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Taxation of rent question

yashsr (CA) (2285 Points)

24 March 2012

Hello,

Consider the following members in a family:

Amitabh, Jaya(wife of Amitabh) and Abhishek(son of Amitabh)

A certain property is in joint name of Jaya and Abhishek. They want to give it on rent to a certain person. However, what they want is that the income should be taxed in Amitabh(HUF). Now, is this possible and what are the scenarios in the following cases:

1) The rent agreement is made in Amitabh(HUF) and the joint owners i.e. Jaya and Abhishek give a NOC to that effect. Is this allowable? Or can the rental income be taxed only in the hands of the owners?

2) Now, what if the rent agreement has already been made in the name of the joint owners i.e. Jaya and Abhishek but they want it to be taxed in Amitabh(HUF). Will a NOC from the owners to transfer the rental income to Amitabh(HUF) do or will a fresh agreement be required?

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12 Replies

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 24 March 2012

Yashr,

This would not be possible as according to section 60 of the Income tax act, any income transfered without transfer of the actual asset is deemed to be the income of the transferor.

This provisions are clear enough and any modification in the rent agreement would not yeild the expected results as any agreement cannot override the effects of the Act.

Thanks & Regards.

1 Like

yashsr (CA) (2285 Points)
Replied 24 March 2012

Originally posted by : CA Ankit Totla
	Yashr, This would not be possible as according to section 60 of the Income tax act, any income transfered without transfer of the actual asset is deemed to be the income of the transferor. This provisions are clear enough and any modification in the rent agreement would not yeild the expected results as any agreement cannot override the effects of the Act. Thanks & Regards.

So you mean that even if the agreement is in the name of the HUF in the above case, it'll be taxed in Jaya's and Abhishek's name through the clubbing provisions of the Act?

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 24 March 2012

yes.. because as i mentioned above, merely a rent agreement cannot override the act. Here the act is very clear that income should be clubbed so agreement in another name can not change the fact that the income is just being transfered without the actual transfer of the asset.

1 Like

yashsr (CA) (2285 Points)
Replied 24 March 2012

I go a level further now with a cheeky question. What if Amitabh(HUF) in the above case offers the rent income for taxation and not Jaya or Abhishek? Now, if there is scrutiny and the AO finds out the same and applies clubbing provisions, can in any way the AO levy penalty of concealment u/s271(1)(c)? In other words, apart from transfer of income from Amitabh(HUF) to Jaya/Abhishek, can there be any other penalty?

Nitesh Gupta (Proprietor) (55 Points)
Replied 24 March 2012

I suggest to Mr. Yash that he not try childish tax planning and do planning accoring the act.

Sothat you and your clind not faces any problem in future.

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 24 March 2012

yes. if u claim the income in some other hand and the case of jaya n abhishek comes under scrutiny, that would amount to evasion of taxes.

Also i hope u must be aware that if u file a return of HUF offering the rent income from the property, if its a house property, u'll have to offer it under income from other sources and not income from house property and you wont b getting the 30% std deduction or loan benefits.

1 Like

yashsr (CA) (2285 Points)
Replied 24 March 2012

Originally posted by : Nitesh Gupta
	I suggest to Mr. Yash that he not try childish tax planning and do planning accoring the act. Sothat you and your clind not faces any problem in future.

I appreciate your concern. But a client has already done what I've given above!!!!

yashsr (CA) (2285 Points)
Replied 24 March 2012

Originally posted by : CA Ankit Totla
	Also i hope u must be aware that if u file a return of HUF offering the rent income from the property, if its a house property, u'll have to offer it under income from other sources and not income from house property and you wont b getting the 30% std deduction or loan benefits.

Thanks! Didn't know that! :)

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 24 March 2012

Firstly, if a client has already done that and falls under tax audit u/s 44AB then please qualify the report.

Secondly, as per the chargeability section of income from house property, the assessee has to be owner of the property to be charged under house property. HUF is not the owner.

yashsr (CA) (2285 Points)
Replied 24 March 2012

Originally posted by : CA Ankit Totla
	Firstly, if a client has already done that and falls under tax audit u/s 44AB then please qualify the report. Secondly, as per the chargeability section of income from house property, the assessee has to be owner of the property to be charged under house property. HUF is not the owner.

In this case HUF is not the owner. But what if the HUF is the owner? I think sec 22 states that only individuals, firm, companies, co-op society and AOP can be owners for the purpose of Income Tax Act, correct?

Now consider a case where HUF is the owner of the property and has rental income. Even if this is not a case of sub-letting, will tihs be chargeableable in IFOS?