The Calcutta High Court in a recent ruling opined that the income derived by the assessee by letting out the godown may be treated as a business income. The Court was deciding the appeal filed by the assessee against the Order of the Tribunal. The highlights of the judgments are below.
The assessee, a firm decided to let out the godown on rent, after the business in cotton was stopped. He submitted that the rental income was erroneously shown by the assessee as an income arising out of house property. He submitted that the income really is a business income.
The assessee claimed that the payment of interest to the partners was authorised by the Partnership Deed at the rate of 12% p.a. and it is at that rate that interest was paid to them. This should have been allowed under Section 40(b)(iv) of the Income Tax Act, which provides as follows: [iv] any payment of interest to any partner which is authorised by, and is inaccordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as amount exceeds the amount calculated at the rate of [twelve] per cent simple interest per annum; or”
The Revenue, on the other hand, submitted that in any event when the business has been closed down and there is nothing to show that there was any intention to resume the business, the income arising out of that can only be said to be an income arising out of house property.
The Court was of the opinion that the question whether the business has been closed permanently or there was any intention of resumption of the business is essentially a question of fact and that has to be decided only on the basis of documentary evidence and such other evidences which may be adduced. Similarly, whether interest was authorised by the Partnership Deed is also a question, which was never considered by any of the statutory authorities.
The Court also found merit in the submission that the income derived by the assessee by letting out the godown may be treated as a business income. In this regard the Court expressed a view that “”In that view of the matter, the matter is remanded to the Assessing Officer. He will consider the questions (a) whether the income can be treated as an income arising out of business; and (b) whether the payment of interest to the partners can be allowed as a permissible deduction. He will decide these questions, after taking such evidence as the assessee may adduce, in accordance with law”.
Read the full text of the order here.
