I have come across a partnership firm, which receives rent from letting out of properties for commercial purposes, further the rent received is Rs 77 Lacs p.a.
I would like a clarification as to whether the firm shall be hit by section 44AB i.e. tax audit or simply I should file its return of income by treating Rs 77 Lacs rent received as income from House Property??????
Also, how should I maintain the books of account i.e. should I calculate the net profit and how should I calculate the remuneration payable to the partners and interest to partners??????
07 August 2010
It would depend upon how the rent income is treated. If the same is treated as income from house property then firm not liable for tax audit u/s 44AB as there is business income. Also no salary to partners can be given out of the income from rent if assessed as income from house property as salary is to be paid out of income from business and not house property.
If Income from rent treated as income from business then tax audit liable u/s 44AB and then salary can be paid to partners.
That means it depends upon my will, if i treat it as rent income then it shall be income from house property or else it shall be business income..
What will Income Tax Department opine will it treat it as my rent income or my business income. More important mine is a partnership firm......i.e. rent is received by partnership firm!!!!!!!!
10 August 2010
Supreme court is in your favour if the judgement stated below applies to you and the judgement was delivered in case of a private limited company, so u being a firm does not make any difference:
Supreme Court in Shambhu Investment (P) Ltd. vs. CIT (2003) 263 ITR 143 (SC) has held that income derived from letting assessable as income from property and not business income. In this case assessee was letting out furnished premises on monthly rent basis to various parties along with furniture, fixtures, light, air-conditioners, etc., for being used as "table space". Under the agreement assessee is also providing services like watch and ward staff, electricity, water and other common amenities to the occupiers. These services are not separately charged. Entire cost of property already recovered by way of interest-free advance by the assessee. Only intention was to let out the portion of premises to respective occupants. It was held that income derived from letting rightly held assessable as income from property and not business income.
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