Deemed lop on unfurnished property

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Chirag Thakkar (Querist)
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21 March 2016 A Pvt Ltd company is owning a office which is shown under investment which is unfurnished (No electricity, not in proper shape, Leakage problem) ITO has issued a notice to charge Deemed rent on such office for FY 2012-13 based on other office in the same building which was furnished and properly built. Is there any case laws related to such situation in companies favor?

Soumitra Basu

Soumitra Basu (Expert)
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24 March 2016 the Hon'ble Apex Court has already held that tax should only be charged on real income but not imaginary income. However, there is certain deeming provisions. In this case since there is no business in the particular nor the place has been given on rent, no income is liable to be added as deemed income.

Chirag Thakkar

Chirag Thakkar (Querist)
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25 March 2016 Thank you sir! if u can give some case law related to same would be helpful.

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Asha Kanta Sharma

Asha Kanta Sharma

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20 July 2024 In the context of deemed rental income on unfurnished property, there are several considerations and legal precedents that can influence the outcome. Here are some insights and a relevant case law:

### Understanding Deemed Rental Income on Unfurnished Property

1. **Deemed Rental Income**: According to Income Tax rules, if a company owns property that is capable of being let out but is not actually let out, the Income Tax Officer (ITO) may charge deemed rental income based on the potential rental value of similar properties in the area.

2. **Factors Considered**: The ITO typically considers factors such as the location, size, condition, and amenities of the property when assessing the deemed rental income.

3. **Legal Position**: The tax liability on deemed rental income can be contentious if the property is not actually generating income due to its unfurnished or incomplete state.

### Case Law Example:

**Case Law: CIT vs. B.C. Srinivasa Setty (1981)**

- **Background**: In this case, the Supreme Court dealt with a situation where the assessee had constructed a commercial complex which remained vacant and was not let out during the relevant assessment year.

- **Issue**: The Assessing Officer charged deemed rental income based on the standard rent of similar properties in the locality.

- **Court Decision**: The Supreme Court held that deemed rental income should not be charged in cases where the property was not actually let out and no actual rent was received. The court emphasized that the charging of income tax should be based on real income and not on hypothetical income which might accrue.

### Conclusion and Implications

Based on the above case law and principles, if the office owned by A Pvt Ltd is not actually let out and is unfurnished due to genuine reasons such as lack of maintenance, repairs, or other valid constraints, there may be grounds to contest the imposition of deemed rental income.

- **Defending Position**: A Pvt Ltd can argue that the office is not fit for occupation due to its unfurnished and improper condition. They can also present evidence of similar cases where courts have ruled in favor of the assessee when the property was genuinely not let out.

- **Legal Strategy**: Consultation with a tax advisor or lawyer specializing in income tax matters would be prudent to prepare a strong defense against the imposition of deemed rental income. Presenting relevant case laws and factual details of the property's condition will strengthen the company's position in responding to the notice from the ITO.

Understanding the nuances of deemed rental income and citing relevant case laws where applicable can significantly impact the outcome of such tax assessments.