Vishwaroop Infotech (P) Ltd. v. ACIT [ITA No.
633/Mum/2019, dt. 6-11-2020] : 2020 TaxPub(DT) 4563 (Mum-Trib)
Non-receipt of rent whether taxable under section 22 when
TDS remitted by lessee
Facts:
Assessee had leased their properties to a lessee who due to
certain financial problems stopped paying rent for a specified period. The
assessee after much hardship and negotiation were able to recover part of this
unpaid rental dues and since no rent was received in the said financial year
nothing was offered to tax under house property by the assessee. The lessee to
obviate default of TDS did remit TDS of Rs. 3.85 million on the alleged unpaid
rent for the year under appeal. It was the contention of the assessing officer
and the Commissioner (Appeals) that since the lessee has done TDS the entire
house property income of Rs. 38.5 million be brought to tax on accrual basis
under section 22. Besides this arising out of settlement of dues with the
lessee the assessee adjusted the outstanding rental dues against the advances
given by the lessee. The Commissioner (Appeals) ordered that this advance be
brought to tax as well. On higher appeal -
Held in favour of the assessee that the rent was not
received factually thus no income accrued to the assessee. The mere fact that
TDS was done does not manifest that they have received the rent at best the TDS
amount of Rs. 3.85 million can be taxed as rent.
As to the assessee not having pursued legal action against
the lessee for recovery of the overdue/unpaid rent -- it needs to be seen from
the perspective of the lessor as getting into a litigation is going to consume
time/expenses so a commercial view needs to be seen on this dimension while
applying rule 4.
Rule 4 calls for the below manifestation --
(a) The tenancy is bona fide.
(b) The defaulting tenant has
vacated, or steps have been taken to compel him to vacate the property.
(c) The defaulting tenant is not
in occupation of any other property of the assessee.
(d) The assessee has taken all
reasonable steps to institute legal proceedings for the recovery of the unpaid
rent or satisfied the assessing officer that legal proceedings would be
useless.
The plea of the revenue was that the assessee has not
manifested point (d) on the above to which the ITAT gave the view that it needs
to be seen from the factual circumstances and from the eyes of the businessman
and thus it was held that the assessee has satisfied the said condition also
adequately -- a pedantic view cannot be taken on this respect.
As for the taxing of advances held by the Commissioner
(Appeals) the ITAT confirmed that the said advances were adjusted against the
overdue/outstanding rents of the earlier years which were offered to tax by the
assessee so they cannot be taxed again.
Editorial Note: Section
25A under house property is analogous to section 41 under income from business
or profession of the Income Tax is a point worth noting. The ITAT did deal the
case on the principle of real income if not directly rather implicitly by
confirming that what was not received cannot be income simply on accrual basis
either.