Business income or rental income

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CA Sanjay Baheti (Querist)
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12 September 2011 One of My client being Partnership Firm having Four partners therein.

The Firn is doing Manufacturing Activities on the Factory Premises which is in the name of Two Partners in equal ratio.Both Partners given such premises on Rent to their Firm for carrying manufacturing facilities. This is as per written rent agreement between partners And Firm itself.

The Firm is debiting Factory Rent in their Books & claiming allowable Deductions in addtion to partners Salary & Interest as per partnership Deed & as per I.T.Act.

Now the query is

i) whether the P.F.can claim such factory rent from the Business Income or not.
ii)Furher the same has to be considered for the purposes of computation of Partners Remuneration as per Section 40(b) of I.T. Act or not.
iii) How such factory Rent as income can be considered in the hands of Partners who owned the factory Premises ie.whether as Business Income or Rental Income.

Please Reply at the earliest.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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12 September 2011 i) Partnership firm can claim rent as business expenditure.
ii) Rent to partner's is out side the ambit of 40(b).
iii) Rent received by the partner's is to be assessed under the head income from house property.

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