taxability of income under which head

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CA Kamalkhaitan (Querist)
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04 September 2009 Sir,

My query is about to taxability of income under which head

One of my client say A pvt ltd has taken a building on rent from X pvt ltd for 18 years which may or may not be renewed after 18 years. A PVT LTD pays rent monthly to X PVT LTD as per agreement. . A PVT LTD has also given security deposit to X PVT LTD as per agreement which is refundable after 18 year without Interest or may continue for the same agreement for another 18 year if both parties mutually agree.

Again "A" PVT LTD has given that building on subletting to Z PVT LTD . My question is whether Rent & maintanence income received from Z PVT LTD is taxable under House Property or Business Income or Other Sources in the hands of "A" PVT LTD .

Please clarify this . Please give relevant case laws also

CA KAMAL KUMAR KHAITAN
BCOM(HONS), FCA
14/1, Sir Hariram Goenka St
Kolkata
9831387279
03322715089

chetan soni

chetan soni (Expert)
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04 September 2009 It is a rental income on subletting of premises. Following test needs to be done;

Check whether subletting is business activity of comp A. If not then it will be part of other sources income & main. changres paid by comp. A will be deductible expenses u/s57.

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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04 September 2009 Tenant sub-letting premises - Where the assessee in occupation of rented premises sub-let a portion thereof and claimed that income from such sub-letting was assessable as business income, the department was justified in assessing the said income under â€˜Income from house propertyâ€™, in view of the fact that the assesÂsee was in full control in his capacity as a tenant, and had earned income by sub-letting of the property. In situations of this type, there is nothing to suggest that ownership of the premises is essential for levying tax under the head â€œIncome from house propertyâ€ - Smarts (P.) Ltd. v. CIT [2008] 166 Taxman 53 (Delhi).

If letting out of premises is part of business operations income from such premises is business income - Where there is a letting out of premises and collection of rents, the assessment of income as property income may be correct, but not so where the letting or sub-letting is part of a trading operation. In latter case it would be a trading receipt. A company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be treated as landowner but has to be treated as trader. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter - Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC).

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