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Income from subletting of property is to be assessed as business income

In the case of Bhuvan Leasing and Infrastructures Vs ITO, ITAT Mumbai has held that where it is the intention of the assessee to lease out various premises and then sublet the same on leave and licence basis to different parties

Brief of the case:

In the case of Bhuvan Leasing and Infrastructures Vs ITO, ITAT Mumbai has held that where it is the intention of the assessee to lease out various premises and then sublet the same on leave and licence basis to different parties, then such activity carried on by the assessee in line with its objects is business activity undertaken by the assessee.

Facts of the case:

The assessee under an agreement dated 16.11.2000 styled as leave and licence agreement granted licence to M/s. American Express Bank Ltd. to use the premises of which it was the lessee. The licence fee was fixed at Rs. 13,66,875/- as quarterly licence fee. The said premises along with fixtures and fittings were licensed to the party for a period of three years commencing from 01.01.2001 and expiring on 31.12.2003. The Assessee had declared the said licence fee as income from business and claimed certain expenses against it. On the other hand, the AO has show caused the assessee as to why the same should not be assessed as income from other sources.

Contention of the revenue:

The revenue submitted that assessee was engaged in subletting of the property, which in turn it had obtained on lease and hence the income arising there from is assessable in the hands of the assessee as income from other sources, since the assessee was not the owner of the property.

Contention of the Assessee:

The explanation of the assessee in this regard was that under the object clause of Memorandum of Association of assessee, assessee was permitted to pursue business of taking on lease and earn income from the same. Another plea raised by the assessee was that it had taken on lease commercial assets which in turn were leased out to derive income and the said income was to be assessed as business income.

The assessee further submitted that it had returned the income from assessment year 1993-94 to 2000-01 treating rental/incensing income as assessable under the head ‘profits and gains of business’, which in turn was accepted by the Revenue. The assessment for assessment years 1993-94 to 2001-02 were completed under section 143(3) of the Act and the income was assessed in the hands of the assessee as income from business. In the absence of any distinguishing features brought in the case, it requested to reconsider its decision having due regard to the circumstances of the case

Held BY ITAT:

The assesse had leased out the premises, which in turn was subleased on leave and licence basis, thus the intention of the assessee was to exploit the asset leased by it, by way of letting out the same, then such letting out activity is in furtherance of assessee’s intention to carry out the business in a systematic and organized manner. Another aspect to be kept in mind is that similar income offered by the assessee on account of similar rent received from same tenant in earlier years were assessed as income from business in the hands of the assessee. Another aspect to be kept in mind is that during the year under consideration, i.e. at the close of the year on 31.03.2003 the agreement with American Express Bank had come to an end and the assessee entered into a fresh agreement with British High Commission again establishes the case of the assessee, that it is involved in a systematic and organized activity of leasing out its premises, which in turn are not owned by the assessee.

In the totality of the above facts and circumstances we hold that the lease rent received by the assessee is assessable as income from business in the hands of the assessee and the related expenditure has to be allowed in the hands of the assessee. The AO shall accordingly compute the income in the hands of the assessee in line with our directions after affording reasonable opportunity of hearing to the assessee.

Categories: Income Tax

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