Income from letting out any house property for any
purpose is taxable under the head “Profit & Gains from Business or
Profession” provided such letting out is supplementary to the business/profession
of the assessee. All expenses in relation to such house property are allowed to
be debited to the Profit & Loss A/c prepared u/h ‘Business/Profession’.
EXAMPLES:
Rent received by a school from letting out its
auditorium for conducting coaching classes, rent income from letting out of
houses by a company to its employees, etc.
Many
times disputes arise between the taxpayers and the Income-tax department
as to whether rental income from house property should be
assessed under the head “income from house property” or under the
head “income
from business or profession”? The dividing line is very thin
and the courts have also taken different views on seemingly similar facts. It
is said that none of the heads of income under the
Act can be treated as general or specific for the purpose of any one particular
source of income. These heads are mutually exclusive. Where an item of income falls
specifically under one head, it has to be charged under that head and no other.
But then for assessment purposes decision about the head under which
rental income is to be assessed has to be taken. In this context an
issue arose as to whether intention as reflected from memorandum
can make all the difference in deciding the head? The Hon'ble Apex Court
considered this aspect elaborately in the Rayala
Corporation Ltd. v. ACIT (2016) 72 taxmann.com 149 (SC).
In
deciding the issue under which head rental income is to be
placed, one has to consider the intention of the taxpayer in giving the property on rent.
This intention in the case of a company is best reflected from object
clauses in the memorandum. If it is mentioned therein that the company shall
exploit the properties for
commercial purposes and also the assessee is or has been in the business of
exploitation of commercial asset, then rental income will be
business income. In case of non-corporate assessees the intention is
reflected from active or passive use of the property. If the property is
yielding income without involvement of the owner indicating only a
passive use of the property, then
rental income would be house property income whereas
if property is
exploited like any other commercial asset and it is a tool in carrying on
business then rental income will be
business income.
General Principles
The dividing line, whether rental income
from house property should be assessed under the head “business” or under
the head “house property”, is very thin. The issue should be
decided in the facts and circumstances of each case and on the basis of
intention of the party. The nomenclature given to the said income is
irrelevant. The general principles laid down by the Hon’ble Supreme Court
in Universal Plast Ltd. v. CIT (1999) 237 ITR 454 : 103
Taxman 493 (SC) in this connection, are as under (page 461):–
“(1) |
|
no
precise test can be laid down to ascertain whether income (referred
to by whatever nomenclature, lease, amount, rents, license fee) received by
an assessee from leasing or letting out of assets would fall under
the head 'Profits and gains of business or profession'; |
(2) |
|
it is a
mixed question of law and fact and has to be determined from the
point of view of a businessman in that business on the facts and in the
circumstances of each case, including true interpretation of the agreement
under which the assets are let out; |
(3) |
|
where
all the assets of the business are let out, the period for which the assets
are let out is a relevant factor to find out whether the intention of the
assessee is to go out of business altogether or to come back and restart the
same.; |
(4) |
|
if only
a few of the business assets are let out temporarily, while the assessee is
carrying out his other business activities, then it is a case of exploiting
the business assets otherwise than employing them for his own use for making profit
for that business; but if the business never started or has started but
ceased with no intention to be resumed, the assets will cease to be business
assets and the transaction will only be exploitation of property by
owner thereof, but not exploitation of business assets.” |
A
five judges’ Bench of the Apex Court in Sultan Brothers (P) Ltd. v. CIT (1964) 51 ITR 353 (SC) held that for coming to a
conclusion on this aspect one has to find answers to three issues, namely:–
(a) |
|
Was it
the intention in making the lease - and it matters not whether there is one
lease or two, i.e., separate leases in respect of the furniture and the
building - that the two should be enjoyed together? |
(b) |
|
Was it
the intention to make the letting of the two practically one letting? |
(c) |
|
Would
one have been let alone, and a lease of it accepted, without the other?" |
Circumstances where rental income is held as business income:
(i) |
|
Where
business and its assets are leased out as a going concern. |
(ii) |
|
Assets are
leased out along with furniture and fittings and other associated structures. |
(iii) |
|
In
addition to leasing of properties, various other services were regularly
provided (like lifts, security, or other amenities, infrastructure such as
machinery, security systems, canteen and housekeeping, etc.). Thus, if
facilities given by assessee along with let out buildings/commercial
establishments were inseparable and entire construction and interiors of
buildings were done with sole intention of carrying on business,
entire income would be assessed as business income. |
(iv) |
|
Leasing
out the property as a dire financial consequence in the business. |
(v) |
|
Rental income
from business of developing, operating and maintaining an industrial
park and providing infrastructure facilities. |
(vi) |
|
Assessed
as business income in earlier years. |
(vii) |
|
Letting
out of godowns and warehouses to traders, carrying on warehousing business is
a primary source. |
(viii) |
|
Letting
out in the course of business or is integral part of business (e.g.,
letting house to director) |
(ix) |
|
Letting
out temporarily. |
(x) |
|
Rental income
from flats taken on tenancy basis. |
(xi) |
|
Evidence
of commercial exploitation is necessary. |
(xii) |
|
Special
right or privilege is given to franchisees to undertake a particular business
in property |
it seems that the Assessee diversified and added its business line for
the development of real estate of particular type, namely software companies
and even though the name of the company continue to remain as M/s. Khivraj
Motors (P) Ltd. The burden of the argument of the learned counsel for the
Revenue, perhaps emanated from only the name of the company, forgetting that
the main business activity of the company from its motor business had been
diversified into developing a special kinds of property and earning lease
rental income as its main business income. By no stretch of imagination, could
a software park developed with the special facilities and amenities for
software companies, be described or believed to be a property created for
earning rental income as income from house property. The Tribunal not only
relied upon an earlier decision of Madras High Court in the case of CIT v.
Elnet Technologies Ltd. (2012) 213 Taxman 129 (Mad.), but also having
considered all these aspects in great detail, the Division Bench of this Court
to which one of us (VKJ) was a member, in M/s. PSTS Heavy Lift and Shift Ltd.,
had clearly held that where the main business of the company is to earn
rentalincome as its businessincome, the income would be taxable under the head
“Income” entitling the petitioner Assessee to have the deductions of notional
expenses like depreciation and special deductions like section 80IA
etc. [In favour of assessee]
(Related Assessment year : 2008-09) – [CIT, Chennai v. Tidel Park Ltd. (2021) 430 ITR 214 : 125
taxmann.com 218 (Mad.)]
License fee received by assessee for licensing a fully furnished hotel along with license to run hotel is a business receipt, which is assessable under head income from business or profession’
Following
decision of Hon'ble High Court of Kerala in the case of Palmshore
Hotels (P.) Ltd. v. CIT (2018) 252 Taxman 191 : (2017) 88 taxmann.com 186
(Ker.), we are of the considered view that, license fee received by the
assessee for licensing a fully furnished hotel along with license to run the
hotel is a business receipt, which is assessable under the head 'income from business or
profession' but not a rental income, which is
assessable under the head ‘income from house
property’. Therefore, we are of the considered view that the Assessing Officer
as well as the ld. CIT(A) were grossly erred in assessing license fee under the
head ‘income from house
property’ and hence, we reverse the findings of the CIT(A) and direct the
Assessing Officer to assess license fee under the head ‘income from business or
profession’ as claimed by the assessee. [In
favour of assessee] (Related Assessment
year : 2014-15) – [Dodla International
Ltd. v. ACIT (2021) 125 taxmann.com 339 (ITAT Chennai)]
Exploitation of property commercially by way of complex commercial activities – Rental income is to be taxable as income from business – Not as Income from House Property
Assessee declared its income under the head
Income from Business. The Assessing Officer however, treated the same as Income
from House Property which was affirmed by the CIT(A). Tribunal decided the
issue in favour of the assessee. On appeal before the High Court, question
raised is “Whether, on the facts and in the circumstance of the case and in
law, the Hon’ble Tribunal was justified in holding that the assessee had
exploited its property commercially by way of complex commercial activities and
hence, the rental income received by the assessee to be taxable as income from
business and not under the head “Income from House Property’ ?” The
Honourable Court considered the object clause of the company and
various services provided such as marketing and promotional activities and also
organising various events and programs. Court also noted in the
context of the revenue sharing agreement copies of which have been placed on
record on which the revenue receives not only license fee of the amounts
specified therein and percentage of net revenue. In some of the agreements the
compensation is either license fee or percentage of net revenue, whichever is
higher. The Intention of the Assessee is also a material circumstance and
the objects of Association, the kind of services rendered clearly point out
that the Income is from Business. All the factors cumulatively taken
demonstrate that the assessee had intended to enter into a Business of renting
out commercial space to interested parties. The other income is only an income
which is a dividend income from the deposits received from the Business
income. Therefore, considering all these factors which have been
enumerated above and referred to by the Tribunal, the findings rendered by the
Tribunal on assessment of the factual position before it that the income in
question has to be treated as business Income. [In favour of assessee] (Related Assessment year : 2010-11) –
[PCIT v. City Centre Mall Nashik (P) Ltd.
(2020) 424 ITR 85 :
121 taxmann.com 87 (Bom.)]
Leasing of shops in a mall along with various other facilities - Assessable as business income and not as income from house property
Assessee-company is engaged in
business of leasing out shop space in shopping malls. Assesee has shown
income received from leasing out of shops and other commercial establishments
as business income. Assessing Officer assessed the income as income from house
property. Tribunal held that the assessee is providing various facilities
and amenities apart from giving shopping space on lease accordingly assessable
as business income. Dismissing the appeal of the revenue the Court held
that since it was not a case of giving shops on rent simplicitor rather
assessee desired to enter into a business of renting out commercial space to
interested individuals and business houses, amount in question was rightly
brought to tax as business income. (Related
Assessment year : 2008-09) – [PCIT v. Krome Planet Interiors
(P) Ltd. (2020) 423 ITR 62 : (2019) 265 Taxman 308 : 107 taxmann.com 443 (Bom.]
KEY NOTE : Raj Dadarkar &
Associates (2017) 394 ITR 592 (SC) is distinguished)
Where assessee
developed software technology park and gave certain properties in said park on
lease to different software companies, rental income earned by
assessee from leased out properties was liable to tax as ‘business income’
During relevant years assessee developed software technology park and
gave certain properties in said park on lease to different software companies.
Assessee claimed that rental
income derived from said properties
was taxable as business
income. Assessing Officer opined that rent
in question was liable to tax as income from house property. Tribunal, however, allowed assessee's claim.
On facts, software park developed by assessee with special facilities and
amenities for software companies could not be described or believed to be a
property created for earning rental
income in form of income from house property. Even
otherwise, since assessee had been allowed deduction under section 80-IA in
respect of lease rental received from software companies which was available only in case of business income,
impugned order passed by Tribunal holding that amount in question was taxable
as income from business, did not require any interference.
[In favour of assessee]. (Related Assessment years : 2010-11 and 2011-12) – [PCIT v. Khivraj Motors (P) Ltd. (2020) 274
Taxman 308 : 118 taxmann.com 224 (Mad.)]
Where assessee was engaged in business of real estate development, rental amount received by assessee from letting out all mall developed by it were ‘income from business’ and not income from house property
Where assessee was engaged in business of real estate
development, rental
income received by assessee from
letting out mall developed by it and rental income received
from fit outs, namely, base super structure of building, were liable to brought
to tax under head 'income from business' and 'income from other sources' respectively and not ‘income from house property’. Further, the
said issue involved is no longer res integra in view of law laid down
by this Court in the matter of CIT v. Velankani Information Systems (P) Ltd. (2014)
265 CTR 250 (2013) 218 Taxman 88 : 35 taxmann.com 1 , where under it has
been held if assessee is in the business of taking
land, putting up commercial building thereon, letting out such building with
all furniture as his profession or his business then
notwithstanding the fact that he has constructed building and he has also
provided other facilities and even if there are two separate rental deeds, it
does not fall within the income from house
property and as such, question Nos. 2 and 3 are answered against revenue and in
favour of the assessee. [In favour of
assessee] (Related Assessment year : 2005-06) – [CIT, Bangalore v. Prestige Estate Projects (P) Ltd. (2020) 274 Taxman
6 : 116 taxmann.com 554 (Karn.)]
SLP dismissed as withdrawn due to low tax effect against High Court ruling that where assessee-company had taken land on lease with objects of constructing IT company with all infrastructure facilities as per its Memorandum of Association, income received by assessee by constructing modules with all infrastructure facilities for use by IT companies and leasing out same would be assessable as business income in hands of assessee
High Court by impugned order held that where assessee-company had taken
land on lease with objects of constructing IT company with all infrastructural
facilities and same was according to objects of Memorandum of
Association, income received by assessee by constructing modules with all
infrastructure facilities for use by IT companies and leasing out same would be
assessable as business
income. Special leave petition filed against
impugned order was to be dismissed as withdrawn due to low tax effect. [In
favour of assessee] (Related Assessment years : 1995-96, 1996-97 and 2001-02) –
[CIT, Chennai v. Elnet Technologies Ltd.
(2020) 271 Taxman 25 : 116 taxmann.com 120 (SC)]
Deductions – Business income from renting out its property – Depreciation was allowed – Deduction under section 24 is not permissible
Memorandum of
Association of assessee-company provided object of earning business income from
letting out of property of company. During current year, assessee-company
earned income only from renting out its premises and claimed depreciation on
building so let out. Assessee also claimed deduction under Section 24 as
available in case of income from house property. Dismissing the appeal of the
assessee the Court held that since assessee earned income only from renting out
its property and there was no other income and further, assessee claimed
depreciation, claim of deduction under Section
24 is not allowable. (Related Assessment year : 2012-13) – [Shri Hardoi Baba Roller Flour Mills (P)
Ltd. v. CIT (2019) 415 ITR 498 : 262 Taxman 320 (All.)]
Shopping mall – Commercial
exploitation – Facilities and services – Income derived by assessee by letting
out shops in mall had to be assessed as income from business and not as income
from house property
Where primary intention of assessee
by letting out shops in mall was commercial exploitation of property, income so derived from same would be
assessed as income from business and not as income from house property. In cases where income received is not from bare letting out property but on account of
facilities and services rendered, operations involved in such letting out is in
nature of business and income derived therefrom has to be treated as business income and
not income from property. Assessee
constructed a shopping mall in property owned by its sister concern and let out
shop rooms. In revised return of income filed by assessee, amount received by it on letting out shop rooms,
was shown as income from business - Assessing Officer treated this amount as income from house property and
computed tax thereon - However, it was found that primary intention of assessee
by letting out shops in mall was commercial exploitation of property. Assessee
had earned income not merely by letting out shop rooms but also by providing
amenities and facilities at shopping mall. Such amenities and facilities were
special facilities for running shopping mall and were meant to attract
customers and provide them comfort and convenience of shopping. Thus, income derived by assessee by
letting out shops in mall had to be assessed as income from business and not as income from house property. [In
favour of assessee] (Related Assessment year : 2009-10) – [CIT, Thiruvananthapuram v. (2019) 311 CTR 815
: 263 Taxman 377 : 184 DTR 56 (Ker.)]
Leasing the hotel and charging one percentage of total revenue-Assessable as business income and not as income from house property
Assessee leased out
its hotel and claimed the amount received is taxable as business income.
Assessing Officer assessed the receipt as rental income. Tribunal held that as
the assessee is not receiving any rent but was receiving one per cent of total
revenue hence the same is taxable as business income. High Court affirmed the
order of the Tribunal. (Related Assessment years : 2007-08, 2008-09) – [CIT v. Plaza Hotels (P) Ltd. (2019) 265 Taxman 90 : 107 taxmann.com
287 (Bom.)]
KEY NOTE : SLP of revenue is dismissed, CIT v. Plaza Hotels (P) Ltd. (2019) 265 Taxman 89 (SC).
Letting out shopping mall/business centres by providing host of services/ facilities/amenities - Income derived assessable as business income and not as income from house property
The
main object of the assessee-company was carrying on the business of letting out
its commercial properties. The assessee-company constructed a shopping mall/business centre and had let out
the said property. Further assessee-company maintained and provided necessary
service for proper upkeep of such properties in order to earn income by letting
and/or leasing thereof income. The Assessing Officer held that income derived
from letting out of house property would always be taxable under the head
‘income from house property’. The CIT(A) deleted the said addition treating the
same as Business Income. Tribunal while allowing the appeal held that, income is
attached to immovable property, cannot be sole criteria for such income as
income from house property, to find out that what is primary object of assessee
while exploiting such property, assessee-company had developed shopping
malls/business centres on properties owned by it and had let out same to
various users by providing host of services/facilities/amenities in said
malls/business centres, it could be said that basic intention of assessee was
commercial exploitation of its properties by developing them as shopping
malls/business centres and, therefore, income derived from such activities are
‘business income’ and not as income from house property. (Related Assessment
years : 2012-13, 2013-14) – [DCIT v. ATC Realtors (P) Ltd. (2019) 184 DTR 1
: 178 ITD 293 (ITAT Guwahati)]
Construction
of shopping malls – Commercially exploit property by way of complex commercial
activities and, it was not a case of letting out property simplicitor – Rental
income is assessable as business income
Assessee
was engaged in construction of various shopping malls. It leased out commercial
space in malls and also rendered certain other ancillary services to occupiers
of shops/stalls. AO treated rental income earned by assessee under head ‘Income
from house property’. Tribunal held that intention of assessee company was to
commercially exploit property by way of complex commercial activities and, it
was not a case of letting out property simplicitor hence rental income is
assessable as business income. High Court upheld the order of the Tribunal. – [PCIT
v. E City Real Estate (P) Ltd. (2018) 259 Taxman 410 : 100 taxman 93 (Bom.)]
KEY
NOTE : SLP is
granted to the revenue; PCIT v. E City Real Estate (P) Ltd. (2018) 259
Taxman 409 (SC)]
Ware housing - Exploitation of commercial assets–Assessable as business income
Allowing the
appeal of the assessee the Tribunal held that; assessee had not merely leased
out 4 walls of warehouse, it had also provided essential and necessary services
of supervisory, loading and unloading, handling, security and transporting to
all clients including Hindustan Lever Ltd. on daily basis during working hours.
Therefore, that was subservient to warehousing activity. Assessee was liable to
pay service tax on service of storage and warehousing since service of storage
and warehousing had been included as taxable service. Lease income received by
assessee on account of let out of warehouses was ‘profits and gains from
business or profession’. (Related Assessment years : 2000-01, 2002-03 to
2006-07, 2001-02, 2008-09) – [Nutan Warehousing Company (P) Ltd. v. DCIT
(2018) 195 TTJ 919 : 170 DTR 377 (ITAT Pune)]
Letting out of its permanent structured on regular basis is assessable as income from house property – Receipt of license fee for use of craft stalls organized with object of promoting tourism, is taxable as business income
Income
earned by the assessee from the letting out of its permanent structured on
regular basis is assessable as income from house property. Receipt of license
fee for use of craft stalls organized with object of promoting tourism, is
taxable as business income. (Related Assessment years : 2004-05 to 2009-10) - [Delhi
Tourism & Transport Development Corp. Ltd. v. DCIT (2018) 194 TTJ 305 : 170
DTR 129 (ITAT Delhi)]
In terms of memorandum of association, main object of assessee-company was to acquire properties and to further let out such properties, income earned from such letting out was to be brought to tax as ‘business income’ and not as ‘Income from house property’
Tribunal held that
assessee’s main object as stated in its Memorandum of Association was to
acquire on license or by purchase, lease, exchange, hire or otherwise lands and
property of any tenure, or premises in any part of India and to license or
sub-license or lease or sub-lease or let, such lands or property or premises or
any part thereof, clearly spells out that the assessee’s main business is to
carry out systematic and regular activity in the nature of business of letting
out property. Section 27(iiib) read with section 269UA(f) of the Act is not
applicable in the instant case as the agreement is only for use of property and
not for the transfer of the same. Since the company is neither the owner nor
the deemed owner in terms of section 27(iiib), the ‘Contribution from Shops’
cannot be assessed under the head ‘Income from house property’. Tribunal relied
on the decisions in case of Chennai Properties & Investments Ltd.v. CIT
(2015) 373 ITR 673 (SC); Rayala Corpn. (P) Ltd v. ACIT (2016) 386 ITR500 (SC) and
Bombay Plaza (P) Ltd. (2016) 161 ITD 552 (Kol) and upheld the assessee’s
claim that the income from granting premises on sub-license was to be assessed
under the head Income from business. - [Oberoi Investments (P) Ltd. v. ACIT
(2018) 161 DTR 257 (ITAT Kolkata)]
Income from Flats/ shops held asstock-in-trade is business income
If a immovable property in the shape of flats / shops
is held as stock-in-trade, then it becomes part of trading operations for the
assessee and as a natural corollary, any income derived there-from would be
Business Income and not Income from House Property. (Related Assessment Year :
2012-13) – [Haware Engineers & Builders Private Ltd. v. DCIT - Date of
Judgement : 10.10.2018 (ITAT Mumbai)]
Where assessee-company was engaged in business of leasing out its house properties to earn rent, income so earned as rent should be treated as ‘business income’, and not as ‘income from house property’
So as to make rental income taxable
under head ‘Profits and Gains of business or profession’, rent should be main source of income, or earning income from rent should be for
purpose for which company is incorporated. Assessee-company was engaged
in business of leasing its properties to
earn rent - It was only business of assessee-company. Income earned as rent by assessee-company should be treated as ‘business income’ and not ‘income from house property’. [In favour of assessee]. - [Rayala Corporation (P) Ltd. v.
ACIT (2016) 386 ITR 500 : 288 CTR 121(SC)]
Where in terms of memorandum of association, main object of assessee-company was to carry on business of hotels, resorts, boarding, lodges, guest houses, etc., and it earned only rentals for occupation of premises on daily basis, said income would be taxed as business income and not as income from house property
Assessee was in business of running guest houses and entered into agreements with various
companies for accommodating their employees from time to time and received rent
on daily basis - Assessing Officer taxed income received by assessee as ‘income from house property’. Since no property was let out and assessee
received only rentals for occupation of premises on a daily basis, and moreover, in terms
of memorandum of association, main object of assessee-company was to carry
on business of hotels, resorts, lodges,
guest houses, etc., said income was to be taxed as business
income and not as income from house property. Just
because TDS on such income was made under section 194-I, it could not be treated as ‘house
property income’ inasmuch as definition of ‘rent’ includes lease of equipment, lease of
furniture, fittings which cannot be considered as ‘house property’. [In favour
of assessee] (Related Assessment year : 2007-08) – [Heritage Hospitality Ltd. v. DCIT (2016) 68 taxmann.com 150 (ITAT
Hyderabad)]
Income from letting of property on rent by an assessee engaged in the business of letting is assessable as “business profits” under section 28 and not as “Income from house property” under section 22
The assessee, a
private limited company, had house property, which was rented and the assessee
was receiving income from the said property by way of rent. The Supreme Court
had to consider whether the income so received should be taxed under the head
“Income from House Property” or “Profit and gains of business or profession”.
The assessee claimed that though it is having house property and is receiving
income by way of rent, the assessee is in business of renting its properties
and is receiving rent as its business income and so the said income should be
taxed under the Head “Profits and gains of business or profession”. The Revenue
claimed that as the income is arising from House Property, the said income must
be taxed under the head “Income from House Property” – [Royala Corporation (P) Ltd.
(2016) 386 ITR 500 (SC)]
As per memorandum of Association, the object was developing of properties. 85% of the income was from letting of properties. In the earlier year, the income from letting of properties was treated as House Property income by assessee. In current year, assessee paid compensation for getting two of its properties vacated and treated the income as a business income. It was held that although the income was offered in earlier years as house property, the objects clause and the activities showed that the business was renting of properties. Income therefrom was business income. Judgment of Chennai Properties & Investment (2015) (SC) followed. – [Shyam Burlap Co Ltd. v. CIT (Cal) (2016) 380 ITR 151(SC)]
Where assessee having acquired a shopping centre in a hotel under licence agreement, gave it to different parties for setting up shops along with various facilities such as air conditioning, telephone services, electricity, sanitary etc., amount received from said parties from sub-licencing of property was to be taxed as business income
Assessee entered into an agreement with EHL to
acquire under a license certain area in a Hotel for purpose of using same as a
shopping centre. Tenure of said leave and license agreement was a period of 50
years - Assessee having acquired said shopping space, granted same to different
parties who were interested in setting up shops - Assessee also provided
various services like air conditioning, telephone services, maintenance,
electricity, water, sanitary, security etc.. Assessee claimed that amount
received from providing shopping space along with various services was to
be taxed as business income - Assessing Officer rejected
claim of assessee and treated income in question as ‘Income from house property’. It was noticed that leave and licence
agreement did not create any interest of assessee in property owned by licencor
and, moreover, assessee did not have exclusive possession of property. In view
of above, assessee could only be regarded as licencee and, thus, provisions
of section 22, read with section 27(iiib)
were not attracted. Consequently, amount received by assessee from
sub-licencing of property along with various amenities, was to be taxed as business income. [In favour of assessee] – [Bombay Plaza (P) Ltd. v. ACIT (2016) 73
taxmann.com 91 (ITAT Kolkata)]
Rental
income from guest houses is taxable under the head ‘business income’ and not as
house property
Where in terms of memorandum of association, main
object of assessee company was to carry on business of hotels, resorts,
boarding, lodges, guest houses, etc., and entered into agreements with various
companies for accommodating their employees from time to time and received rent
on it daily basis, it was held that said income would be taxed as business
income and not as income from house property. - [Heritage Hospitality Ltd.
v. DCIT (2016) 68 taxmann.com 150 (ITAT Hyderabad)]
Rental income from property assessable under the head ‘profits and gains of business or profession’
It
was held that if an assessee is having his house property and by way of
business he is giving the property on rent and if he is receiving rent from the
said property as his business income, the said income, even if in the nature of
rent, should be treated as “Business income” because the assessee is having
a business of renting his property and
the rent which he receives is in the nature of his business income. - [Chennai
Properties & Investments Ltd. v. CIT (2015) 373 ITR 673 : 277 CTR 185 : 373
ITR 673 : 119 DTR 130 (SC)]
Income earned from letting-out of warehouse and godown was chargeable under the head ‘income from business’
As per the High Court, the income earned from
letting-out of warehouse and godown was chargeable under the head ‘income from
business’ having regard to the facts and circumstances of the case. In this
case, assessee was engaged in the business of warehousing, handling and
transport business and it was providing storage facility to manufacturers,
traders and other concerns engaged in warehousing activity and the services
provided included several auxiliary services such as pest control, preventive
measures against decay of goods stored due to vagaries of moisture/temperature,
fungus formation, etc., besides security and protection of goods stored. – [CIT
v. NDR Warehousing (P) Ltd. (2015) 372 ITR 690 (Mad.)]
Where rental income earned by assessee was taxable as business income, compensation paid to existing tenants to obtain vacant possession of building so as to earn higher rental income by letting it out to new tenants, was to be regarded as business expenditure allowable under section 37(1)
The
appellant-assessee was a public limited company within the meaning of the
Companies Act, 1956. The main objects specified in its Memorandum of
Association were to acquire and develop properties and to deal with the same by
way of sale, lease, letting out, etc. During relevant year, assessee paid
certain amount as compensation to two tenants for obtaining vacant possession
of space occupied by them. The assessee claimed deduction of said payment as
revenue expenditure. The Assessing Officer noted that in preceding years, the
assessee had offered rental income to tax
under the head 'house property'. He thus opined that only deductions as laid
down in section 24 could be allowed. He further opined that since the payment
was made for acquiring a benefit of enduring nature, the expenditure was to be
considered as capital expenditure which could not be allowed as deduction under
section 37(1). The Tribunal confirmed the order passed by the Assessing
Officer. On appeal:
Held : Where memorandum of assessee - company permitted it to carry on business of letting out properties and as 85 per cent of income of assessee was by way of lease rentals. Said income was to be regarded as businessincome - Held, yes - Whether in such a case, compensation paid by assessee to existing tenants to obtain vacant possession of building so as to earn higher rentalincome by letting out said premises to new tenants had arisen out of business necessity and commercial expediency, which was to be allowed as revenue expenditure. [In favour of assessee] (Related Assessment year : 1996-97) – [Shyam Burlap Company Ltd. v. CIT (2015) 234 Taxman 831 61 taxmann.com 121 (Cal.)]
Where in terms
of memorandum of association, main object of assessee-company was to acquire
properties and earn income by letting
out same, said income was to be
brought to tax as business income and not
as income from house property
The
assessee-company was incorporated with main objective, as stated in the
Memorandum of Association, to acquire the properties in the city and to let out
those properties. The assessee had rented out such properties and the rental
income received therefrom was shown as income from business. The Assessing
Officer took a view that the rental income received
by assessee was to be taxed as income from house
property. The Commissioner (Appeals) as well as the Tribunal accepted
assessee's claim holding that amount in question was to be taxed as business
income. The High Court, however, restored order passed by the
Assessing Office. On appeal to the Supreme Court:
Held : The
Memorandum of Association of the assessee-company mentions that main object of
the company is to acquire and hold the properties and to let out those
properties as well as make advances upon the security of lands and buildings or
other properties or any interest therein. It may further be noted that in the
return that was filed, entire income which
accrued and was assessed in the said return was from letting out of these
properties. It is so recorded and accepted by the assessing officer himself in
his order. In aforesaid circumstances, it is concluded that letting of the
properties is in fact is the business of the
assessee. The assessee therefore, rightly disclosed the income under the
head income from business. It cannot be
treated as 'income from the house property'. Accordingly, instant appeal
is allowed and order of the High Court is set aside. [In favour of assessee] – [Chennai
Properties & Investments Ltd.
v. CIT (2015) 231 Taxman 336 : 56 taxmann.com 456 (SC)]
Where facilities given by assessee along with let out buildings/commercial establishments were inseparable and entire construction and interiors of buildings was done with sole intention of carrying on business, entire income would be assessed as ‘business income’
Assessee was engaged in business of establishing facilities as available in IT Park and in letting
out hotels, commercial complexes in an integrated manner with fully operational
infrastructure facilities – Rental
income derived from tenants was
claimed as ‘business income’. Revenue authorities treated 60 per cent of income as ‘income from business’ and 40
per cent as ‘income from house property’. Since facilities given by assessee along with
buildings/ commercial establishments were inseparable, and entire construction
and interiors of buildings was done with sole intention of carrying on business, assessee was entitled to treat entire income as ‘business income’. Therefore, the
authorities were not justified in bifurcating the income into
the rental
income and the business income. (Related Assessment year : 2004-05) - [In
favour of assessee] – [Mysore
Intercontinental Hotels Ltd. v. ACIT(CC) (2015) 230 Taxman 418 : 56
taxmann.com 149 (Karn.)]
Assessee was a government undertaking doing tourism business. It entered into an arrangement with certain enterprises, whereby the loss making units of assesse were given to those enterprises and a Franchisee fees was received. Assessing Officer treated the franchisee fees as rent for land and building and therefore treated the same as “House Property” Income. Held, as per terms of agreement the franchisee related to not only land and building, but had various conditions ranging from obtaining of permits and licences, maintenance of rooms, common area, garden maintenance, catering, Bar etc. Further conditions as to how business shall be conducted was there. Thus, assesse continued to be in the business of tourism activities, though not directly but through the franchisees. The assesse received franchisee fees for giving a special right or privilege to the franchisees to undertake touring business in the property. – [Tamil Nadu Tourism Development Corporation Ltd. (2014) 368 ITR 533 (Mad.)]
Where rental income was received by assessee from letting out building along with other amenities in a Software Technology Park, same was chargeable to tax under head ‘Income from business and profession’
Assessee- company was engaged in
business of developing, operating and maintaining an industrial park and
providing infrastructure facilities to different companies. It claimed rental
income arising from letting out building as business income. However, Assessing
Officer submitted that said income fell under head of ‘Income from house
property’. In similar case of CIT v. Velankani Information Systems (P) Ltd.
(2013) 218 Taxman 88 : 35 taxmann.com 1 (Karn.), High Court held that such
rental income falls under head of ‘profit and gains of business or profession’.
Tribunal was correct in holding that lease rent received by assessee from
letting out building along with other amenities in a Software Technology Park
was chargeable to tax under head 'income from business' and not under head
'Income from house property' . [In favour of assessee] (Related Assessment
years : 2005-06 to 2009-10) – [CIT v.
Information Technology Park Ltd. (2014) 369 ITR 460 : 225 Taxman 26 : 47
taxmann.com 239 (Karn.)]
Where assessee owning a shopping mall, let out a small portion of said mall, in view of fact that after a short period let out portion of mall had been taken back and, moreover, in major portion of said premises assessee was already carrying out his own business, rental income derived from shopping mall was to be taxed as business income
The assessee owned an immovable property i.e. a
shopping mall. During relevant year, assessee let out a portion of said mall.
The assessee claimed that rental income derived
from mall was taxable as income from business. The assessee
had also borrowed certain loan during relevant year. The interest paid on said
loan was claimed as deduction under section 36(1)(iii). The revenue
authorities held that rental
income in question was to be taxed as income from house
property. It was further held that loan
had been taken by assessee to purchase shares of its sister concern in order to
acquire controlling interest in said company. Accordingly, it was concluded
that purpose of investment being capital in nature, interest paid on loan in
question could not be allowed as deduction. The Tribunal, however, allowed
assessee's claim. On revenue's appeal:
Held : The law is well
settled that whether a particular letting is a business has to be
decided in the circumstances of each case and
each case has to be looked into from the businessman’s point of
view to find out whether letting was the doing of business or
exploitation of his property by an owner. There being categorical findings of
fact by the appellate authority as well as the Tribunal that letting out was for
the purposes of business after
considering all relevant facts and the fact that the premises City Centre, the
Mall, has been taken back by the assessee and further in major portion of the
premises assessee was already carrying out his own business, it is opined
that assessee has rightly shown his rental
income as business income. As regards
payment of interest, in view of the findings recorded by the appellate
authority and Tribunal that interest free advance with the assessee were far in
excess to the investment made in purchasing the share, it is proved that
borrowed funds have been utilized in business. Thus, there is
no infirmity in the aforesaid findings of the appellate authority and the
Tribunal that assessee was entitled for deduction and the addition was rightly
deleted on the above score. [In favour of assessee] – [CIT v. Prakash Agnihotri (2014) 224 Taxman 232 : 46 taxmann.com 145
(All.)]
Where assessee had constructed a premises in Cyber City and it consisted of IT Park, commercial complexes, schools and residential complexes, etc., and further IT Park was well equipped with required infrastructure and various facilities, lease rent/license fee received by assessee from letting out of said premises to IT companies was assessable as business income
Assessee was engaged in construction business - It had constructed a
premises in Cyber City - Said premises consisted of IT Park, commercial
complexes, schools and residential complexes, etc. - IT Park had been for use
to various software/other companies and it was recognized/sanctioned under
section 80-IA, IT Park was shown as business assets in schedule of fixed
assets, and IT Park was well equipped with required infrastructure and various
facilities and services - Assessee received lease rent/license fee from letting
out of said premises to IT companies and offered rentalincome to
tax as income from business - Assessing Officer having noticed that while lease rent from
premises was charged at Rs. 14.30 per sq.ft., amount charged towards maintenance
was only Rs. 0.50 per sq.ft., held that rent was predominantly for space and prime intention was to
let out property on a monthly rent and there was no complex commercial activity
involved in this letting out - He, therefore, assessed rentalincome under
head 'Income from house property' - Lease
agreement executed between assessee and lessee [software company] showed that
monthly lease rent/license fee of Rs. 14.30 per sq.ft. included cost of
providing such additional services and amenities, which were also technical one
and of a major value, and nothing extra had been charged from lessee for this.
Further amount of Rs. 0.50 was basically for maintaining and clearing of
premises, toilets, drainage, etc. Intention and object of assessee was to
develop IT Park as a systematic commercial activity to earn profit and not just
earning of rental income. Therefore, income derived by assessee from letting out of premises was to be assessed
as business income - Held, yes [Paras 9 to 11] [In favour of
assessee]. (Related Assessment year : 2007-08) – [DCIT v. Magarpatta Township Development & Construction Co.
(2013) 141 ITD 682 :
32 taxmann.com 63 (ITAT Pune)]
Substitution of clause (iii) and addition of clause (iiia) and further clause (iiib) of section 27 with effect from 01.04.1988 is clarificatory in nature and has retrospective operation - In case of company, if it is found that property owned by company in manner as mentioned in section 27, itself is utilized without retaining real control ownership interest therein for purpose of carrying on business, income derived therefrom cannot be treated to be income from house property and it shall be treated to be income from business activities
It is
settled by several judicial pronouncements that any amendment made, though
apparently for prospective operation, intending to clarify and further explain
the provision of existing law is always retrospective in its
operation.
The basic
object of section 27(iii), as stood originally, is to define owner
of house with an intention to levy tax on income from house
property. It will appear that originally one class of person was deemed to be
owner. Subsequently, by way of amendment ownership of various classes had been
explained and/or clarified. When it is clarificatory in nature, it cannot
change the basic character of the said section for one of the objects
of classification is to keep basic purpose of original statutory provision
untouched. Hence, following the established principle of law relating
to interpretation of statutes, the said provision with amendment has
retrospective operation though it has been inserted on 01.04.1988. In view of
this legal position, there was no escape to hold that the assessee was deemed
owner for holding the leasehold interest.
So far as
the question whether income from sub-lease to third parties can be
assessable under the heading of income from house property or not is
concerned, in case of a company unlike individual, definition and
meaning of 'owner' has to be applied for the purpose of imposition
of tax in two ways. It can be done upon examining the object clause
in the memorandum of association and further the way the business is actually
carried on. If it is found that the property owned by the company, in the manner
as mentioned in section 27, itself is utilized without retaining real
control ownership interest therein for the purpose of carrying on business,
the income derived therefrom cannot be treated to
be income from house property and it shall be treated to be income from
business activities.
In the
instant case, enough material had not been placed to find the nature of
the activity of the business of the company in relation to the property.
Therefore, the matter should be restored to the file of the Assessing Officer to
come to findings with reference to the object clause of the memorandum of
association and also the accounts whether the income fetched by way
of sub-lease was part of the business activity or not? On examining closely, if
it was found that it was part of the business activity, obviously
the income fetched therefrom should be classified under the heading ‘Profits
and gains of business, or profession’, and not from the ‘Income from house
property’. (Related Assessment year 1992-93) – [Bhabi Properties (P) Ltd. v. ACIT (2011)
201 Taxman 59 : 12 taxmann.com 281 (Cal.)]
Letting
out furnished apartment
The assessee had provided window air-conditioner.
Furniture had also been provided. Thus, what was let out by the assessee was a
furnished apartment. The furnishings provided by the assessee did not change
the character of the asset from that of house property to that of business
asset. The assessee was not carrying on any business by way of letting out
residential house property. Moreover, the property did not cease to be house
property only for the reason that the assessee had provided air-conditioner and
furniture in the residential apartment. - [Arpita Marketing (P) Ltd. v. ITO
(2008) 21 SOT 302 (Mum)]
Where assessee claimed to have
engaged in hotel business, but
construction of hotel had neither been completed during relevant assessment
year nor any hotel business had
commenced, rental income received
by assessee from its property, by no stretch of imagination, could be said to
be income from hotel business
The Supreme Court in the case of Universal Plast Ltd. v. CIT
(1999) 237 ITR 454 : 103 Taxman 493, while deciding the principal question as
to whether the income received by the assessee by leasing out the factory was
business income, laid down the following legal position :
(1) no precise test can be laid down to ascertain
whether income (referred to by whatever nomenclature, lease amount, rents,
license fee) received by an assessee from leasing or letting out of assets
would fall under the head ‘Profits and gains of business or profession’;
(2) it is a mixed question of law and fact and has
to be determined from the point of view of a businessman in that business on
the facts and in the circumstances of each case, including true interpretation
of the agreement under which the assets are let out;
(3) where all the assets of the business are let
out, the period for which the assets are let out is a relevant factor to find
out whether the intention of the assessee is to go out of business altogether
or to come back and restart the same;
(4) if only a few of the business assets are let
out temporarily, while the assessee is carrying out his other business
activities, then it is a case of exploiting the business assets otherwise than
employing them for his own use for making profit for that business; but if the
business never started or has started but ceased with no intention to be
resumed, the assets also will cease to be business assets and the transaction
will only be exploitation of property by an owner thereof, but not exploitation
of business assets.
Applying the aforesaid test, particularly the test laid down
in clause (4) that in a case where the business never started or has started
but ceased with no intention to be resumed, the assets cannot be considered to
be the business assets and transaction would only be exploitation of property
by an owner but not exploitation of business assets, to the facts of the
instant case, the conclusion of the Tribunal that the rental income received by
the assessee should be assessed under the head 'Income from business' was
palpably erroneous and unjustified.
There
being a specific head under the Income-tax, 1961 “Income from house
property”, the income received as rent from the property ordinarily
must be computed under that head unless it is clearly established by the
assessee that the said income has been received in the course
of business from the
property where the business had started. Thus, the Tribunal was not justified in holding that the income of the assessee should be
assessed under the head ‘Income from business’ instead of ‘Income from property’ as assessed by the
Assessing Officer. – [CIT, Jaipur v. Hotel Ratanada International (P) Ltd. (2007) 293 ITR 557 : 164 Taxman 292 (Raj.)]
Where assessee-company, which was
carrying on bidi manufacturing business,
due to labour problem temporarily let out some of its properties for
generating income without any
intention to close down its business, rental income derived from said letting
was to be treated as business income
The assessee-company was carrying on bidi
manufacturing business. It acquired 58 properties for its
bidi business consisting of factory building, godowns, officer/staff
quarters, etc. The properties were all being used for the purpose of
its business. However, due to labour problems and other circumstances,
assessee temporarily let out its properties which were not immediately required
by it for the purpose of its bidi manufacturing business. The assessee in
its returns, filed for the assessment years 1986-87 to 1988-89,
showed rental income as income from business and
claimed depreciation and also claimed actual cost of maintenance. The Assessing
Officer treated the rental income as the income from house
property and, therefore, restricted the allowance for repairs and maintenance
and disallowed the claim of depreciation. On appeal, the Commissioner (Appeals)
confirmed the decision of the Assessing Officer. On second appeal, the Tribunal
found that the properties were temporarily let out to keep them in good
condition so that they could be used and exploited again for the purpose of
bidi manufacturing business and that the assessee’s intention was to
increase its business gradually and not to close it down. The
Tribunal on finding that in regard to the years in question, the assessee had
carried on business held that there was no material on record to show
that the business of the assessee had come to an end or was likely to
come to an end, and, therefore, allowed the claim of the assessee. On reference
:
Held : The findings of the Tribunal revealed that the assessee was carrying on business in the years under consideration and there was no intention on the part of the assessee to close down the business. On the other hand, the intention of the assessee was to revive and increase its business in the years to come. Therefore, it held that letting out of the premises by the assessee was only temporary to generate income and, therefore, the rental income should be treated as business income. Thus, it was clear that the Tribunal was justified in holding that the rental income should be treated as business income. All the assets were not let out. Only a few of the assets of the business were let out and that too temporarily with an intention of exploiting them. The finding was that there was no intention to close down the business. Nor was there any intention that the assets would cease to be business assets. Therefore, there was no error in the order of the Tribunal. (Related Assessment years : 1986-87 to 1988-89) – [CIT v. Kohinoor Tobacco Products (P) Ltd. (2006) 283 ITR 162 (2005) 149 Taxmann 620 (MP)]
Where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for sake of consistency, same view should continue to prevail in subsequent years unless there is some material change in facts. Therefore, in absence of even a single distinguishing feature in year under consideration, rental income of assessee from factory building should continue to be assessed as ‘business income’ as assessed in all earlier years rather than assessed as ‘income from house property’
Like all earlier assessment years, in the assessment year
1989-90, the assessee-company showed certain rental
income from its factory building as ‘business
income’ and claimed depreciation on the said property. However, the
Assessing Officer held said rental
income as ‘income from house
property’ and allowed statutory deductions under section 24. On appeal, the
Commissioner (Appeals), after calling for remand report, concluded that the
factory building continued to be a commercial asset inasmuch as the assessee
was carrying on its business in the
said premises and only a part of it had been let out. He, accordingly, treated
the rental
income as ‘business income’ and allowed
depreciation. On second appeal, the Tribunal found that the income was
assessed as ‘business income’ in all earlier years and
observing that no distinguishing features had been pointed out in year in
question, the Tribunal affirmed the order of the Commissioner (Appeals) order.
The revenue’s application for reference under section 256(1) was also dismissed
by the Tribunal.
(Related Assessment year : 1989-90) – [CIT
v. Neo Poly Pack (P) Ltd. (2000) 245 ITR 492 : 112 Taxman 363 (Del.)]
Where a house
property was a commercial asset, used by assessee as such in beginning and
later due to shifting of its branches to outstations, one of its floors
becoming surplus was exploited by assessee by letting out to others, rental
income derived therefrom was assessable as business
income
The assessee was a company carrying on business as
authorised dealers in Tata Diesel Vehicles. The building from which they
carried on their business consisted of three floors including the
ground floor. While the two floors were used for the assessee's business,
second floor becoming surplus was let out to the Government department. For the
assessment years 1975-76 and 1976-77, the assessee claimed that as the entire
property was constructed with a view to use the same for the purpose of
its business and the surplus accommodation became available due to
shifting of its branches outside the city, the rental income should
be considered as business income. The Assessing Officer, however, taxed
the same as income from property. On appeal, the Commissioner
(Appeals) allowed the rental income. On the revenue's appeal, the Tribunal
confirmed the order of the Commissioner (Appeals). On reference:
Held: According to the assessee, the entire property was being used for business in the beginning but later on when the branches were shifted to outstations, second floor became a surplus and, hence, that was let out to a Government Department. Inasmuch as the nature of asset was a commercial asset, the assessee could exploit the same either by itself or by letting out the same to others. Therefore, in a matter like this, the fundamental position that has got to be ascertained is as to whether a particular building or premises is a commercial asset or a house property. If the premises is a commercial asset, then the income derived from there would amount to business income, as otherwise it would be income derived from property assessable under the head ‘Income from house property’. On facts, the Tribunal found in the instant case that the property in question was a commercial asset, which was used by the assessee as such in the beginning and later on after shifting its branches to outside stations, second floor became surplus, which was exploited by the assessee by letting out to others and, therefore, rental income derived therefrom was rightly assessable under the head ‘Business income’. (Related Assessment years : 1975-76 and 1976-77) – [CIT v. V.S.T. Motors (P) Ltd. (1997) 226 ITR 155 : 92 Taxman 205 (Mad.)]
In the case of Vora Warehousing (P) Ltd. v. ACIT where
it has been observed that the warehouses constructed with facility to store
goods are to be considered as ‘commercial assets’ and income realized by
letting-out such facility was assessable as ‘business income’.– [Vora
Warehousing (P) Ltd. v. ACIT (1999) 70 ITD 518 (ITAT Mumbai)]
Godown rent
received was incidential to business – Not property income – To be assessed as
business income
The
facts of the case are that the assessee is a firm of clearing and forwarding
agents. Under the contract (Annexure “D”), on acceptance of the tender of the
assessee, he was appointed as a clearing agent at the Port of Cochin on the
terms and conditions forming part of this document dated December 29, 1975.
On
an examination of the necessary case-law on the subject, the Tribunal has
observed that basically in the context of the situation, the mere fact that the
property is hired out cannot be considered in the context of an ordinary
landlord exercising his proprietary right over the property lets the property
on hire resulting in the consequence of turning it to a profitable account. The
Tribunal has emphasised that what is required to be taken into consideration is
the dominant role of the assessee as a trader as the determinative factor. In
application to the factual matrix, the Tribunal applied the text adopted by
Lord Sumner of the Privy Council that the clearing agent is a clearing agent
first and a landlord only afterwards. His role as landlord is subsidiary and
incident of his business as a clearing agent. Reaching the above conclusion,
the Tribunal considered the amount of Rs. 2,21,068 received by the assessee
from the Director- General of Supplies and Disposals under the clearing and
forwarding contract in question was rightly brought to tax by the Income-tax
Officer under the head “Income from business”. The High Court confirmed the
order of the Appellate Tribunal in holding that the godown rent of Rs. 2,21,068
received by the appellant/assessee from the Director-General of Supplies and
Disposals, under the contract in question as income from business and answered
the same in the affirmative, in favour of the Revenue and against the assessee.
- [Mercantile and Marine Services v. CIT (1998) 233 ITR 257 (Ker.)]
Assessee was acting as managing agent for a number of companies - Building owned by assessee, in which its registered office was located, was rented out to managed companies for proper and efficient conduct of business of Manged Companies - Furnished accommodation was also provided to those companies in terms of agreement with those companies - Income from letting out property and furniture to managed companies was assessable as assessee’s business income - Expenses pertaining to portion of property so let out were allowable against such income
The distribution amongst the various managed
companies on functional basis and allotment of space in the said building which
was also the registered office of the assessee-company, was an essential and
integral feature of the conduct of its own business and the letting
out of accommodation was clearly subservient and incidental to the carrying on
of the business of the assessee itself. For a proper and efficient
conduct of the business of the managed companies, it was imperative
that their offices should also be situated as close to one another as possible.
Furnished accommodation was provided to the managed companies in terms of the
agreements entered into with the various managed companies. In view of this,
the Tribunal was justified in holding that the income from the said
property and from letting out furniture to the managed companies should be
assessed under the head 'Profits and gains of business or profession.
The Tribunal was also justified in allowing expenses pertaining to the portion of
the property let out to managed companies as deduction against
such income. The decision is in favour of
assessee. (Related Assessment year : 1964-65) – [CIT v. Mcleod & Co. Ltd. (1993) 203 ITR
290 (Cal.)]
Assessee was in film business, as a producer, as a distributor, as an exhibitor and owner of two studios which were being utilised by assessee for making films of his own as well as for letting out to others. On facts rental income derived by assessee from aforesaid studios was assessable in hands of assessee under head ‘Business income’
The assessee who was in the
film business as a producer, distributor and exhibitor, was the owner
of the two film studios which he used for making films of his own as well as
for leasing out to others. For the assessment year 1971-72, the assessee
claimed that the rental income from the studios should be assessed
under the head 'Business income'. The ITO assessed the rental
income of one studio under the head 'income from house property' and
the other under the head ‘Income from other sources’. However, on second
appeal, the Tribunal allowed the assessee's claim. On reference:
In respect of the same assessee in CIT v. B. Nagi Reddi (1984) 147 ITR
337(Mad.) the Court had held that whether a particular letting is business has
to be deduced from the circumstances of each case and in the setting and the'
background of facts and that there is no such thing as a naturally born
commercial asset, because an asset becomes a commercial asset in view of the
use to which it was put in business and not because of any inherent qualities.
Considering the many sided career of the assessee in the film business, as a
producer, as a distributor, as an exhibitor, as a studio owner and the like, it
was held that on an overall consideration of these facts, the Tribunal was
right in holding that the rental income was to be assessed as business income.
In view of the aforesaid decision in the instant case also, the Tribunal was
justified in holding that the income received by the assessee from the studios
should be assessed in the hands of the assessee as ‘business income’. Moreover,
the view taken by the Tribunal was, in the circumstances of the case, a
reasonable one. (Related Assessment year : 1971-72) - [CIT v. B. Nagi Reddy (1989) 180 ITR 457 : 47 Taxman 95 (Mad.)]
Assessee-firm constructed a building to run a theatre - In absence of licence, it let out theatre to a person who had a licence and later when assessee got licence, it started running theatre itself - Rental income derived from lease of building was assessable as income from business and not as income from other sources
The intention of the assessee was not to let cut the building. The
intention was to run the theatre, and for that a building was constructed. Since
the assessee had no licence, the assessee had to lease it out on rent. The
facts showed that the theatre was ready for exhibition. When the licence was
accorded, the assessee started running the theatre, and was periodically
getting the licence renewed. Therefore, the Tribunal was right in holding that
the rental income from the
cinema was business income and
not income from other
sources. It was also justified in holding that the assessee was entitled to
development rebate in respect of the plant and machinery let out. (Related Assessment years : 1966-67 to 1971-72) - [CIT
v. Ganeshdass Sreeram (1989) 180 ITR 397: 46 Taxman 312 (Gau.)]
No comments:
Post a Comment