Income under house property head.
This query is : Resolved
09 September 2009
Hiee.....can anyone solve my query.........i.e.
A person having construction business,It receives rent from a property which is bought for new construction of buildings. Is this rent Income fall under Income from House Property? Why when this property has been bought for his regular business activity? Tell Me Reason too.
Thanks in advance.
A person having construction business,It receives rent from a property which is bought for new construction of buildings. Is this rent Income fall under Income from House Property? Why when this property has been bought for his regular business activity? Tell Me Reason too.
Thanks in advance.
09 September 2009
Lease of business assets - In the light of various decisions of the Supreme Court the following propositions emerge regarding taxability of income from leasing out of business assets—
(1) No precise test can laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence 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 businessmen 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 by 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 - Universal Plast Ltd. v. CIT [1999] 103 Taxman 493/237 ITR 454 (SC).
From the decided cases the following principles emerge :
(1) In order to be a business income within the meaning of section 10 of the 1922 Act [corresponding to section 28 of 1961 Act], there must be evidence of exploitation of a commercial asset.
(2) Exploitation of a commercial asset does not necessarily mean exploitation by the assessee himself at all material times. The assessee may temporarily cause it to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew.
(3) But in order that the income derived from the lease may be taxable it must be shown that the lessor’s intention was that during the period of the lease the asset leased out must remain and treated as a commercial asset and exploited as such.
(4) This intention of the lessor referred to above has to be ascertained from the cumulative effect of all the terms of the lease and other material circumstances - Everest Hotels Ltd. v. CIT [1978] 114 ITR 779 (Cal.).
(1) No precise test can laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence 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 businessmen 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 by 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 - Universal Plast Ltd. v. CIT [1999] 103 Taxman 493/237 ITR 454 (SC).
From the decided cases the following principles emerge :
(1) In order to be a business income within the meaning of section 10 of the 1922 Act [corresponding to section 28 of 1961 Act], there must be evidence of exploitation of a commercial asset.
(2) Exploitation of a commercial asset does not necessarily mean exploitation by the assessee himself at all material times. The assessee may temporarily cause it to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew.
(3) But in order that the income derived from the lease may be taxable it must be shown that the lessor’s intention was that during the period of the lease the asset leased out must remain and treated as a commercial asset and exploited as such.
(4) This intention of the lessor referred to above has to be ascertained from the cumulative effect of all the terms of the lease and other material circumstances - Everest Hotels Ltd. v. CIT [1978] 114 ITR 779 (Cal.).
12 September 2009
But my query is still unsolved.....
In my case it is not a lease condition, the assessee is receiving rent from old tenant for the period when they left the bulding for reconstruction.
In my case it is not a lease condition, the assessee is receiving rent from old tenant for the period when they left the bulding for reconstruction.
01 August 2024
When dealing with rental income from a property purchased for business purposes, such as construction, it's crucial to understand the classification of the income under the Income Tax Act, 1961.
### **Classification of Rental Income**
1. **Income from House Property:**
- **General Rule:** Rental income from a property is generally classified under "Income from House Property" under Section 22 of the Income Tax Act. This is applicable irrespective of the property's usage or the owner's primary business.
- **Condition:** The key condition is that the property must be owned by the taxpayer and should be used for generating rental income. The nature of the owner's business (whether construction or otherwise) does not typically alter this classification.
2. **Case of Property Purchased for Business:**
- **Rental Income:** Even if the property was purchased with the intention of constructing new buildings or for business activities, if it is rented out and generating rental income, that income is classified under "Income from House Property."
- **Usage of Property:** The classification as "Income from House Property" is based on the income-generating activity of renting the property out, not on the primary business activity of the owner.
3. **Reasons for Classification:**
- **Taxable Income:** Rental income is taxed under "Income from House Property" because it represents income earned from the ownership of property. This is distinct from business income, which is derived from operational activities.
- **Consistency:** The Income Tax Act classifies rental income uniformly as "Income from House Property" to ensure consistent treatment of such income, regardless of the owner's business operations.
### **Specific Scenario:**
In your case, where the property was purchased for new construction but is currently receiving rent from an old tenant while the building is being reconstructed, the rental income should still be reported under "Income from House Property."
**Reasoning:**
- **Income from Ownership:** The property is generating rental income as it is still an asset owned by the taxpayer, even if it's intended for a different purpose in the future.
- **Nature of Income:** The nature of income as rent from the property is consistent with "Income from House Property" classification, irrespective of the owner's business intentions.
### **Summary:**
Even though the property was bought for business purposes (construction), rental income from that property is classified under "Income from House Property" if it is being rented out. The primary consideration is that the income is derived from the property’s rental value, not the owner’s business activity.
For further clarity and specific details related to your case, consulting a tax professional would be advisable.
### **Classification of Rental Income**
1. **Income from House Property:**
- **General Rule:** Rental income from a property is generally classified under "Income from House Property" under Section 22 of the Income Tax Act. This is applicable irrespective of the property's usage or the owner's primary business.
- **Condition:** The key condition is that the property must be owned by the taxpayer and should be used for generating rental income. The nature of the owner's business (whether construction or otherwise) does not typically alter this classification.
2. **Case of Property Purchased for Business:**
- **Rental Income:** Even if the property was purchased with the intention of constructing new buildings or for business activities, if it is rented out and generating rental income, that income is classified under "Income from House Property."
- **Usage of Property:** The classification as "Income from House Property" is based on the income-generating activity of renting the property out, not on the primary business activity of the owner.
3. **Reasons for Classification:**
- **Taxable Income:** Rental income is taxed under "Income from House Property" because it represents income earned from the ownership of property. This is distinct from business income, which is derived from operational activities.
- **Consistency:** The Income Tax Act classifies rental income uniformly as "Income from House Property" to ensure consistent treatment of such income, regardless of the owner's business operations.
### **Specific Scenario:**
In your case, where the property was purchased for new construction but is currently receiving rent from an old tenant while the building is being reconstructed, the rental income should still be reported under "Income from House Property."
**Reasoning:**
- **Income from Ownership:** The property is generating rental income as it is still an asset owned by the taxpayer, even if it's intended for a different purpose in the future.
- **Nature of Income:** The nature of income as rent from the property is consistent with "Income from House Property" classification, irrespective of the owner's business intentions.
### **Summary:**
Even though the property was bought for business purposes (construction), rental income from that property is classified under "Income from House Property" if it is being rented out. The primary consideration is that the income is derived from the property’s rental value, not the owner’s business activity.
For further clarity and specific details related to your case, consulting a tax professional would be advisable.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Is this income indian or foreign income?
- 15ca /15cb whose income tax login? remitter or nri seller's login?
- GST on export of services and Input Credit
- RCM applicability on Rent Paid by Registered Person to Unregistered Landlord for Residental Building
- Regarding Documentation & Compliances for Opening of Unit of Pvt Ltd.
- TDS U/S. 194NF
- ITC temporary reversal and reclaim
- Applicable TDS rate for sale of property in Nov 2024
- Can we claim ITC of Feb-2024 in the month of November-2024 which was not claimed by oversight
- Import license renewal
- Credit profit and loss account in case of bonus share received
- How to determine cost of acquisition of shares on De-merger or Merger
- LAST YEAR 2022-23 ITC IN NEXT YEAR 2023-24 REPORITNG IN GSTR-9
- MIS MATCH OF INVOICE NUMBER
- IGST Credit-Show cause notice issued-confusion
- Issue of gst e invoice
- How to adjusted advances given or receipt
- Foreign vendor without PAN unable to to register due to non receipt of OTP on foreign number ?
- 133(6) DIN INVALID format error - ->WHERE TO REPLY 133(6) notice?
- Query for dubts
Trending Online Classes
CAclubindia
