Allahabad High court has held in an important case namely The scientific Instrument Co Ltd V CIT that income from rent recieved from the leave and licence of an immovable property which was one of a business assets, is not an income u/h House Property but is a business income in the light of the facts that only a part of such immovable property was let out and the remaining was being used for business purposes.
Facts: The assessee, carrying on business of import and sale of scientific instruments, purchased premises at Nariman Point, Mumbai in 1982 and had its regional office there. In November 1987, the assessee gave the property on leave and licence basis to Citibank pursuant to which it received rental income which it offered to tax as “business profits“. The AO assessed the said rental as “Income from house property”. The CIT (A) reversed the AO and held the rental assessable as “business profits”. The Tribunal reversed the CIT (A). On appeal by the assessee to the High Court, HELD reversing the Tribunal:
Held: In Universal Plast Ltd 237 ITR 454 (SC) tests were laid down as to when income from property is assessable as “business profits” and as “income from house property”. Applying these tests, the rental income has to be assessed as “business profits” because (i) all assets of the business were not rented out by the assessee and it continued the main business of dealing in scientific apparatus etc, (ii) the property was being used for the Regional Office and was let out by way of exploitation of business assets for making profit, (iii) the assessee had not sold away the properties or abandoned its business activities. The transaction was a “commercial venture” taken in order to exploit business assets and for receiving higher income from commercial assets.
Full Judgement can be downloaded herebelow:
Facts: The assessee, carrying on business of import and sale of scientific instruments, purchased premises at Nariman Point, Mumbai in 1982 and had its regional office there. In November 1987, the assessee gave the property on leave and licence basis to Citibank pursuant to which it received rental income which it offered to tax as “business profits“. The AO assessed the said rental as “Income from house property”. The CIT (A) reversed the AO and held the rental assessable as “business profits”. The Tribunal reversed the CIT (A). On appeal by the assessee to the High Court, HELD reversing the Tribunal:
Held: In Universal Plast Ltd 237 ITR 454 (SC) tests were laid down as to when income from property is assessable as “business profits” and as “income from house property”. Applying these tests, the rental income has to be assessed as “business profits” because (i) all assets of the business were not rented out by the assessee and it continued the main business of dealing in scientific apparatus etc, (ii) the property was being used for the Regional Office and was let out by way of exploitation of business assets for making profit, (iii) the assessee had not sold away the properties or abandoned its business activities. The transaction was a “commercial venture” taken in order to exploit business assets and for receiving higher income from commercial assets.
Full Judgement can be downloaded herebelow:
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I really think that rent from leave and license should definitely be taxable. I totally agree with you in some point.
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