Warehousing business - Computation of income

This query is : Resolved

DODARGAD (Querist)
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03 September 2009 Good Evening everybody,

A disputed issue needs suggestions and strong case laws -

ABC Warehouse Pvt. Ltd. has been formed for doing business of warehousing and let out of godown. Its MOA & AOA mentions warehousing business as main business activity. The company is not involved in any other activity.

They have constructed 2 godown buildings simultaneously, by rasing common loan from bank.

1st godown building has been used in for purpose of grain godown warehousing, where various grain bags are kept in safe custody and warehousing rental charges are recovered for the said service from various customers.

The second godown, has been let out on rent for limited period to another company by entering into rent agreement .

My opinion is , income from both the godowns should be taken under the head income from business because the basic objective of company is to conduct business of warehousing & let-out of godown, hence I want to take a stand that godown buildings are used for the purpose of our business and hence will not fall under Income from House Property.

This issue has a record of dispute under income tax and in most of cases, the judgements suggest that such type of income will be taxed under the head of house property.

Kindly share your view on above situation.
Thank You

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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04 September 2009 it is house property income.

however the agreement can be redesigned to cover it as ware house charges.

DODARGAD

DODARGAD (Querist)
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05 September 2009 1

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2025 Hey! Your question on tax treatment and computation of income from warehousing business—especially when part of the property is rented out—is a classic and important issue. Here’s a detailed explanation:
Facts Recap:
ABC Warehouse Pvt. Ltd. runs warehousing business (storage of grain bags).
They own two godowns constructed from a common loan.
1st godown: Used for actual warehousing service — income earned is warehousing rent.
2nd godown: Let out on rent to another company under rent agreement.
Question: How to treat income from 2nd godown — business income or income from house property?
Legal & Tax Position:
1. Income from 1st Godown (Warehousing Activity):
This is business income.
The company’s main business is warehousing.
Rent recovered for storage services is part of business receipts.
Expenses, including interest on loan, depreciation, repairs, etc., related to this godown can be claimed against this income.
2. Income from 2nd Godown (Let out to another company):
The income from letting out the godown on rent is generally taxed under “Income from House Property” in Income Tax.
The key principle: When property is rented out, it generates rental income (passive income), which is covered under House Property head.
This income is not treated as business income unless the letting is integral to the business operations (which is generally not the case here).
Why is income from 2nd godown considered House Property Income?
Judicial precedents and IT rulings have held that rent earned from letting out property (godowns, warehouses, buildings) on rent is income from house property unless the property is used as stock-in-trade or in business operations.
The company’s MOA mentions warehousing as main business activity, but mere ownership of property does not make rental income business income.
Since the 2nd godown is just let out to a third party, it’s considered passive rental income.
Computation Under Income Tax Act:
Head of Income Treatment
Warehousing Business Rent received from warehousing services = Business Income
Rental Income Rent from 2nd godown let out = Income from House Property
Expenses & Deductions:
For Business Income: All direct and indirect expenses, depreciation, interest on loan can be claimed.
For House Property Income:
Deduction of 30% standard deduction on rental income allowed for repairs, maintenance, etc.
Interest on loan can be claimed only if loan is specifically for purchase/construction/repair of rented property.
Expenses related to first godown cannot be claimed here.
Case Laws/References:
CIT vs. I.T.C. Ltd. (1990) 185 ITR 183 (SC): Rent earned from letting out property is income from house property.
CIT vs. Associated Hotels of India Ltd. (1999) 237 ITR 399 (SC): Rent from letting out buildings is income from house property, unless part of business.
Various Tribunal rulings support the bifurcation of income when part is business and part is let out.
Your Opinion & Recommendation:
Your opinion aligns well with business income treatment for 1st godown.
However, income from 2nd godown rented out should be disclosed under Income from House Property.
Keep separate accounting for both properties.
Maintain clear documentation regarding use of properties, loan allocations, and expenses.
Summary:
Godown Income Type Tax Treatment
1st (Warehousing) Business Income Taxed under business income
2nd (Let out) Income from House Property Taxed under house property with standard deductions

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