Depreciation & rental income

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2012 My clint (Pvt. ltd. Co.) is a manufacturing company, from 1feb 2012 they are closed the production and rented put his building @ Rs. 50000 Per Month. Is Company claim the depreciation on Building and also claim 30% from the rental income. is company shows the rental income under PGBP or it is mandatory to show under head Income from House property.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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16 April 2012 IF IT IS TEMPORARY LETTING THEN INCOME IS TAXABLE AS BUSINESS INCOME OTHERWISE IT IS TAXABLE AS OTHER SOURCES INCOME
DEP MAY BE CALIMED EVEN IF INCOME IS TAXED AS OTHER SOURCES INCOME IF THE PLANT, MACHINRERY AND BUILDING ALL ARE LET OUT
CA MANOJ GUPTA
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CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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16 April 2012 The income will be shown as income from Business & Profession, since it is incidental & subservient to the main business- on the basis of following case laws
CIT v. Modi Industries Ltd[1994]73 Taxmann 691/210 ITR 1 Delhi
CIT V. Delhi Cloth & General Mills Co. Ltd[1966]59 ITR 152 Punj

Further, you can claim the depreciation even if the production activity is stopped and you have rented out but the stoppage of production should be for temporary purpose other it would defeat the basic object of the company as per AOA.

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CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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16 April 2012 HOW DO U SAY THAT THE INCMOE IS INCIDENTAL TO MAIN BUSINESS.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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16 April 2012 Becuase it is manufacturing company and not doing any business of renting of property.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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16 April 2012 THE CASE QUOTED BY U ARE NOT APPLICABLE TO THE FACTS OF THE QUERY IN POINT

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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16 April 2012 Dear Mr. Manoj,

The first case law is very much relevant for the present case. The ratio can be applied here also, except here the property is not givn on rent to the employees and that also doesnt matter.
There is nothing to do with the closure on production activity. what is the real/main object of the activities carried out by the assessee has to be seen from the articles of the company.
If the company is in the business of production of goods then it can no way be called as house property income.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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16 April 2012 Further, if a person is carrying on any business then it forms part of business income only.
it is either business income or house property income.
Income from other sources comes into picture only if it does not fit into any of the earlier heads.
Thanks

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CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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17 April 2012 the business of the company is not to let out its factory. it is wrong to assume that if some person is doing business then each and every part of his income will be taxed as business income. the answer to query will much depend upon the full facts which have not been disclosed by the querist. there is a host of case law on this issue. further the case quoted by you are related to letting out building to employees these cases cannot be applied here.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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17 April 2012 Dear Mr. Gupta,

I am very well aware that the cases quoted by me are not fully applicable to the given facts, however ratio of the case can be applied herealso and it doesnot alter the answer of the question if the building was rented out to outsiders.

It will be considered as house property income only if the assets are held in stock in trade or renting of house property is main business of the assessee.

CA Kishore Tallam

CA Kishore Tallam (Expert)
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20 April 2012 It will be treated as income from House property irrespective of the fact that it is incidental or not to the business or if it is a stock in trade or fixed asset.
Since it is a HP, the assessee cannot claim depreciation on it.
Even DTC clarified the same. Irrespective of the fact, it will be income from HP.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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20 April 2012 DTC is still a Bill and Not law. The problem in point will have to be answered As per cuurent law only. Pl read section 56(2) for more details on the issue.

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CA Kishore Tallam

CA Kishore Tallam (Expert)
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20 April 2012 Dear Sir,
I was referring DTC, that inorder to clear this confustion DTC has clearly said that such rental income will be taxed under HP only.
Also, as per Sec 56(2) only income from machinery, plant or furniture only be taxed under other sources and not rental income on building (unless it is not separable). Since here rent of buildings is separable (assumed), it has to be taxed under HP only.

Querist : Anonymous

Querist : Anonymous (Querist)

26 April 2012 Dear i m still confuse.
My company is still running business at any other place. and old business building is letout. now pls clear it. and after some time they will close the company.