In ACIT v. Texool Ltd, the Mumbai ITAT allowed deduction on rent directly paid to the authority on behalf of Lessor under an Oral agreement. However, the relief was granted subject to a condition that the lessor has offered the same in his return of income.
Assessee, in the instant case, claimed deduction of rent paid on behalf of an entity namely Shanlok Enterprises. The AO disallowed the same on ground that the same was incurred on behalf of a third party and not incurred for the assessee’s business.
On appeal, assessee maintained that the assessee was operating in Kandla Special Economic Zone and was allotted land by the authority. However the assessee took an adjacent premises from Shanlok Enterprises on rent under oral agreement since the allotted premises was not sufficient to fulfill their requirements. It was also claimed that the rent was directly paid to the authority on behalf of this entity. According to them, the claim must be allowed since the premises was used for the business purposes of the assesse.
After hearing the both sides, the bench found no illegality in direct payment by assessee to the authority on behalf of the lessor under an oral agreement. “However, the payment by assessee on behalf of lessor constitutes ‘rental income’ in the hands of the lessor. Therefore, if the lessor has offered the same in his return of income, the assessee’s claim gains strength and becomes admissible. Therefore, this matter is also restored back to the file of Ld. AO to verify whether the stated entity has offered the impugned payments made by the assessee in his return of income or not. If yes, then the claim of the assessee becomes admissible. The assessee is also directed to provide necessary documents in this regard and substantiate his claim failing which the Ld. AO shall be at liberty to decide the same in accordance with law.”
Read the full text of the Order below.
