Rental Income Treated as Business Income for Registered Firm

The Tribunal upheld the treatment of rental income as business income for a registered firm deriving income from manufacturing and repair activities, allowing the deduction of salary paid to partners under section 40(b) of the Income-tax Act. The Tribunal found that the rental income from letting out old premises for commercial purposes falls under the head "Income from business or profession," aligning with established law that hinges on the commercial exploitation of assets. Consequently, the Tribunal determined that no question of law arose from their decision as the commercial nature of the leased premises was upheld.

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Issues involved:
The issue involves determining whether rental income should be considered as business income or income from house property for the purpose of salary paid to partners u/s 40(b) of the Income-tax Act, 1961.

Summary:
The Commissioner of Income-tax filed a petition u/s 256(2) of the Income-tax Act, 1961, seeking a mandamus to direct the Income-tax Appellate Tribunal to refer a question of law regarding the treatment of rental income as business income. The assessee, a registered firm, derived income from manufacturing and repair of gears. The Assessing Officer considered the rental income as income from house property, leading to the disallowance of salary paid to partners u/s 40(b) of the Act. However, the Deputy Commissioner of Income-tax (Appeals) held that the rental income should be assessed under the head "Income from business or profession" as the old premises were let out for commercial purposes. The Tribunal, relying on precedent, upheld this decision, stating that no referable question of law arises from their order.

The Tribunal did not explicitly state whether the premises were let out for commercial exploitation, but it upheld the finding that the old premises were leased out for commercial purposes to reduce expenditure. The Tribunal's decision aligned with the law established in a previous case, where it was held that the distinction between income from property and business income depends on the commercial exploitation of the asset. As the finding regarding the commercial nature of the let out premises was upheld by the Tribunal, no question of law arose from their decision.

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