Rental Income from Sub-Lease shall be treated as Business Income since same was Business of Assessee: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the rental income received through sub-leasing of the property shall be treated as the business income of the assessee as the same was the business of the assessee-Company.

Earlier, the Assessing Officer treated the lease rental income earned by the assessee as ‘income from House Property’ as against ‘Business Income’ offered by the assessee.

The Tribunal bench comprising ITAT Vice-President Mahavir Singh and Accountant Member Manoj Kumar Agarwal found that the property under consideration was obtained by the assessee on a long-term lease basis and it was sub-leased to various tenants.

“The income thus earned was offered as ‘business income’. The main object of sub-leasing was to exploit the property in a business-like manner and earn the rental income therefrom. It is also evident that the assessee and his associated entities had a business interest in real estate development. As held by the Hon’ble Supreme Court in the case of Raj Dadarkar & Associates V/s ACIT (81 Taxmann.com 193), there may be instances where a particular income may appear to fall in more than one head. On the facts of a particular case, income has to be either treated as income from the house property or as the business income,” the bench said.

Holding in favor of the assessee, the Tribunal held that “in the present case, the appellant is held to be “deemed owner” of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. As held in Sultan Bros.(P) Ltd. v. CIT [1964] 51 ITR 353 (SC), each case has to be looked at from a businessman’s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. It is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business.”

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