By TIOL News Service

NEW DELHI, AUG 11, 2016: THE issue is - Whether when the business of the assessee is to lease property to earn rental income, such income is to be treated as business income and not income from house property. YES is the verdict.

Facts of the case

The assessee, a private limited company, is having house property, which was rented. The assessee company was in the business of renting its properties and was receiving rent as its business income. The assessee claimed that its income should be taxed under the Head “Profits and gains of business or profession” whereas the case of the Revenue was that as the income was arising from House Property, and the said income must be taxed under the head “Income from House Property. The HC ruled in favour of the Revenue.

On appeal, the Apex Court held that,

++ we are of the view that the law laid down by this Court in the case of Chennai Properties shows the correct position of law and looking at the facts of the case in question, the case on hand is squarely covered by the said judgment;

++ submissions made by the counsel appearing for the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head “Profits and Gains of Business or Profession”. It is an admitted fact in the instant case that the assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the counsel appearing for the Revenue;

++ the business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income;

++ in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property;

++ we, therefore, set aside the impugned judgments and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head “Profits and gains of business or profession”.

(See 2016-TIOL-119-SC-IT)