Pvt ltd co. having only rental income

This query is : Resolved

Saurav Nayyar (Querist)
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13 April 2019 Sir,

A Property owned by a pvt ltd company is having only source of income is rent from house property and we are claiming 30 % deduction and paying income tax.
1. Can the directors withdraw salary as directors from the taxed income of the company?
2. Can the directors take unsecured loan on negligible rates ?
3. Or any other method to extract out money from the company for directors other than dividends ?

Thanks

Mahesh Paryani

Mahesh Paryani (Expert)
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13 April 2019 Dear Sir, I beg to differ the treatment given to the source of income.
According to my opinion the type of income should be categorised as profits and gains of business and profession.
This statement is based on the following findings.
In the case of Karanpura Development Co. Ltd.3 the Supreme Court observed that the deciding factor is not the ownership of land or leases but the nature of the activity of the taxpayer and the nature of the operations in relation to them. It was highlighted that the objects of the company must also be kept in view to interpret the activities.

The Supreme Court, while relying on various decisions of other jurisdictions i.e. Privy Counsel, House of Lords in England and U.S. Courts, observed that where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is a part of a trading operation. In the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned.

in the case of Chennai Properties & Investments Ltd, Supreme Court held that income had to be treated as income from business and not as income from house property

If the income is considered as business income then the deductions such as Directors salary is allowed

Getting loan from the company is allowed subject to provisions of Companies Act and section 2(22) of Income tax act

Regards
CA Mahesh Paryani (9960497148 Whats app only)

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