Compensation received under Option Agreement not Taxable as House Property Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the amount of compensation received under an option agreement cannot be brought to tax under the head “Income from House Property” under the provisions of Income Tax Act, 1961. The Tribunal further noted that the same is taxable as income from other sources.

Coming to the facts of the case, the assessee received an amount under an option agreement. An option agreement is a contract between two parties that grants one party the right, but not the obligation, to purchase an asset from, or sell an asset to, the other party. It outlines the agreed-upon price and a future date for the transaction. As per the agreement, the assessee has given an option to the existing tenant of unit No.3 & 4 to take on rent unit No.1 and 2 within a period of 9 months on a mutually agreed rate of rent.

During the assessment year, the Assessing Officer observed that the above receipt is taxable under the head “Income from House Property.”

The Tribunal noted that 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 this case, the property is neither let out nor vacant.

“Therefore, the receipt by way of an option agreement cannot be assessed under the head income from house property. Further, once said receipt is not assessable under the head income from house property, and then obviously, it has to be considered under any other head of income, including income from other sources. In this case, the assessee has offered compensation received in pursuance of option agreement under the head from other sources. As we noted in the earlier paragraph, the amount received by the assessee is in the nature of compensation for not letting out the property to any third party for a specified period. The meaning thereby is that by entering into an option agreement, the assessee had renounced its right to market unit No.1 and 2 for a period of 9 months from the date of the option agreement and, because of covenant by way of an option agreement with the party and hence, any amount received in pursuance of said agreement is in the nature of compensation which is assessable under the head income from other sources as rightly considered by the assessee.”