27 June 2008
IF PREMISES ARE HELD AS STOCK BY A BUILDER AND HE RECIVE RENT ON THOSE PREMISES, THEN IT CHARGEBLE IN INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS & PROFESSION?
PLEASE ALSO QUOTE ANY LEGAL DECISION IN THIS RELATION
28 June 2008
ACCORDING TO ME THE ANSWER IS THE RENTAL INCOME IS CHARGED U/H HOUSE PROPERTY AND THE INCOME FROM SALE PROCEEDS CHARGABLE U/H B & p BEACAUSE HE IS GETTING THE RENT FROM PROPERTY IT IS CHARGABLE U/S HUSE PROPERTY AND BUSSINESS IS OF BUILDER SALE PROCEEDS ARE UNDER/HEAD BUSSINESS AND PROFESSION
30 June 2008
when u r doing the business of selling the plots and the rent which comes from the plots should be covered under the head income from house property.
Similarly if u r doing shares trading business then the dividend earned from the shares will be covered under Income from Other Sources.
Even for real estate businessman income from property is ‘property income’ for period of ownership - If an assessee carries on business of purchasing and selling buildings, income received from the buildings so long as they are owned by the assessee will be shown under the head ‘Income from house property’ and not under the head ‘Profits and gains of business’ - CIT v. Chugandas & Co. [1965] 55 ITR 17 (SC).
If letting out of premises is part of business operations income from such premises is business income - Where there is a letting out of premises and collection of rents, the assessment of income as property income may be correct, but not so where the letting or sub-letting is part of a trading operation. In latter case it would be a trading receipt. A company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be treated as landowner but has to be treated as trader. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter - Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC).
Income from godown initially self-used but later let out, is assessable as property income - Where the assessee had constructed a godown and used it for storing its raw materials and finished products, but subsequently the assessee let out the same and derived income from rent, it was held that the income derived by the assessee by letting out the godown was income derived from property and not income derived from business - Rampur Industries Ltd. v. CIT [1971] 82 ITR 23 (All.)/Parekh Traders v. CIT [1984] 150 ITR 310 (Bom.)/Maharashtra Fertilizers & Chemicals v. CIT [1984] 150 ITR 317 (Bom.).
Income from paying guest establishment is business income - Where owner of property is running paying guest establishment, income from property is assessable as business income - Manohar Singh v. CIT [1965] 58 ITR 592 (Punj.).
In case of clubs - Assessee club’s income from swimming pool and stadium would be assessable as business income and not as property income where there was no element of rent for use of the swimming pool and the stadium by the members and the outsiders - CIT v. National Sports Club of India (No. 1) [1998] 230 ITR 777 (Delhi).
Income from lease of building for limited periods is business income
Where the building constructed by the assessee out of donations was let out for limited periods for functions such as marriages, and chairs/mikes, etc., were also made available by the assessee for which separate charges were collected, this activity of earning an income from making the building available to others for a charge for limited periods is not to be equated with the letting out of a building on lease from month to month or year to year, wherein it could be said that the building was being exploited by the owner to earn a rental income. Here the expression ‘letting out’ is used only for a limited purpose. The building remains under the control of the owner. What is granted by the owner is only a licence for a prescribed fee for a specified period. This activity of the assessee can be described as a business carried on by the assessee with the intention of earning income from the building, and the resultant income is assessable as income from business and not as income from house property - CIT v. Halai Nemon Association [2000] 243 ITR 439 (Mad.).
Rental income v. Income from other sources
Income from ancillary services is assessable as income from other sources - Services rendered in providing electricity, use of lifts, supply of water, maintenance of staircase and watch-and-ward facilities, are not incidental to letting out property, and service charges, are assessable as income from other sources and not under section 22 - CIT v. Model Mfg. Co. (P.) Ltd. [1989] 175 ITR 374 (Cal.).
Kutcha Plinth - Rental income from letting out open kutcha plinths is assessable under head ‘Income from other sources’ and not under head ‘Income from house property’ - Gowardhan Das & Sons v. CIT [2007] 158 Taxman 465 (Punj. & Har.).
Composite letting Where there is inseparable letting income is assessable under other sources - When a building and plant, machinery or furniture are inseparably let, the rent from the building will be taxable under section 56, i.e., residuary head of income, and not under section 22 - Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC).
Letting of property with furniture - Where from agreement between two parties, it was clear that primary object was to let out portion of property with additional right of using furniture and fixtures and other common facilities, income derived from said property was income from property which should be assessed as such - Shambhu Investment (P.) Ltd. v. CIT [2003] 129 Taxman 70/263 ITR 143 (SC).
Where lease of cinema building and furniture is a composite one and inseparable, income from such lease is to be assessed as income from other sources and not as income from house property - M.K. Dar v. CIT [1982] 138 ITR 801 (All.)/CIT v.D.L. Kanhere [1973] 92 ITR 535 (Bom.).
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