The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the lease rental income should be taxed under the head “Income from House Property” or “Income from Other Sources” even if such renting is incidental to the main business activity and the same is separable.
The assessee has given ground and first floor of the building on the rent to another party separately and income from which has been offered by the assessee under the head “income from the house property”.The letting of workstation i.e. machinery, plant, or furniture was inseparable from the letting of the building and therefore he rejected the submission of the assessee that the business of the assessee was closed and building with furniture was lying vacant for long and so assessee gave the same on rent/lease. The Assessing Officer, while considering the income tax return by the assessee, observed that such income is assessable as “income from house property”.
After analyzing the provisions of the lease agreement, the Tribunal found that the use of the building is incidental to the main object of leasing of the workstation by the assessee.
“Thus, in the instant lease under reference, the prime objective is the exploitation of assets in the form of workstations installed by the assessee and not the building or any part thereof. The use of easement and common areas by the second party is incidental to the lease of exploitation of the workstation. The workstation in the form of plant and machinery is inseparable from the building and for exploitation or use of the workstation, the use of the building is incidental,” the Tribunal observed.
“We find that Ld. CIT(A) has also relied on the decision of the jurisdictional High Court in the case of Garg Dyeing and Processing Industries versus ACIT(supra). In the said decision also the Hon’ble High Court has held that where the letting was inseparable, section 56(2)(iii) was rightly invoked. In the case of Shambhu Investment (supra) the issue of taxability of the rental income under the head “income from house property” vis-à-vis income under the head “profit and gains of business and profession”, whereas in the present case dispute between the parties regarding the lease rental income should be taxed under the head “income from house property” or under the head “income from other sources”,” the Tribunal said.
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