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2021 (4) TMI 1121 - AT - Income TaxCorrect head of income - Rental income earned by the assessee from letting out of property - taxable under the head income from house property OR income from other sources - HELD THAT:- It is clearly seen from the perusal of the lease agreements that the rental income, both from property as well as equipment let out by the assessee, are separately identifiable in the lease agreements. It is also clear that the letting out of building as well as letting out of equipment are separable. The leasing of factory premises have given rise to major receipt of rental income and leasing of equipment is only incidental and both are clearly separable. Almost 85% of the total rent receipts is on account of leasing factory premises and leasing of equipment is only of minor items such as Cranes, Aircompressor, power generator etc. The provisions of section 56 of the I.T.Act states that in case the property and equipment are let out and if the rent receivable are inseparable, then only the rent shall be taxable as “income from other sources”. In other words, if letting out of property is separable from letting out of other assets, as in the instant case, then the rent for house property is taxable u/s 22 of the I.T.Act, whereas, rent for other assets is taxable either u/s 28 of the I.T.Act as profits and gains of business or profession or u/s 56 of the I.T.Act as income from other sources, as the case may be. We hold that the rental income earned by the assessee from letting out of property is taxable under the head income from house property and not income from other sources, for the following reasons :- (i) the assessee is the owner of the property in terms of section 22 of the I.T.Act. (ii) the rental income on lease of factory premises is taxable under the head house property in view of the judgment of the Hon’ble jurisdictional High Court in the case of D.R.Puttanna Sons Private Limited [1986 (7) TMI 73 - KARNATAKA HIGH COURT] (iii) the rental income earned by the assessee from property and from equipment are separable in the facts of the given cases. Accordingly, the provisions of section 56 is not applicable in respect of income received from leasing of property, namely, factory building. Appeals filed by the assessee are allowed.
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