Income from Letting out of Industrial Sheds is “Income from House Property”, Not “Business Income”; Karnataka HC [Read Judgment]

Imposition - Karnataka High Court - ITAT - Taxscan

In a recent ruling, the Karnataka High Court held that the income earned by the assessee forom letting out the industrial sheds is liable to be assessed as income from house property. The Court was deciding an appeal filed by the Revenue praying that the said income is in the nature of business income, therefore, the same must be treated as “Profits and Gains from Business.”

The assessee was engaged in the activity of construction and letting out of industrial sheds. The Assessing Officer, by observing that the rental income from letting out industrial sheds cannot be treated as “income from house property”, passed an order treating the same as “income from business.” The appellate authority later confirmed the said order.

However, the Appellate Tribunal, on second appeal, reversed the said order by holding that such income should be treated as “income from house property” since the intention of the assessee was to earn rental income from letting out the property. It was observed by the Tribunal that the assessee being the owner of the building the rent that accrues from the same should be treated as his “income from house property.”

The revenue preferred an appeal before the High Court alleging that it is the regular activity of the assessee to construct and lease out industrial shed. Rejecting the contention of the Appellant-revenue, the High Court held that the said income should be treated as “income from house property.” The present appeal was in respect of AY 2007-08.  The Court, in connection with this, found that the Department has admitted the income in respect of the same property as “Income from house property” in the subsequent years.

Read the full text of the Judgment below.