TMI Blog2021 (4) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head `income from other sources . 4. The assessments were completed u/s 144 r.w.s. 147 of the I.T.Act for A.Ys. 2005-2006 to 2007-2008, 2012-2013 and 2013-2014, wherein the Assessing Officer reclassified the rental income from property as income from other sources and disallowed the standard deduction claimed u/s 24(a) of the I.T.Act on the following grounds:- (i) The assessee is not the owner of the property but a tenant and it sublets the property, and (ii) The assessee had let out certain plant and machinery / equipment along with the property. 5. Aggrieved by the assessment orders completed for assessment years 2005-2006 to 2007-2008, 2012-2013 and 2013-2014, the assessee preferred appeals to the first appellate authority. The assessee submitted that it had taken on lease land for a period of 99 years from the Government of India and constructed factory building on it. Therefore, it was contended that the assessee was the owner of factory premises. It was further contended that the rental income from sublease of such land and building was offered to tax by the assessee as income from house property being the specific head for taxation of such rental income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner, in all the cases which have come before the courts involving commercial or residential buildings owned by assessees it has been held that the income realized by such owners by way of rental income from a building, whether a commercial building or residential house, is assessable under the head Income from house property . The only exceptions are cases where the letting of the building is inseparable from the letting of the machinery, plant and furniture. In such cases, it has been held that the rental would not have been realized but for the letting out of the machinery, plant or furniture along with such building and therefore the rental received for the building is to be assessed under the head Income from other sources . 9.1 In the light of the above dictum, let us examine the facts of the instant case. For the assessment years 2005-2006 to 2006-2007, the assessee had considered the entire rental income as business income. However, from assessment year 2007-2008, the rental income from property was offered to tax by the assessee as income from house property . Whereas, the rental income from equipment was considered as income from other sources by the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra IT Solutions Private Limited 7,73,916 -- 7,73,916 Total 3,69,10,599 37,83,600 4,06,94,211 2013-14 Indo Copters Pvt. Ltd. (Formerly known as Vectra Aviation) 90,89,592 10,44,000 1,01,33,592 Integrated Helicopters Service Private Limited 2,32,41,600 2,40,000 25,64,160 Terex Vectra Equipment (Private) Limited 2,71,95,219 24,99,600 2,96,94,819 Vectra Engineering Materials Pvt. Ltd. 34,57,188 -- 34,57,188 Vectra IT Solutions Private Limited 7,73,928 -- 7,73,928 Total 4,28,40,087 37,83,600 4,66,23,687 9.3 The lease agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income from other sources, as the case may be. 9.5 The Hon ble jurisdictional High Court in the case of D.R.Puttanna Sons Private Limited v. CIT [(1986) 162 ITR 468 (Kar.)] was considering a case of an assessee who had taken a land for lease for 30 years. The assessee thereafter put up a building thereon and the same was let out on rent. The Revenue contended that the assessee being the owner of the property for 30 years, rental income was assessable under the head `income from property and not as business income, as claimed by the assessee. The Hon ble jurisdictional High Court decided the issue in favour of the Revenue and held that it is clear and as long as the assessee is the owner of the structure built by it, the income derived from the property will have to be assessed under the head income from house property and not business. 9.6 The Hon ble Apex Court in the case of Shambhu Investment Private Limited. v. CIT [(2003) 263 ITR 143 (SC)] had held that where from an agreement between two parties, it is clear that the primary object was to let out the portion of the property with additional rights of use of furniture and fixture and other common facilities, income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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