By TIOL News Service

NEW DELHI, NOV 20, 2018: THE ISSUE BEFORE THE BENCH IS - Whether even though, assessee is engaged in the business of warehousing, rental income arises after purchase of already let out warehouse will be taxed under the head income from house property not under the head income from business and profession. AND THE VERDICT IS YES.

Facts of the case

THE assessee had purchased a already rented warehouse and declared the rental income of around Rs 1.36 Cr against the said property. However, while computing the income, assessee treated the same as business income and claimed expenses under the heads finance costs, depreciation and other expenses aggregating to around Rs. 1.65 Cr. The AO proposed the assessee to assess the said business income as rental income on the ground that the dominant intention of letting out the said warehouse was receiving rental income in view of the lease executed between both the parties. Therefore, the AO concluded that letting out the warehouse by assessee was covered by the provisions of section 22 and income received out of it, had to be assessed as income from house property. Accordingly, the business expenses claimed by the assessee were further disallowed. On appeal, the CIT(A) upheld the decision.

The Tribunal held that,

++ the AO has discussed the facts in detail and the relevant clauses of the lease deed and also mentioned that the said warehouse was already rented to present tenant (Tupperware) by earlier owner from whom assessee has purchased this building in this year. As per AO, the dominant object of the rent agreement is only to enjoy rent and nothing more. On the other hand, the assessee has pleaded that the main object clause of the memorandum of association clearly mentions that the assessee is engaged in the business of warehousing, transporting and carriage of goods and to provide storage and protection of goods. After purchasing the warehouse from earlier owner, it has become the sole owner of the property. Though the ownership has been changed on record but the nature of usage of the warehouse remains the same. Before purchasing the warehouse by assessee, the earlier owner was receiving the income from warehouse as rental income and after change of ownership, the nature of payments made by occupier (Tupperware) remains the same. The CIT(A) has rightly held that income from warehouse has to be assessed under the head income from house property not under the head income from business and profession. The computation made by AO under the head income from house property determining the net loss of Rs. 1,51,524/- was, therefore, rightly upheld and confirmed by Ld. CIT(A), which does not need any interference.

(See 2018-TIOL-2164-ITAT-DEL)