By TIOL News Service

VIZAG, FEB 20, 2017: THE ISSUE IS - Whether rental income earned by an assessee engaged solely in the business of leasing properties, can be taxed under the head 'profits & gains of business/profession'. YES is the answer.

Facts of the case:

The assessee is a partnership firm engaged in the business of tobacco trade and also let out commercial properties on rental basis. It had filed its return for AY 2010-11 admitting total income of Rs. 1,33,42,850/-. The case was selected for scrutiny and notices u/s 143(2) & 142(1) were issued. In response to notices, AR appeared and furnished the information called for. During the course of assessment proceedings, AO noticed that assessee had considered income from rental receipts under the head 'income from business". After considering the details furnished by assessee and analyzing the provisions, held that income from lease rentals received by assessee was assessable under the head income from house property, but not under the head income from profits and gains of business or profession. On appeal, CIT(A) for the reasons recorded in his order confirmed additions made by AO by holding that income derived by an assessee by letting out furnished premises on monthly rent to various parties was assessable as income from house property and not as business income.

On appeal, the ITAT held that,

++ the coordinate bench of this Tribunal, under similar circumstances held that rental income from letting out commercial properties is assessable under the head 'income from profits and gains of business or profession" but not under the head "income from house property". Assessee relied upon the decision of SC in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT 2016-TIOL-119-SC-IT. SC, held that assessee company being engaged solely in the business of leasing properties and earning rent there from, the rental income of the assessee is taxable under the head 'profits and gains of business or profession" and not as income from house property. Considering the facts and circumstances of this case and also respectfully following the decision of coordinate bench of this Tribunal in assessee's own case for AY 2008-09 and also following SC decision in the case of Rayala Corporation Pvt. Ltd. Vs. ACIT, we are of the view that rental receipts from letting out commercial properties is assessable under the head income from profits & gains of business or profession and not as income from house property.

(See 2017-TIOL-148-ITAT-VIZAG)