CRP (INDIA) P LTD,CHENNAI vs. ACIT, CORPORATE CIRCLE -1(2), CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -1, Chennai, dated 31.10.2017 and pertains to assessment year 2014-15.

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee let out a vacant industrial shed to its subsidiary company for a rent of ₹1.20 Crores. The rental income was not offered to tax. According to the Ld. counsel, the assessee explained before the Assessing Officer that the premises let out to the subsidiary company / joint venture company and the said company was incurring a persistent loss. Therefore, according to the Ld. counsel, the rent could not be recovered. Since the assessee could not recover the rent from the subsidiary company, it was decided to waive the rent by a resolution dated 01.04.2013. According to the Ld. counsel, 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 to the joint venture company. The Ld.counsel further clarified that no expenditure was claimed for repairs and maintenance. Therefore, according to the Ld. counsel, the assessment of ₹1.20 Crores is not justified.

We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative also. Admittedly, a factory premises was let out to the subsidiary company / joint venture company. It is not in dispute that the subsidiary company / joint venture company was persistently incurring losses. Therefore, the assessee could not recover the rent of ₹1.20 Crores from the said company. It is seen from the assessment order that the assessee has 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 arises for consideration is when the tenant could not pay the rent or the assessee being a landlord could not recover the amount, can waive the rent payable by the tenant? And whether such rent is assessable in the hands of the assessee or not? This Tribunal is of the considered opinion that when the assessee let out the property for payment of rent, merely because the tenant in this case happened to be subsidiary company / joint venture company incurring persistent loss and the rent was waived, cannot be a reason not to tax the amount due from tenant. In other words, the rent payable by the tenant by waiver would amount to application of income and it cannot be construed as overriding title. It was passed on to the tenant. On accrual basis, the rental income was accrued to the assessee. It is upto the assessee either to treat as capital contribution or otherwise. However, the assessee is liable to pay income-tax on such receipt / accruals. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.