Owner need not pay tax on rent if the tenant defaults on it: ITAT

November 30, 2020: At a time when several renting contracts are being renegotiated and tenants are defaulting on rent given the pandemic, an Income-tax Appellate Tribunal has ruled that landlords need only pay tax if the rental income is actually received.

The case pertains to a Navi Mumbai based leasing company that is into the business of leasing apartments and commercial properties.

As per the details of the case a tenant did not pay rent to a leasing company for a year and paid partially for the next year. The tenant had however deducted tax—tax deducted at source—on the rent amount.

Quality Service Guarantee Or Painting Free

Unbeatable Price 5-Star Rated Partner! 2200+ Shades! Top Quality Paint Free Cancellation!

Get a rental agreement with doorstep delivery

Rental Agreement NOW

Find the BEST deals and get unbelievable DISCOUNTS directly from builders!

Find the BEST deals

5-Star rated painters, premium paints and services at the BEST PRICES!

FREE Estimate

“The rental income could be brought to tax only when the taxpayer had actually received or was likely to receive or had certainty of receiving (rent) in the near future. In the given case, the taxpayer had no certainty of receipt of any rent. When the taxpayer reached an agreement to settle the dispute, it was equal to satisfying the fourth condition in the Rule 4 of the rules. Therefore, the addition of rent was unjustified and was to be deleted,” the Mumbai Income Tax Appellate Tribunal ruled.

This ruling lays down the principle that rental income could be brought to tax only when the taxpayer has actually received it or is likely to receive or has certainty of receiving it in the near future; and the fact that tax has been deducted by the tenant cannot be the sole reason for taxability of rent. Taxpayers with similar facts may want to evaluate the impact of this ruling to the facts of their case.

The ruling also comes at a time when several tenants have defaulted on rents due to the Covid pandemic and the lockdown, said industry trackers. Many restaurants, shop owners and even house owners had either renegotiated rents or had defaulted on it during the Covid pandemic.

 Contact professionals of the legal department at NoBroker at a very affordable cost.

Most Viewed Articles

Building Setback: Meaning, Significance and Rules

January 31, 2025

56776+ views

House Price Graph Last 20 Years India: Trends, Factors, and Future Predictions

January 31, 2025

21349+ views

ERP Solutions for Society: A Game-changer For Society Living

January 31, 2025

5420+ views

Scorching Heat & Dwindling Supplies: Delhi's Water Crisis Heats Up with ₹2,000 Fines for Wastage!

January 31, 2025

4389+ views

Builders must use technology to make new age apartments sell-able post coronavirus

August 13, 2020

3969+ views