House rent income

Ankit (C.A.-Student) (680 Points)
Replied 16 April 2012

The action of Mr. X is not correct.

Morally/Ethically/Lawfully, he sholud pay tax on income from house property, but he is being receiving rent in cash from H1, it can escape from tax and become black money, Income from H2 cannot be escaped, because ultimately rent amount is received in bank

However, i am not getting not sure about property H2, because if Mr X is claiming interest and principal repayment benefit inder tax law, then it can be said that the property is in His name, so how can the son of Mr X is receiving rent? Then there can be two outcome:

a) If H2 owner is X and rent is receiving by son, then it means diverting of income

b) if h2 owner is son, then Mr X cannot claim interest & principal repayment benefit

Consequences

If through any means it came to attention/knowledge of AO/ITO(department), then

in case of H1:- rent recieved in cash would be tax accordingly, but it remain question of fact i.e whether departent is able to prove that in fact cash is recieved by X, with support of evidence

in case of H2:- Department would have to see what is factual position whether it is (a) or (b) [discussed above]. After establishing the fact, department will tax income accordingly with imposing interest. It is also to see whether son of Mr x is earning any other income or not and he is filing any return of income?

After going through above procedure, department will go for penalty which would be 100-300% of tax so evaded. the penalty (100-300) is discretion of department.

I hope, you will find my reply satisfying

2 Like

Durai (Article) (34 Points)
Replied 16 April 2012

Thanks Ankit for your reply, actually the case is outcome (a) i.e. Mr.X is diverting his income to his major son and son income is below taxable limit and till now not filed IT return.

Further now can rent income be diverted but claiming principal and interest in Mr.X return

And also can Mr. X show any 1 property as self occupied as it is basic exemption eventhough both property is being given on rent as he himself staying on staff quarter by paying rent to it.

Note: Both property is being given to tenants by proper rent aggrement

Thank you

Ankit (C.A.-Student) (680 Points)
Replied 18 April 2012

Mr X cannot divert the income, as the property is in his name

I dont understand second query relating to exemption?. What kind of exemption?

1 Like

Durai (Article) (34 Points)
Replied 20 April 2012

Thanks Mr.Ankit for your reply, basic exemption in a query i mean is, if assessee is owner of two property and both is given on rent but he himself stays on some other property by paying rent...so is there any possibility where one owned property can be showed as self occupied??? or is there any other way where inflow and outflow can be set-off and tax can be saved....

Thank you

CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 21 April 2012

Ankit's reply is marvelous.

It is more solid than his profile photo.

.

In such a situation when he is receiving any benefit in the nature of Rent, the property can't be deemed as self occupied.

.

In case if he is in receipt of HRA from the company, then he may claim exemption as prescribed U/s 10(13A) towards house taken on rent.

.

2 Like

Ankit (C.A.-Student) (680 Points)
Replied 21 April 2012

I want to thank CA Paras bafna for his comment

and Mr Durai,

there is no provision under which Mr X can claim that one property is self occupied, so he cannot save tax under income tax law, so have to pay tax on both property

Ypur query is relatable to wealth tax where an assessee can claim one property as self occupied, so as to claim exemption to be treating that property as asset for calculating total assest under wealth tax also he claim exemption if he prove that property is being let out for more than 300 days in previous year and that exemption can be claimed under wealth tax

Durai (Article) (34 Points)
Replied 21 April 2012

Thank you CA Paras Bafna Sir and Mr.Ankit for replying my query and i m very much convinced....but now please solve one final query in the same above if from this A.Y onwards Mr.X start paying tax on rent income then what about all those previous 6-7 A.Y's where not shown unintentionally and what the chances of issuing demand notice and other procedures by AO/ITO on Mr.X.

Thank you

CA PARAS BAFNA (Practising CA ) (33428 Points)
Replied 22 April 2012

The assessee was lucky enough and hope that the same will favour him in the same manner.

It's better to rectify the mistake from when we realise it.

1 Like

Ankit (C.A.-Student) (680 Points)
Replied 24 April 2012

I have a query Mr Bafna

there is a case where property is owned by mother-a housewife and having income less than exemption limit. For buying a property house loan is taken from a bank in name of a son who is working having salary income

Now fact is that house is name of mother but housing loan is repaid by son having salary income. Now what can be done:

a) Can mother claim interest and principal repayment as property is in her name?

b) Can son claim interest and principal repayment as loan is his name, he is residing in that house?

If both above option cannot be viable/allowable under income tax, then what should be done,if loan has been passed and no registeration of property is done as of now.

1 Like