cover the cost of moving, and the member moves himself or hires whom he likes. Section 194C has no application. The argument to the contrary would have to treat the member as a contractor for the carriage of his own goods, which the section’s words do not support. No decision dealing with shifting charges as a separate head was traced, so this is the analysis on the text rather than on authority.

A transporter engaged by the developer. Where the developer itself engages packers and movers to shift the members’ belongings, the payment is for carriage of goods under a contract between the developer and the transporter, and section 194C applies if the thresholds are crossed. The developer will usually be a specified person.

Construction and demolition. Payments to demolition and construction contractors are within section 194C in the ordinary way and are mentioned here only because, in a self-redevelopment, the payer is the society itself. A cooperative society is a specified person under clause (e), and so a society that becomes its own developer takes on the withholding obligations a developer would otherwise have, on its contractor, its project management consultant under section 194J, and its architects. That is one of the practical consequences of self-redevelopment that the societies attracted by it are least likely to have planned for.

Section 194-IA: the buy-out, the corpus, consideration in kind and TDR

The provision. Section 194-IA(1) requires “any person, being a transferee, responsible for paying … to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land)” to deduct “one per cent of such sum or the stamp duty value of such property, whichever is higher”. Sub-section (2) exempts the transfer where “the consideration for the transfer of an immovable property and the stamp duty value of such property, are both, less than fifty lakh rupees”, and the proviso inserted with effect from 1 October 2024 aggregates the consideration where there is more than one transferor or transferee. “Immovable property” is defined in clause (b) of the Explanation as “any land (other than agricultural land) or any building or part of a building”, and clause (aa) extends the consideration to charges such as club membership, car parking and maintenance “incidental to transfer of the immovable property”. In the Income-tax Act, 2025 the provision is serial 3(i) of the Table in section 393(1), with Note 1 to serial 3 carrying the aggregation and Note 3 the fifty lakh rupee threshold.

Monthly displacement payments. Section 194-IA does not apply to them. In Shree Jalaram Builders the Commissioner (Appeals) had held that “the payment of compensation by the appellant in this case, will attract provisions of section 194-IA”, and the Tribunal held at paragraph 7 that the section “is not at all applicable to the facts here”. The payments are not consideration for any transfer.

A cash buy-out of a member. Where a member takes cash in lieu of a new flat, as the Gujarat Rules allow, the developer acquires the member’s flat for money. That is a transfer of a building or part of a building to the developer as transferee, and section 194-IA applies if the consideration or the stamp duty value reaches fifty lakh rupees. The aggregation proviso means that a jointly held flat is tested on the whole price. This is the situation discussed in Part 1, and it is the clearest case for section 194-IA in redevelopment.

Corpus paid to the society. This is the open case. Where the developer pays the society a corpus as the price of the development rights, the Revenue’s argument is that the society transfers an interest in its land, a right to construct, to the developer as transferee, for a sum of money, so that section 194-IA applies to the corpus at one per cent if the threshold is crossed. The developer’s argument is that the society transfers nothing that is “land … or any building or part of a building”: it grants a licence to enter and construct and keeps its title, and the new building is built for and vests in the society and its members, so that there is no transfer of immovable property to the developer at all. Section 2(47)(v), which treats allowing possession in part performance of a contract as a transfer, is a capital gains definition for the society’s side and does not define “transfer” for section 194-IA. No decision on corpus paid to a society under section 194-IA was traced. A cautious developer that pays a large corpus to a society deducts under section 194-IA and lets the society claim credit; a developer that takes the other view should know that it is a view and not a settled position.

Consideration in kind. The section applies to “any sum by way of consideration”. The rehab flats are consideration in kind and are not a sum, so section 194-IA cannot apply to them, and the same is true in the 2025 Act, whose serial 3(i) speaks of “any consideration” but in a Table setting rates on a sum paid or credited. The closest authority is Chief Accounts Officer, BBMP v. ITO, ITA 719 and 720/Bang/2014, decided by the Bangalore Tribunal on 14 November 2014 on section 194LA, which held at paragraph 26 that “the expression ‘any sum’ used in Sec.194LA of the Act is a clear indication that those provisions are applicable only when payment is of consideration in terms of money”, and at paragraph 29 that development rights certificates “cannot be brought within the meaning of the expression ‘by any other mode’”. The reasoning applies equally to section 194-IA. Section 194-IC makes the same point expressly by excluding “consideration in kind”.

Purchase of TDR. A developer that buys TDR from a slum developer or a landowner pays a sum for a right to build. Whether that right is “land” within clause (b) of the Explanation, so that section 194-IA applies at one per cent above the threshold, has not been decided and no Board clarification was found. The argument that it is not follows Shafaa Construction, which held that FSI “cannot be treated as land itself” for section 50C. The argument that it is follows from the stamp law, which treats a transfer of TDR as a conveyance of an interest in immovable property. Most developers deduct and let the seller claim credit, which is the safer course while the point is open.

Section 194-IC: hardship, rent and the specified agreement

The provision. Section 194-IC requires, “notwithstanding anything contained in section 194-IA”, any person responsible for paying to a resident “any sum by way of consideration, not being consideration in kind, under the agreement referred to in sub-section (5A) of section 45” to deduct ten per cent. There is no threshold. Section 45(5A) is explained on its own provision page. The section was inserted by section 65 of the Finance Act, 2017, which came into force on 1 April 2017 under section 1(2) of that Act. In the Income-tax Act, 2025 the provision is serial 3(ii) of the Table in section 393(1), “any consideration, not being consideration in kind, under the agreement referred to in section 67(14)”, at ten per cent with a nil threshold, and Note 2 to serial 3 provides that where both serials 3(i) and 3(ii) apply, tax is deducted under 3(ii) only. The section is the subject of its own provision page.

Three conditions. The payment must be (i) consideration, (ii) not in kind, (iii) under a specified agreement, which in turn requires an individual or Hindu undivided family owner, a registered agreement, and consideration in the form of a share in the project with or without cash.

Hardship compensation and alternate accommodation charges are not consideration. In Nathani Parekh Constructions Pvt. Ltd. v. ITO (TDS), ITA 4174 and 4171/Mum/2023, decided on 11 July 2024 for assessment years 2018-19 and 2019-20, the Tribunal held at paragraph 10 that “any sum paid under the specified agreement, to be treated as a ‘consideration’ should have been paid as part of a share in the land or building or both including cash payments”, that the payment towards alternate accommodation and hardship allowance “is in the nature of a compensation paid by the developer towards hardship suffered by the owner / tenant due to dispossession and is not paid as part of a share in the land or building or both”, and that it “would not fall within the provisions of section 194IC”. The order prints the date of the agreement inconsistently. In ITO (TDS) v. N Rose Developers Pvt. Ltd., ITA 6334 and 6328/Mum/2024, decided on 30 January 2025 for the same assessment years, a slum scheme in which Rs 2,28,88,500 had been booked as “Rent to Tenant SRA”, the Tribunal followed Nathani Parekh, holding at paragraph 9 that “the compensation was paid for the alternative accommodation due to the disposition of the occupants from the property under development”.

Genuine cash consideration is within it. In Sugee Seven Developers LLP v. ITO (TDS), ITA 2313 to 2316/Mum/2025, decided on 10 October 2025 for assessment years 2020-21 to 2023-24 and reported at (2025) 215 ITD 296, the developer had deducted one per cent under section 194-IA on cash paid to an individual leasehold holder under a joint development agreement. The Tribunal held at paragraph 8 that section 194-IC at ten per cent applied, and at paragraph 9 remanded the matter to verify whether the payee had offered the sums to tax under the first proviso to section 201(1). It was followed in Sugee Ten Developers LLP, ITA 8284 to 8287/Mum/2025, decided on 6 March 2026.

The society question. In both Nathani Parekh and N Rose the agreement was with a society or a sanstha, and the Tribunal decided on the nature of the payment rather than on whether an agreement signed by a society could be a specified agreement for its members as individuals. That question is open. The developer’s argument is that a cooperative society is not an individual or a Hindu undivided family, so an agreement to which it is the owner-party is not the agreement referred to in section 45(5A), and section 194-IC cannot apply to anything paid under it. The Revenue’s argument is that each member who surrenders a flat under a registered permanent alternate accommodation agreement, in consideration of a new flat, is an individual owner giving a building for a share in the project, so that any cash paid to that member as consideration, as distinct from compensation for hardship, is within section 194-IC. On the present authority, the safe line is: hardship and rent paid to members, not within section 194-IC; cash paid to an individual landowner who is also given a share, within it; cash paid to a society, outside it.

When tax was not deducted: the consequence and the escape

Where the Assessing Officer holds that tax was deductible and was not deducted, the developer faces two separate proceedings. The disallowance under section 40(a)(ia) is in the developer’s own assessment and reaches thirty per cent of the sum. The order under section 201(1) and (1A) treats the developer as an assessee in default for the tax and interest. The first fails where the second proviso applies; both fail where the payee has returned the income and paid the tax and the developer furnishes the accountant’s certificate.

In redevelopment the escape route is often of little practical use, because the members on whose receipts tax was not deducted have, on the Mumbai authority, correctly treated those receipts as capital and not returned them as income. The developer’s real defence is therefore the substantive one, that the payment was not rent under section 194-I, not consideration under section 194-IC and not consideration for a transfer under section 194-IA. Where that defence succeeds, as it has in Mumbai on transit rent and hardship compensation, both proceedings fail.

Where a developer has deducted tax on transit rent, Ganga Appa Mhaskar shows that it may be directed to pay the amount over to the occupants and to seek a refund from the Department itself. A developer that deducted out of caution should consider the claim for a refund before the occupants make their own.

Slum schemes: the eligible hutment dweller and the cash economy

The payments in a slum scheme differ from those in a society redevelopment in three ways that affect both the computation and the withholding analysis.

The payee owns nothing the developer acquires. A hutment dweller in Mumbai usually has no title to the land, which belongs to the State, the municipal corporation or a private owner. What the dweller has is eligibility under the scheme, fixed by a cut-off date (in Gujarat, 1 December 2010 under the 2013 policy on the appellants’ case recorded in Dantani Kanubai), and the right to a free rehab tenement once the scheme is sanctioned. The developer’s payments to the dweller are therefore difficult to characterise as consideration for a transfer of immovable property: the dweller transfers no interest in the land and at most surrenders occupation of a structure in return for a tenement the scheme already entitles the dweller to receive. That is why section 194-IA has no purchase on them, why section 194-IC is excluded (the dweller is ordinarily not “a person owning land or building” who allows another to develop it under a registered specified agreement), and why the Revenue’s arguments in the slum cases traced were confined to section 194-I.

The consent is bought, not granted. In a society redevelopment the members consent through the society’s resolution. In a slum scheme the developer has to obtain the consent of seventy per cent or more of eligible hutment dwellers under regulation 33(10) in Mumbai, and seventy-five per cent of occupants under the Gujarat regulations of 2010, as reported. The payments made to secure that consent, whether called rent, compensation or something else, are part of the cost of acquiring the scheme, and they are the payments most often made in cash and most exposed to a challenge on genuineness. The Tribunal’s acknowledgment in Resonant Realtors that cash expenditure, including “additional compensation to slum dwellers for their extended premises”, is common in the business cuts both ways: it supports estimation rather than full taxation of on-money, but it also tells the Assessing Officer where to look.

The documentary trail is thin. A slum dweller receiving Rs 10,000 a month will often have no permanent account number and will not file a return. That makes the payee-has-paid escape under the first proviso to section 201(1) unavailable in practice, and it makes evidence of payment, bank transfers to the dweller’s account, the slum authority’s eligibility list and the dweller’s acknowledgment, the developer’s only protection against both a section 40(a)(ia) disallowance and a challenge to the genuineness of the cost.

For these reasons the developer’s file in a slum scheme should hold, for each eligible dweller, the eligibility record, the agreement or undertaking under which payments are made, the mode and dates of payment, and the dweller’s acknowledgment, and the developer’s accounts should carry the payments in work in progress under a separate head so that the rehab-related cost can be identified and allocated.

Search, on-money and cash paid to occupants

A search of a redevelopment developer under section 132 usually finds two kinds of cash record: receipts of on-money on free-sale units, and payments to members, holdouts and hutment dwellers made outside the books to buy consent or vacant possession. The second matters as much as the first, because it is the developer’s answer to the first.

The Revenue’s approach. The Assessing Officer taxes the on-money as unexplained money or as undisclosed business receipts, and treats the cash payments separately, as unexplained expenditure under section 69C, whose proviso provides that such expenditure shall not be allowed as a deduction, with income deemed under sections 68 to 69D, including the section 69C expenditure, charged at the rate in section 115BBE. If the books are rejected under section 145(3), an estimate follows.

The developer’s case. Out-of-book payments to occupants are the application of out-of-book receipts. Taxing both the receipt and its application taxes the same cash twice, so either the payments should be set against the on-money, or the real profit should be estimated at a gross profit rate. The Mumbai Tribunal accepted the second course in Resonant Realtors, taxing on-money in a slum project at 17.5 per cent and observing that in that business “lot of cash expenditure is incurred”, including “additional compensation to slum dwellers for their extended premises”.

The Revenue’s answer. The proviso to section 69C is express, and a payment whose source is unexplained cannot be deducted from anything. Setting payments against receipts needs proof that the same cash moved from one to the other, not an inference from the nature of the trade.

Where it is decided. The answer turns on the seized material. A ledger that links receipts to payments supports a set-off; loose figures support neither side. Where the search falls under the block regime, the assessment proceeds as described on the block assessment page, and the weight of a statement recorded during the search is taken up on the section 132(4) page. No Gujarat decision on on-money in a redevelopment project was traced; the Ahmedabad Bench’s estimation cases on ordinary projects are the starting point.

The payments at a glance: computation and withholding

The table summarises the position on the authority traced. It is a summary of the analysis above and should be read with the qualifications stated there.

Payment	Paid to	In the developer’s computation	Withholding on the authority traced
Monthly rent or displacement compensation	Member or slum dweller	Cost of development rights, in work in progress	Not section 194-I (Mumbai Tribunal; Bombay High Court in Sarfaraz and Ganga Appa Mhaskar); not section 194-IC (Nathani Parekh, July 2024; N Rose); not section 194-IA (Shree Jalaram)
Rent for premises the developer itself takes	Landlord	Cost of development rights, in work in progress	Section 194-I if the monthly threshold is crossed
Shifting allowance	Member	Cost of development rights	No provision applies on the text; no decision
Transport of members’ goods	Transporter engaged by developer	Cost of development rights	Section 194C above the thresholds
Corpus	Society	Cost of development rights	Section 194-IA arguable above the threshold; undecided
Corpus or hardship compensation	Member	Cost of development rights	Not section 194-IC (Nathani Parekh, July 2024); section 194-IA not established
Cash in lieu of a flat	Exiting member	Cost of the flat acquired, now free-sale stock	Section 194-IA above the threshold, aggregated for joint holders
Monetary consideration with a share in the project	Individual landowner under a registered agreement	Cost of development rights	Section 194-IC at ten per cent, no threshold (Sugee Seven)
Penalty for delay	Member	Revenue expense, project or period cost	No provision applies on the text
Premium in lieu of housing stock	MHADA or authority	Cost of development rights	Not a payment to which Chapter XVII-B applies on any authority traced
Purchased TDR	Seller of TDR	Cost of the TDR as stock	Section 194-IA arguable above the threshold; undecided

A developer’s withholding checklist

1. Read the agreement for the words rent, tenancy and deduction. If the agreement calls the monthly payment rent or records an undertaking to deduct tax, decide now whether the developer will deduct, and if it will not, record why in a note on the file citing the Mumbai line.
2. Pay the member, not a landlord. A payment to the member as compensation is outside section 194-I on the authority. A payment to a landlord under a tripartite document invites the argument that the developer is paying rent on the member’s behalf.
3. If the developer takes the premises itself, deduct. Where the developer is the tenant or licensee of transit premises, section 194-I applies on its terms.
4. Separate corpus paid to the society from sums paid to members. Corpus to the society is the open section 194-IA case; sums to members are not within section 194-IC on the authority.
5. Treat cash buy-outs as purchases. Deduct one per cent under section 194-IA where the consideration or the stamp duty value is fifty lakh rupees or more, aggregating joint holders.
6. Treat cash under a joint development agreement with an individual as section 194-IC. Ten per cent, no threshold, and section 194-IA does not apply alongside it.
7. In a self-redevelopment, the society is the deductor. A cooperative society is a specified person for section 194C, and it will have obligations on its contractor, consultant and professionals.
8. Where tax was deducted out of caution on transit rent, consider the refund. Ganga Appa Mhaskar puts the developer at risk of a direction to pay the amount to the occupants.

Gujarat: what the record shows

No decision of the Ahmedabad Bench of the Tribunal or of the Gujarat High Court on the deductibility of, or withholding on, rent, corpus, hardship compensation or shifting charges paid by a redevelopment developer was traced. Gujarat agreements commonly call the monthly payment rent, and the Gujarat Housing Board scheme in Hansaben recorded a rent deposit and advance rent in the language of a tenancy. A Gujarat developer relying on the Mumbai line should therefore make sure its own documents do not undermine it: the payment should be described as compensation for displacement, paid to the member, with no undertaking by the developer to deduct tax, and with no tripartite arrangement under which the developer pays a landlord directly.

Open questions in Part 2, argued both ways

1. Is transit rent rent under section 194-I? For the Revenue: the definition covers any arrangement for the use of a building whether or not owned by the payee. For the developer: the developer uses no building, and the payment is compensation for displacement. Decided for the developer by the Mumbai Tribunal repeatedly and by the Bombay High Court in Sarfaraz and Ganga Appa Mhaskar; still arguable where the developer itself is the tenant or pays the landlord directly.

2. Can a member in a society redevelopment be a party to a specified agreement? For the Revenue: the member surrenders a building for a share in the project under a registered document. For the developer: the owner-party is the society, which is not an individual or a Hindu undivided family. Undecided.

3. Is corpus paid to a society within section 194-IA? For the Revenue: it is the price of an interest in land transferred to the developer. For the developer: the society keeps its title and grants only a licence to build. Undecided.

4. Is purchased TDR immovable property under section 194-IA? For the Revenue: the stamp law treats it as an interest in immovable property. For the developer: Shafaa Construction holds FSI is not land itself. Undecided.

5. Can rent paid after the free-sale revenue is recognised be a period cost? For the developer: by analogy with interest after the occupancy certificate in Triple Securities. For the Revenue: rent is incurred for the project alone and belongs in its cost. Undecided for rent.

6. Is the rehab cost a cost of the free-sale component? For the developer: the Mumbai Tribunal in Akruti City, Shafaa Construction, Siddharth Developers and Skylark Build. For the Revenue: the rehab flats are a separate output whose cost does not attach to what is sold. Settled at Tribunal level for the developer; no High Court decision.

7. Is hardship compensation income of the member? For the member: the Mumbai line from Delilah Raj Mansukhani to Ranjana Pendharkar holds it a capital receipt. For the Revenue: in substance a distribution of the value of the society’s rights. No Tribunal or High Court decision for the Revenue traced; the cost reduction view in Kunnama V. Balakrishna and Kushal K. Bangia is the qualification.

Concordance: the Income-tax Act, 1961 and the Income-tax Act, 2025

Subject	Income-tax Act, 1961	Income-tax Act, 2025
Rent	section 194-I	section 393(1), Table serial 2; definition in section 402(29)
Work contract	section 194C	section 393(1), Table serial 6; “designated person” in section 402(11), “work” in section 402(47)
Transfer of immovable property	section 194-IA	section 393(1), Table serial 3(i), Notes 1 and 3
Consideration under a specified agreement	section 194-IC	section 393(1), Table serial 3(ii), Note 2
Specified agreement and capital gains	section 45(5A)	section 67(14) to (16)
Thirty per cent disallowance for failure to deduct	section 40(a)(ia)	section 35(b)(i)
Payer not in default where payee has paid	first proviso to section 201(1)	section 398(2)

The Income-tax Act, 2025 counterparts of sections 40A(3), 69C, 115BBE, 194J and 201(1A), which this Part also refers to, were not verified for this study and are not listed.

Go back to Part 1: the schemes and the characterisation of what the developer gets and gives, or continue to Part 3: revenue recognition, Ind AS 115 and the minimum tax.

This note is general commentary on the law as at 22 October 2026 and is not advice on any matter. The position in a particular case depends on its own facts.