Active Securities Ltd Vs ITO (ITAT Delhi)
Receipt of rental income from letting out of building along with furniture, fixtures, etc., would be taxable as ‘Income from other sources’
Conclusion: Income from letting-out commercial complex equipped with various amenities and facilities as a whole would be taxable as ‘Business income’ under the head Income from other sources and not ‘Rental income’ under the head Income from house property as assessee had established that the properties were held as commercial assets and same was exploited for business purposes.
Held: Assessee-company was engaged in construction and commercial real estate, leased a part of its commercial complex to Emaar MGF Land Ltd. The rental income generated from this lease was under scrutiny regarding its taxability. AO treated the rental income as income from house property, allowing standard deductions under Section 24. However, certain expenses claimed by assessee were disallowed. The crux of the matter lies in determining whether the services provided along with the leased premises were inseparable from the letting out of the building. AO’s contention was that these services were basic amenities and did not qualify as substantive income from business. AO further disallowed depreciation on the assets utilized in the business. In the appeal before the CIT(A), the assessee argued that leasing out commercial property should be considered as business income, given the intention to exploit the commercial asset for commercial purposes. However, the CIT(A) upheld the AO’s decision, emphasizing that the services provided were routine and not inseparable from the building lease. It was held that assessee had established that the properties were held as commercial assets and same was exploited for business purposes. Thus, AO had fallen in error in changing the head of income from ‘Business income’ to ‘Rental income’ and accordingly the disallowance of expenditure and denial of depreciation on this account was not sustainable.
