Tax treatment of lease rentals

M/s A ltd. owns a Stone crusher costing Rs 10 lakhs. It is the intention of the firm to own the asset and use it for its Stone crushing operations; the Business it is in. Due a temporary lull in the business, the Asset is Leased out as Operating Lease for a period of 2 years on lease rentals of Rs 1,00,000/- per annum

In the light of the above, answer the following Questions---

  1. How would you, as an Assessing Officer, treat these rentals for the Assessment year following, in the Returns filed by M/s Altd.? Under what head of income would you subject these lease rentals to tax?
  2.   Would it make a difference to your decision if M/s A ltd. had averred in its returns filed with you, that it had not planned to use the stone crusher for the purposes of its business and the lease was very much an ‘intentional one’
Replies (2)

Lease rentals under operating lease as Income  

second question i cant understand

The thing is if risk and rewards are not transfered it is an operating lease and lease rentals for A Ltd is an Income shown in the head as lease rental Inoome

If Risk and rewards are transfered  then it becomes a finance lease and will be governed by an agreement accordingly

 

In first case it is taxable under head income from other sources,in the second case if the assessee is engaged in leasing business it will be taxable under head business or profession other wise under income from other sources 

 

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