INCOME TAX ACT, 1961

Section 14

Head of income - Income from other sources or House property income - Assessee-landlord entered into an option agreement with its tenant and renounced its right to market said property units -

Assessee-company purchased an immovable property and divided said property into 4 units. Two units were let out and two were vacant. Assessee entered into an option agreement with tenant with a covenant that two vacant units would not be let out to a third party without consent of tenant and received a compensation. AO alleged that amount received was taxable as income from house property instead of income from other sources. Held: Amount received by assessee being in nature of compensation for not letting out property to any third party for a specified period was assessable under head income from other sources. If any income is assessable under the head income from house property, it should be out of property let out or deemed to be let out for the relevant period. In instant case, the property was neither let out nor vacant. Therefore, receipt by way of an option agreement cannot be assessed under the head income from house property. The amount received by assessee was in nature of a compensation for not letting out property to any third party for a specified period. The meaning thereby was that by entering into an option agreement, assessee renounced its right to market said property units due to option agreement and thus, any amount received in pursuance of said agreement was in the nature of compensation, which was assessable under head income from other sources as rightly considered by assessee.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

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