Rent received on factory
This query is : Resolved
11 June 2011
X Ltd have a factory which is rented to HLL , can the rent received from it taken as House proerty Income?
11 June 2011
Yes it can be taken under the head IFHP.
11 June 2011
If it is a composite letting ( rent includes rent of factory building and rent of machinery ,furniture etc) and it can't be separable ,the entire income is to be offered under 'income from other sources' vide section 56(2)(iii) of the IT Act,1961.
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11 June 2011
My reply is in the context of factory building only.
However, if the case is of composite let out I agree with the opinion of Mr. B. C. Warrier.
However, if the case is of composite let out I agree with the opinion of Mr. B. C. Warrier.
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12 June 2011
Again ,letting out of factory building alone is for a temporary affair, income has to be offered under 'PGBP'. If X Ltd has no intention to run their factory rather they decided to let it out permanently, rental income from factory building has to be offered under the head'income from house property'.
18 June 2011
X Ltd Provide Packing of teabags service to HLL and also rent its factory to HLL ,Now what is the position of rental Income
21 July 2025
Your situation now involves a factory rented to HLL, where X Ltd also provides a packing service to HLL. This adds an important layer to determining the correct head of income for tax purposes.
Let’s walk through it step by step:
✅ Issue: Under What Head Should Rent from Factory Be Taxed?
👇 There are three possibilities, depending on how the arrangement is structured:
✅ 1. Pure letting of factory building alone
If X Ltd only rents the factory building, and:
No other services or assets (like machinery/furniture) are bundled with it
And the letting is permanent or long-term
Then, as per Section 22, the income should be offered under:
🏠 Income from House Property (IFHP) — even if it’s a commercial building like a factory
Key condition: Letting is not incidental to the main business.
✅ Applicable if X Ltd is not using the factory for its own business anymore.
✅ 2. Composite letting (building + machinery/services)
If the rent includes not only the building but also machinery, equipment, or services, and:
The charges are not separately identifiable, and
The letting is inseparable (i.e., tenant can’t take building without services/equipment)
Then, as per Section 56(2)(iii), the entire income is to be taxed under:
💼 Income from Other Sources (IFOS)
🛑 Even if part of the rent is for building, if inseparable, entire income goes under IFOS.
✅ 3. Letting is linked to business activity
If:
The letting of factory is incidental to X Ltd’s business (say, they rent to their client as part of ongoing operations or bundled contract), or
The company still carries out business activities, and
Letting is short-term or temporary
Then the rental income is taxed under:
📊 Profits & Gains of Business or Profession (PGBP)
✅ This applies when rental income is closely linked to the business contract, not mere passive rental.
🔍 Your Current Case:
"X Ltd provides tea bag packing services to HLL and also rents the factory to HLL."
This implies the following:
There’s an active business relationship between X Ltd and HLL (not just passive renting).
Letting of factory may be connected to the provision of packing services.
Possibly, this is a composite arrangement (building + service).
Let’s walk through it step by step:
✅ Issue: Under What Head Should Rent from Factory Be Taxed?
👇 There are three possibilities, depending on how the arrangement is structured:
✅ 1. Pure letting of factory building alone
If X Ltd only rents the factory building, and:
No other services or assets (like machinery/furniture) are bundled with it
And the letting is permanent or long-term
Then, as per Section 22, the income should be offered under:
🏠 Income from House Property (IFHP) — even if it’s a commercial building like a factory
Key condition: Letting is not incidental to the main business.
✅ Applicable if X Ltd is not using the factory for its own business anymore.
✅ 2. Composite letting (building + machinery/services)
If the rent includes not only the building but also machinery, equipment, or services, and:
The charges are not separately identifiable, and
The letting is inseparable (i.e., tenant can’t take building without services/equipment)
Then, as per Section 56(2)(iii), the entire income is to be taxed under:
💼 Income from Other Sources (IFOS)
🛑 Even if part of the rent is for building, if inseparable, entire income goes under IFOS.
✅ 3. Letting is linked to business activity
If:
The letting of factory is incidental to X Ltd’s business (say, they rent to their client as part of ongoing operations or bundled contract), or
The company still carries out business activities, and
Letting is short-term or temporary
Then the rental income is taxed under:
📊 Profits & Gains of Business or Profession (PGBP)
✅ This applies when rental income is closely linked to the business contract, not mere passive rental.
🔍 Your Current Case:
"X Ltd provides tea bag packing services to HLL and also rents the factory to HLL."
This implies the following:
There’s an active business relationship between X Ltd and HLL (not just passive renting).
Letting of factory may be connected to the provision of packing services.
Possibly, this is a composite arrangement (building + service).
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