18 January 2019
The assessee company had commercial properties which is given on Lease. The properties is eligible to get deduction under 80 IA(iv) 1.Whether it should Rent Income in IFHP or IFB ? 2.Commercial Properties where to be show in Balance sheet under Fixed assets or investment ?
Option I The assessee company intent to show as IFHP and show assets under investment.
Or
Option II The assessee company intent to show as IFB and show assets under investment.(Asstes can be show as investment even if income from that properties show as IFB.) please give your command on each of option.
19 January 2019
Please understand that there is no option available to assessee whether the rental income should be IHP or PGBP. Depending upon the facts and circumstances, nature of transaction and business, it will be decided whether it is house property income or business income.
SC in case of Chennai Properties and Investment ltd. v. CIT 373 ITR 673 reaffirms that income from letting out properties should be treated as “profits and gains of business or profession” and not as “income from house property”. It was held that if letting out of properties was the business of the taxpayer, then its income would be chargeable to tax under the head “profits and gains of business or profession” as opposed to “income from house property.”SC ruled that the business of the company was to lease its property and to earn rent, and therefore, the income so earned should be treated as its business income.
One has to look at the specific facts of each case, including the objects of the company as per its charter documents, to take a position on the taxability of rental income.
If the business of the company is to lease out the properties as per MOA then position can be taken that it is business income as per SC ruling. If there is no such clause in MOA then leasing cannot be considered as business of company and it will taxed as IHP. The object clause of company decides the nature of income and not nature of property. Whether it is commercial or residential property the same is indifferent.
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