Rental income from sub-lease shall be considered as Business Income since same was business of assessee


Quick Summary
The Income Tax Appellate Tribunal (ITAT) has ruled that rental income derived from sub-leasing a property should be treated as business income, not income from house property. This decision was made because the assessee was actively involved in the business of real estate development, and the sub-leasing of the property was a direct furtherance of this business activity. The tribunal relied on previous Supreme Court judgments to determine that the income's classification depends on whether it's an exploitation of property or part of a business operation.

Court :
ITAT Chennai

Brief :
In Shri Shanthilal Movji Bhai Thakker v. The Income Tax Officer [ITA No. 2267-2270/Chny/2019 decided on November 3, 2021]Income Tax Appellate Tribunal, Chennai ("ITAT")held that rental income from sub-lease shall be considered as business income as the assesee was engaged in business of real estate development and the property in question was sub-leased in furtherance of their business.

Citation :
ITA No. 2267-2270/Chny/2019 decided on November 3, 2021

In Shri Shanthilal Movji Bhai Thakker v. The Income Tax Officer [ITA No. 2267-2270/Chny/2019 decided on November 3, 2021]Income Tax Appellate Tribunal, Chennai ("ITAT")held that rental income from sub-lease shall be considered as business income as the assesee was engaged in business of real estate development and the property in question was sub-leased in furtherance of their business.

Shri Shanthilal Movji Bhai Thakker ("the Appellant") aggrieved by the order ("Impugned Order") passed by Assessing Officer ("AO") treating lease rental income earned by the Appellant as income from House Property as against Business Income offered by the Appellant, has preferred this appeal.

The Hon'ble ITAT observed that the Appellant has acquired the property in question by virtue of lease of 27 years i.e. for a long term basis and is sub-leased to various tenants.

Further observed that, the Appellant and his associated entities were in business of real estate development and the property in question was sub-leased in furtherance of their business i.e., to earn the rental income from the tenants, thus such income cannot be treated as income from house property.

ITAT relied upon the judgement passed by the Hon'ble Supreme Court in case of Raj Dadarkar & Associates v. ACIT [81 Taxmann.com 193] to hold that in cases where a particular income may appear to fall under more than one head, income has to be either treated as income from the house property or as the business income.

Further held, by applying the ratio of case, Sultan Bros.(P) Ltd. v. CIT [1964, 51 ITR 353 (SC)], held that the type of income depends upon the fact that whether the sub-letting was done as exploitation of the property by owner or was done by the owner in furtherance of business and applying the same criteria held that in present case income received by the Appellant was to be treated as income from the business.

FAQ :

The main issue was whether rental income from sub-leasing a property should be classified as business income or income from house property.

The ITAT decided that the rental income from sub-leasing should be considered business income.

It was classified as business income because the assessee was engaged in the business of real estate development, and the sub-leasing was done in furtherance of this business.

The ITAT relied on Supreme Court judgments in cases like Raj Dadarkar & Associates v. ACIT and Sultan Bros.(P) Ltd. v. CIT.

The ruling specifically applies when the sub-leasing is conducted as part of the owner's business operations, rather than just exploiting the property.

 

Bimal Jain
Published in Income Tax
Views : 244

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