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Rental income to partnership firm

Surinder Pal Singh (Practice) (37 Points)

13 September 2011

Dear All,

A Commercial Plot was alloted to Partnership firm. According to partnership deed, firm's main business is to run an vehicle service station, But due to some reasons, business could not start & firm let out the property to another person. My query is

1) whether rent recieved by partnership firm will be treated as "Income from House Property" or "Business Income"?

2) If it will treat as "Income from House Property", then whether salary and interest u/s 40(b) is allowed against this income?

Thanks!

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7 Replies

PRADEEP REDDY (CHARTERED ACCOUNTANT) (664 Points)
Replied 13 September 2011

1.since the principal business of the partnership firm is to to run an vehicle service station , the rental income will treated as "income from house property."

2.salary and interest u/s 40(b) will not allowed against this income.

if pricipal business of the pricipal business of the firm(i.e what the :"purpose" clause of partnership deed defines) is earning income out of letting commercial plot then it will be treated as business income and salary &interest will be allowed as deduction under i.t act

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Devendra (Chartered Accountant) (4775 Points)
Replied 13 September 2011

The income shall be treated as income under the head House Property and only standard deduction of 30% shall be allowed. Also Municipal Taxes paid shall be allowed as deduction.

Regards,

Devendra

Prakash (Chartered Accountant) (560 Points)
Replied 13 September 2011

Agreed as above

Even if it is the business of the assessee to own and let house properties, the income should be charged under the head House property Only

But here comes one beautiful taxation angle----Here it goes

Firstly you show the income from Property under head House Property, and claim 30% standard deduction and compute resultant figure

Second as you do't have business, but only expenditure towards salries to staff, maintenance etc compute Loss of Business and represent it as business loss under the head Business or Profession

Now, you can set off the Business Loss against House Property Income and your Gross total Income will be after adjusting your expenses only apart from 30% standars deduction

mohit goyal (abc) (276 Points)
Replied 27 November 2012

Same problem come before me. Now my question is weather partnership firm is required to file balance sheet and profit & loss in ITR or only enter house property income and file the return

ANUBHAV VISHNOI (-) (150 Points)
Replied 27 November 2012

Mr. Surinder pal singh,

I am not agree with all the above mentioned answers and rent received will not be taxed under the head house property because as you said this is a commercial plot which has been letout so in this case there is no building and land appurtenant there to hence rent received will be taxable either under the haed income from other sources or income from business as the case may be.

Thanx

CA Anubhav Vishnoi

8750089567

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Ravi Kumar Mahaur (CA-FINAL) (202 Points)
Replied 28 November 2012

I'm agree with Mr. Anubhav Vishnoi

Section 22. INCOME FROM HOUSE PROPERTY

The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

therefore in such a case such rental income is taxable u/h "IOS" and neither the income from business/profession nor incoem from "HP"