Rental income from subleasing-business income or ifos

CA Bijay Shrestha (Never Give up....No matter what....)   (858 Points)

22 April 2014  

A Query:

A Partnership Firm has taken a building owned by one of its partner for which there is no agreement between the Firm and the Partner and also the Firm is not paying any rent to the Partner.

The building was used by the Firm as service apartment as their business. The furnishing of Building , amenities, facilities everything is done by the Firm.  Receipts from this Service Apartment are assessed as business income.

The firm is having brought forward business loss and unabsorbed depreciation, so the Firm is willing to sublet this building along with all amenities/facilities to a company for monthly rent of Rs. 7 Lacs who will carry on the same business of service apartment.

Now the query is this Monthly Rental income of Rs.7 Lacs is business Income or Income from other sources in the hand of the Firm?

Since the Firm is not the owner of the building, obviously this Rental income is not Income from House Property in the hand of the Firm.

Please advice with supporting whether this rental income is business income or Income from other sources.