CA Mehul Thakker
Dear Students/Readers,
Let us start with a small practical scenario
Mr. Paresh owns a community hall. This hall is being rented out for Rs. 5,000 per hour towards use of hall and Rs. 2,000 per hour towards use of furniture and fixtures, electricity charges and other misc. charges. He used to issue separate receipts for both the charges. Under which head, the above income would be taxable in the hands of Mr. Paresh?
Primary view on taxability
Apparently, one would come to the conclusion that rent income of Rs. 5,000 per hour towards use of community hall would fall under the head "income from house property while the income of Rs. 2,000 per hour towards use of furniture fixtures, electricity charges and other misc. charges may fall under the head "Profits and gains from business or profession or "Income from other sources , as the case may be.
Whether the above view is the correct view?
Before coming to any conclusion, one should refer the clause (iii) of section 56(2) of the Act which reads as under:
"Where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head "Profits and gains of business or profession".
Thus, the entire taxability in the present case depends on the nature of letting. If the nature of letting is inseparable then income from such letting shall be taxed either under the head "Profits and gains from business or profession or under the head "Income from other sources .
Therefore, it is to be kept in mind that once letting is inseparable, nothing shall be taxed under the head "house property. This rule will continue to apply even if amount of rent for the use of the building has been fixed separately.
Now the moot question is what is "Inseparable Letting?
Meaning of Inseparable Letting
Generally, inseparable letting means letting of one is not acceptable without letting of another. And sometimes, letting of one is not possible without another is also called inseparable letting.
Final view on taxability
Finally, under which head, the income earned by Mr. Paresh, be taxed? Do post your answer in comment box.
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