By TIOL News Service

CHANDIGARH, MAR 30, 2017: THE ISSUE IS - Whether rental income derived from factory building leased to the sister concern, is to be treated as 'income from other sources' and hence no deduction u/s 24(1) is allowable on the same. YES is the verdict.

Facts of the case:

The assessee is a firm engaged in the business of sale and purchase of shoes at Karnal. The assessee had filed its return declaring income at Rs. 7,33,550/-. The return was selected for scrutiny, wherein it was noticed that the assessee firm was getting income from job work shown from the sale and purchase of PU soles, hawai chappals, sandals and shoes etc. It was also getting rental income from Agra Building given on rent to M/s Liberty Group Marketing Division, its sister concern. The assessee claimed rental income as in the previous years on account of leasing out the factory to its sister concern. The AO however held that the income was assessed under the head "other sources" as in the past and deduction u/s 24(1) was not allowed.

On appeal, the HC held that,

++ with regard to issue of disallowance of claim u/s 24(1) against rental income derived by the assessee at Rs. 78,000/-, the Tribunal concurred with the findings recorded by the AO as well as the CIT(A) that since the income was to be assessed under the head "income from other sources", deduction u/s 24(1) was not allowable. The assessee had let out his factory building to its sister concern and the factory building is not covered under this head. Therefore, deduction u/s 24(1) cannot be allowed. The findings recorded by the Tribunal have not been shown to be illegal or perverse by the counsel for assessee. Consequently, no substantial question of law arises.

(See 2017-TIOL-612-HC-P&H-IT)