Rental income chargeable as Income from business and not as Income from House Property

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

 Lease rent income received by assessee from letting out of built-up space of industrial park was assessable under head ‘income from business’

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.)]