Adjustable Advance Rent

Hi Gurdev,

Once you have described the security deposit as adjustable againstfuture rent, where is the question of it being treated as a capitalreceipt upon its forfeiture? It would be a purely revenue receiptand subjected to tax. I think Reliance must have made TDS on it too,because adjustable security deposit given to landlord partakes ofthe character of rent. If they didn't, it can't be allowed to themu/s 40a(ia).Advance money received and forfeited gets reduced from the cost ofacquisition if the asset was the subject matter of negotiations forits transfer u/s 51 (and not Section 50). Your client wasn'tnegotiating with Reliance to sell the property.

Thanks,

CA Sanjeev Bedi

--- In http://finance.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA/post?postID=p7faCZmw6AGlDqsfI_3Dwz4NgYlBNKGX4kcSEk_mDWyqDER_Bw1ioT48gr5wkCKxulMOFE9udosrzvaXlh1pJol2Lup9SjkYAC_EBg, "garrysingh2001" wrote:>> A Jointly owned Property was given on Rent to Reliance Fresh in UP> for a monthly rent of Rs.91000.00 approx, in April 2007. Besidesthe> same, the said Lessee gave a security Deposit equal to 11 monthsrent> at Rs.10,09700.00. The relevant clause of the agreement reads as> under-> "Lessee shall pay to lessor a sum of Rs.10,09700.00 as ADjustible> Security Deposit which is equal to 11 months rent. The Adjustable> Security deposit shall be adjusted from the lease rent during the> tenure of the lease agreement or on determination of thisagreement,> which ever is earlier."> Now after a lapse of 7 months ,(During FY 07-08), reliance decidedto> leave UP. The lock in period of the agreement was 18 months.However,> the said company has decided to not to take back the adjustable> deposit back from the joint owners, just to compensate theassessee,> though the said fact has not been mentioned in writing. What isthe> nature of the said Rs.10,09700.00 in the hands of the jointowners?> Will it be forfeiture of Advance money received as per section 50?> Or would it be a capital receipt in the hands of the assessee?> Or will it be treated as Normal Rent for the property for the year?>

Please guide on the issue.>

Thanks and Regards>

CA Gurdev Singh>

Bly>