Case Law Details

Case Name : M/s Rayala Corporation Pvt. Ltd. vs. ACIT (Supreme Court)
Appeal Number : Civil Appeal No.-6437/2016
Date of Judgement/Order : 11.08.2016
Related Assessment Year :
Courts : Supreme Court of India (1014)
CA Saurabh Chokhra

Rental Income from business of leasing out house properties taxable as business income and not income from House property

Brief of the case:

  • The Hon’ble Supreme court in the above cited case held that if the assessee is engaged in the business of leasing out house properties then the rental income shall be taxable as business income and not income from house property.
  • Reliance was placed on the decision of Supreme Court in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC)

Facts of the case:

  • The assessee is a private limited company is having house properties which has been rented and the assessee is receiving income from the said property by way of rent. The dispute arised regarding the head of income in which the rental income to be taxed.
  • As per the assessee, it is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head “Profits and gains of business or profession” whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head “Income from House Property”.
  • High court held that the rental income to be taxable under the head “Income from House Property”. Aggrieved assessee is in appeal before the Hon’ble Supreme Court.

Held by the Hon’ble Supreme Court:

  • The court observed that the decision of this court in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) squarely applies to the facts of this case.
  • In that case the court held that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent from the said property as his business income, the said income, even if in the nature of rent, should be treated as “Business Income” because the assessee is having a business of renting his property and the rent which he receives is in the nature of his business income.
  • In the present case, the business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income. Therefore, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property.
  • In result , the court reversed the high court ruling and directed that the income of the assessee shall be subject to tax under the head “Profits and gains of business or profession”.
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Type : Judiciary (12648)

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