2014 (5) TMI 196 - HC - Income Tax

Warehousing rental charges - Nature of income Income from business OR income from House property Held that - Following CIT v. Velankani Information Systems (P) Ltd. 2013 (8) TMI 113 - KARNATAKA HIGH COURT - firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. Any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country thus, the rental charges received by the assessee are assessable under the head income from business and not under home property - thus, no substantial questions of law arises for consideration Decided against Revenue.

Summary

Issues:
1. Classification of warehousing rental charges as income from business or income from house property.

Analysis:
The case involved determining whether the warehousing rental charges received by the appellant, a government undertaking, should be classified as income from business or income from house property. The appellant, Karnataka State Warehousing Corporation, was established under the Warehousing Corporation Act, 1962, primarily for acquiring and building godowns and warehouses for letting them out for storage of commodities. The appellant had warehouses across Karnataka, some of which were rented out for storage. The court referenced a previous judgment in CIT v. Velankani Information Systems (P) Ltd. to analyze the intention behind the lease agreements and the nature of facilities provided. The court emphasized that if the intention was commercial exploitation by letting out buildings for rental income, the income would fall under "Income from house property." However, if the appellant was in the business of constructing commercial buildings and letting them out as part of a business activity, the income would be classified as profits and gains of business or profession. The court concluded that the rental charges received by the appellant should be assessed under the head income from business, not income from house property.

Therefore, the court dismissed the appeal, stating that no substantial questions of law raised by the Revenue required consideration in the present case. The judgment clarified the classification of income from warehousing rental charges based on the nature of the appellant's activities and intentions, aligning with the principles outlined in previous case law.