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Rent from Property

Mihir (Wealth Manager) (5293 Points)

21 June 2010

My client, living in a bungalow, has rented a part of the bungalow to difference production houses for film shooting in the previous year F.Y. 2009-10. Service tax @ 10.30% is added to the rental income and TDS u/s 194I (rent) @ 10.00% is deducted from the receipts. The film shooting takes place for not more than 3-4 days per production house.

Is this rental income classified as income from house property or income from business & profession?

Thanks

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4 Replies

Namita (CA Practice) (41 Points)
Replied 22 June 2010

The Rental Income received as should be classified as Income from House Property, as the client is using the bungalow for his own residence and part of it is given on rent.But the confusing part is how can he charge service tax on the same?Having regard to this the income will be required to be classified under Business head as such, it will be presumed that the assessee has the intention of carrying on business of providing properties on rent.

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Mihir (Wealth Manager) (5293 Points)
Replied 22 June 2010

Thanks Namita, brilliant observation. Never thought of it this way. If he is adding service tax under the head Mandap keeper, then the income received as rent will be classified under income from business & profession. Is there no other way to still put this income under house property? The reason is the 30% deduction u/s 24 of IT Act happens to be a substantial amount vis-a-vis business expenditure allowable under income from business & profession.

Since he has been adding service tax on the rent for mandap keeping for the previous year, it might be income under business & profession. In case if he discontinues adding service tax on rent now, can there be any enquiry from service tax department as to why no service tax payment has been made in the current year?

Namita (CA Practice) (41 Points)
Replied 23 June 2010

Hi Mihir,

As per income tax , whether the income received is to be accounted as business depends on the intention of the assessee.According to the details,it seems that the assessee is paying service tax under mandap keeping service,this shows that he has intention to carry it as business.Also, as discussed earlier if he is having only one residence and part of it is given on rent,then he can claim it as rent from House Property.

But coming to service tax , He will have to surrender the service tax number if he is not providing any services other than above stated.Also he has to pay any dues outstanding as may be stated by Service tax dept.

Mihir (Wealth Manager) (5293 Points)
Replied 23 June 2010

Hey Namita,

I checked with the rules of Service tax on Mandap Keeping. It says that the activity of shooting of film/T.V serial can not be considered to a official, social or business function hence the renting for such activities would not be covered under the category of services provided by mandap keeper. Which means there is no need to add service tax to the rental income. Since the rental income is not taxable under service tax, it cannot be called income from business & profession. Besides, the part of the premises is not let out to just one entity.; the hirer are many and different.