Waiver of rent payable by tenant amounts to application of income and therefore taxable. It cannot be construed as overriding title – ITAT
ABCAUS Case Law Citation:
ABCAUS 3137 (2019) (09) ITAT
The assessee had appealed against the order of the Commissioner of Income Tax (Appeals) in confirming the taxation of rent waived.
The assessee was a Private Limited Company, which had let out a vacant industrial shed to its subsidiary company for a rent. Howver, the assessee did not offer the rental income to tax.
Before the Assessing Officer (AO), the assessee explained that the subsidiary company to whom the premises was let out was incurring persistent losses. Therefore, the rent could not be recovered.
It was explained that since the assessee could not recover the rent from the subsidiary company, it was decided to waive the rent by a resolution and even the rent relatable to earlier period was transferred to share capital account so that the rent payable by the subsidiary company may be treated as capital contribution by the assessee.
However the AO was not convinced by the submission of the assessee and brought to tax the amount of rent. CIT(A) confirmed the addition.
The Tribunal noted that a factory premises was let out to the subsidiary company / joint venture company. It was not in dispute that the subsidiary company / joint venture company was persistently incurring losses. Therefore, the assessee could not recover the rent from the said company.
The Tribunal also noted that the assessee had to pay service tax on the said rent to the Government. The earlier period rent was transferred to the capital account and it was treated as capital contribution by the assessee.
The question for consideration before the ITAT was when the tenant could not pay the rent or the assessee could not recover the rent, can landlord waive the rent payable by the tenant? And whether such rent is assessable in the hands of the assessee or not?
The Tribunal opined that when the assessee let out the property for payment of rent, merely because the tenant which happened to be subsidiary company / joint venture company was incurring persistent loss and the rent was waived, could not be a reason not to tax the amount due from tenant.
Waiver of rent payable by tenant amounts to application of income
The Tribunal explained that in other words, the rent payable by the tenant by waiver would amount to application of income and it could not be construed as overriding title. It was passed on to the tenant.
The Tribunal pointed out that on accrual basis, the rental income was accrued to the assessee. It was upto the assessee either to treat as capital contribution or otherwise. However, the assessee was liable to pay income-tax on such receipt /accruals.
Accordingly, the Tribunal confirmed the order of the lower authority and the appeal filed by the assessee was dismissed.
Download Full Judgment Click Here >>
- Carrying original vehicle papers not must if kept in DigiLocker or mParivahan app
- Last date extended for submission of ICAI online MEF Application Form for 2019-20 to 30.09.2019
- The Taxation Laws (Amendment) Ordinance 2019. List of Amendments in income-tax act & Finance Act
- Corporate tax rates slashed to 22% for domestic cos & 15% for new domestic manufacturing cos
- RBI revised guidelines for concurrent audit of banks. Accountability to be fixed in serious omission/ commission
addition u/s 68 budget 2017-18 ca misconduct cash deposit in bank CBDT cbdt circular CBDT Instruction cbdt notification cbdt order cbdt press release CGST cit revision 263 concealment penalty custom circular demonetisation due date extension e-way bill faq GST circular GST Clarification GST Council Meeting gst faq GSTR-3B GST rates gst refund IBBI icai income tax prosecution itat ITAT Delhi ITC CREDIT MCA notification order u/s 119 penalty 271(1)(c) penalty u/s 271(1)(c) Press Release reasons recorded reopening 148 Reopening us 147 sebi circular service tax notification transfer and postings unexplained cash credits validity of notice u/s 148 Withdrawal of 2000 500 Bank Notes----------- Similar Posts: -----------