Rental Income derived from Lease of Plant & Machinery or Equipment Taxable under Head ‘Income from Other Sources’: ITAT [Read Order]

In the case of Penta soft technology, the Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the rental income derived from the lease of plant & machinery or equipment is taxable under the head ‘income from other sources’.

M/s.Pentasoft Technologies Ltd, the assessee company is engaged in the business of software development & services and is exporting software and services from Software Technology Park and claimed deduction u/s.10A of the Act.  The assessee has filed its return of income for the AY 2004-05 on 01.11.2004 declaring a loss of Rs.26,62,56,653/-. 

The assessment has been completed u/s.143(3) of the Act, by the total income of Rs.34,14,15,708/-, by making various additions and also re-computation of deduction claimed u/s.10A of the Act.  The CIT(A) partly allowed the appeal filed by the assessee.

The AO has assessed rental income under the head ‘income from other sources’ on the ground that said income is not like profits & gains derived from the export unit and thus, denied deduction claimed u/s.10A of the Act. 

The CIT(A) assessed rental income under the head ‘income from business’ and also allowed consequent expenses like depreciation on building, rates & taxes, insurance, and repairs & maintenance.  Further affirmed the findings of the AO in not allowing deduction u/s.10A of the Act.

A Coram comprising of Shri V Durga Rao, Judicial Member and Shri G Manjunatha, Accountant Member observed that there are no details as regards whether rental income is derived from leasing of land & building or any plant & machinery or equipment.  Further, even in the assessment order, there are no details about the nature of the rental receipt.

It was held that if the assessee derived rental income from the lease of land & building, then definitely said income is assessable under the head ‘income from house property and consequent action needs to be followed. But, in case, rental income is derived from the lease of plant & machinery or equipment, then the same needs to be assessed under the head ‘income from other sources’ and consequent action needs to be followed.  

While allowing the appeal, the Tribunal set aside the issue to the file of the AO and direct the AO to re-consider the issue by law.

To Read the full text of the Order CLICK HERE

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