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Tax Publishers 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.

Tax Publishers

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.

(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.