Rental income

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CA G. SURYANARAYANAN (Querist)
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09 June 2012 Mr.X owning a plot of 10000sq ft. of commercial value. He is leasing the same for a term of 10 years to a business person. He will construct his own premises on the site at a cost of Rs.80 lakhs. He will also pay a monthly rent of Rs.15000/-. After the lease period he will either vacate the premises and hand over the property to the owner or he will renew his lease with fresh terms and conditions of increased monthly rent only. How the tax treatment for this arrangement.

CA G. Suryanarayanan

Ca Anand Dubey

Ca Anand Dubey (Expert)
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09 June 2012 Sir in my opinion the situation is as under :-

1.Leasing of plot -rental income of rs. 15,000/- will be shown u/h PGBP there is no confusion about this .

2. Right to construct premises :- he is selling the right to construct premises @ 80 lacs as the premises will belong to Mr. X only and against that the lesee will use that premises . cost of acquisition of right will be nill and will attract capital gain tax.

OR

Rs. 80 lacs can be treated as advance rent and will be taxed in the same year , but this is not possible as the property in question (building )does not exist at that point of time and construction can extend to more than one year too.

apart from above :-

We have to see the situation under which the lease agreement cancelled before 10 years then what kind of compensation is decided

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