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Rent income

M. J. (Finance Professional ) (154 Points)

05 August 2014

If Mr.A owns a flat on his own name after sometime he let out the same. But in leave & licence agreement he has shown Mrs. B [wife of Mr. A] as licensor and Mr. C as licencee. All the rent comes in the bank account of Mrs. B. Is it lawful? what are the impacts in itr of both A & B and in balance sheet treatment of rent & flat in books of A & B?

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6 Replies

Vishal Gupta (CA) (59 Points)
Replied 05 August 2014

As per Section 60 of the Income Tax Act, where there is transfer of income without transfer of assets, then the income arising out the such assets will be clubbed in the hands of the transferor(owner of the asset). So, in this case rent will be clubbed in the hands of Mr. A.

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CA Saloni (Manager-Accounts & GST Consultant) (5124 Points)
Replied 05 August 2014

Agree with Vishal

Rajiv (Student) (34 Points)
Replied 05 August 2014

Experts, is there a way Mr A can make a Lease agreement with Mrs B. on a very nominal amount of Rs 1000/- (per month). And Mrs B can do a sub-lease agreement with Mr C on the actual amount (let say Rs 50000/- per month).

Is this a valid way of arranging things?

-Rajiv

M. J. (Finance Professional ) (154 Points)
Replied 05 August 2014

Thanks all for replies. Are there any other ways can we use to show rent income in the hands of Mrs. B instead of Mr. A?

Alok A Bhavsar (CA Final Student) (82 Points)
Replied 06 August 2014

@ Rajiv, if u do this arrangement u may have to face consequences during assessment proceedings bcz Annual value taxable by compairing municipal value with fair rent wih restricted to sd rent..... If actual rent amount is less then AO can add to ur income baded on muncipal value or fmv so may u get into trouble