Can an assessee engaged in letting out of rooms in a lodging house also treat the income from renting of a building to bank on long term lease as business income?

Joseph George and Co. v. ITO (2010) 328 ITR 161 (Kerala High Court)-  On the above issue, it was decided that while lodging is a business, however, letting out of building to the bank on long-term lease could not be treated as business. Therefore, the rental income from bank has to be assessed as income from house property.

Only two issues arise from the three questions raised in the connected appeals filed by the assessee. The first issue is whether the income received from building under the name “Konny Building” is business income or not. Counsel contended that the assessee is engaged in letting out rooms in the lodging house and the Konny Building is one rented out to the bank on long-term lease. It is conceded that the income from the lodging building is treated as business income and the appellant has no grievance against the same. However, we are unable to accept the appellant’s contention that rental income from the Konny Building also should be treated as business income because letting out building on long-term lease is not a business activity at all. While lodging is business, letting out building to the bank cannot be treated as business. It is to be assessed as income from property. We, therefore, uphold the finding of the Tribunal with regard to the confirmation of assessment on the income from the Konny Building.

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2. Whenever assessee incurs expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) provided same does not fall in capital field
3. If letting out could be demonstrated as part of complex commercial activity then rental income is to be assessed as income from business
4. Providing of fixtures & fittings to licencee of a premises would not make income from sub-letting of property as business income
5. When assessee exploits a property to derive rental income it has to be held that income realized by him by way of rental income from a building with other asset attached to the building, is to be assessed as `income from house property’ only