2013 (12) TMI 744 - AT - Income Tax

Treatment of rental income - Property leased out as income from business instead of treating the same as income from house property Held that - The assessee constructed a warehouse/godown for specific purpose and let out to the M/s. Hindustan Lever Ltd., and the income derived is to be treated as income from business only - Following ITO vs. Rasiklal & Co. (P) Ltd. 2008 (8) TMI 802 - ITAT MUMBAI Assessee not merely letting out its premises for warehousing but being also under obligation to provide adequate security to the material stored apart from receiving and delivering stock, taking physical inventory at regular intervals, to do loading and unloading and stock taking in addition to ensuring proper spray of pesticides in the godown, it was doing a complex commercial activity, hence receipts were taxable as business income and not income from house property, more so when receipts were assessed as business income in the past and there was no change in factual or legal position Decided against Revenue. Income from Business OR from other Sources - Income received on let out of furniture and fixtures and generator assessed as Income from other sources , to be assessed as business income Held that - The assessee is carrying on the business of letting out warehouse/godown for commercial purposes - The furniture & fixtures and generator are attached to that business of the assessee - This leasing of assets cannot be isolated from the assessee s business so as to treat the income derived from furniture & fixtures and generator as income from other source - the CIT(A) is justified in treated the income from letting out of furniture & fixtures and generator as income from business and allowing depreciation claim of the assessee Decided against Revenue.

Summary

Issues:
1. Classification of rental income derived from property lease as 'income from business' or 'income from house property'.
2. Treatment of income from letting out furniture & fixtures and generator.

Analysis:

Issue 1:
The appeal pertains to the classification of rental income from a warehouse/godown lease as 'income from business' instead of 'income from house property'. The CIT(A) held that since the property was let out for commercial purposes, the income should be treated as business income. The Revenue contended that the income should be categorized as income from house property. The Tribunal referenced a previous case where it was established that if the lessor is involved in commercial activities related to the leased property, the income is taxable as business income. As the assessee was obligated to provide security, manage stock, and perform other commercial activities, the income from the warehouse lease was correctly classified as business income. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

Issue 2:
Regarding the income derived from letting out furniture & fixtures and generator, the Assessing Officer treated it as 'income from other sources' due to the absence of a lease agreement. However, the CIT(A) categorized this income as business income, aligning with the treatment of warehouse rent. The Tribunal noted that the furniture & fixtures and generator were integral to the assessee's warehouse business, and thus the income from their lease should also be considered business income. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

In conclusion, the Tribunal upheld the CIT(A)'s order, confirming the classification of rental income from the warehouse lease and income from furniture & fixtures and generator lease as 'income from business'. The Revenue's appeal was dismissed, and the decision was pronounced on June 20, 2013.