Partnership firm engaged in commercial leasing of warehouse - under which is taxable head

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This discussion clarifies the tax treatment for a partnership firm solely engaged in commercial warehouse leasing. The key distinction lies in whether leasing is the firm's core business activity, as stated in its partnership deed. If it is, the income is treated as business income, allowing deductions for expenses like R&M, salaries, interest, and depreciation. If not, it may be classified as income from house property, with potentially fewer deductible expenses. The treatment of government capital subsidies is also addressed, suggesting that reducing the capital expenditure by the subsidy amount is a common and often clearer accounting approach.

k M Goyal

k M Goyal (Querist)
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02 December 2024 Hi Good Morning,
I have following queries for A/Y 25-26:
1- *If a Partnership firm is solely engaged in commercial leasing of warehousing*- can this income be treated as business income and claim all related expenses like - R&M, Salaries, Interest, Admin Overheads and Depreciation.
2- *if answer is no*- and income need to treat as Income from House Property, can the firm claim deduction of Depreciation from total income.
3- What will be treatment of Capital subsidy from Govt against this warehouse's Capex ,
Govt will provide 25% cost as subsidy over a period of ten years - 2.5% per annum,
will this subsidy be treated as income or will be reduced from capex value and not taxable.
Will this subsidy be treated 2.5% per year over a period of 10 years or whole subsidy i.e 25% will be treated in first year?
Pls advise
K M Goyal
M No. 9899799000

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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02 December 2024 The key factor is whether the leasing of the warehouse is part of the firm's core business activity. If it's treated as a passive investment (i.e., the firm just holds the property for capital appreciation or occasional rental income), it might be classified as "income from property" rather than business income. This would limit the type of deductions the firm can claim. However, if leasing is central to the firm's operations, then the income and related expenses will generally be considered part of business income.
Since the firm is involved in the active leasing of warehousing space, the income earned falls under the category of business income. This is applicable when the firm is not merely holding the property for investment but is actively managing and leasing it out as part of its business operations.
According to guidelines from various government schemes like the Warehouse Construction Subsidy Scheme, it is often recommended to reduce Capex by the amount of subsidy received. While you can choose between these treatments based on your accounting policies and tax strategy, reducing Capex by the subsidy amount is commonly adopted and may provide a clearer picture of your financial position.

k M Goyal

k M Goyal (Querist)
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02 December 2024 *If a Partnership firm is solely engaged in commercial leasing of warehousing* (leasing whole warehouse to one party) - can this income be treated as business income and claim all related expenses like - R&M, Salaries, Interest, Admin Overheads and Depreciation.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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02 December 2024 Yes, if it is core business activity as specified in your partnership deed.

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