2018 (12) TMI 1494 - AT - Income Tax

Factory Rental Income Classified as Other Sources Not House Property

The Tribunal held that the rental income earned by the assessee from letting out its factory premises should be assessed under the head 'income from other ... Rental income - income assessable under the head “income from house property” OR “income from other sources” - Held that:- The assessee has temporarily let out its factory on rent. The factory building is classified as plant and machinery. The Jurisdictional High Court in the case of CIT vs. Ajmira Industries Pvt. Ltd.[1974 (5) TMI 13 - CALCUTTA HIGH COURT] held that the if an assessee derives any income by exploitation of commercial assets whether itself or though other agencies, such income should be assessed under the head “business income”. The income in question is directed to be assessed under the head “income from other sources”. Appeal of the assessee is allowed. Issues:Assessment of rental income under the head 'income from house property' or 'income from other sources.'Analysis:The appeal involved a dispute regarding the assessment of rental income earned by the assessee from renting out its factory premises. The Assessing Officer initially treated the rental income as income assessable under the head 'income from house property,' disallowing certain expenditures claimed by the assessee. The assessee contended that the income should be assessed under the head 'income from other sources' due to the temporary nature of letting out the factory premises during a slowdown in business operations.The key argument put forth by the assessee was that the factory shed and plant and machinery were let out on a temporary basis to other companies due to a slowdown in business operations. The assessee relied on case-law to support the contention that the income should be assessed under the head 'income from other sources' rather than 'income from house property.' On the other hand, the Revenue argued that the rental income should be assessed under the head 'income from house property' based on the circumstances that the factory was closed in 2010, and the rental income commenced in 2010-11.Upon careful consideration of the arguments presented, the Tribunal held that the income in question should be assessed under the head 'income from other sources.' The Tribunal referred to case-law, including the judgment in CIT vs. Ajmira Industries Pvt. Ltd., to support its decision. The Tribunal emphasized that the temporary letting out of the factory building, classified as plant and machinery, did not automatically warrant assessment under the head 'income from house property.' Additionally, the Tribunal cited the case of Commissioner of Excess Profit Tax vs. Sree Lakshmi Silk Mills Ltd. to establish that the income derived from exploiting commercial assets should be considered as business income, irrespective of whether the asset was used directly by the owner or let out temporarily.Based on the legal principles derived from the case-law cited, the Tribunal concluded that the rental income earned by the assessee from letting out its factory premises should be assessed under the head 'income from other sources.' Consequently, the appeal of the assessee was allowed, overturning the order of the Commissioner of Income Tax (Appeals).In conclusion, the judgment clarified the classification of income earned from letting out commercial assets on a temporary basis during a business slowdown, emphasizing the distinction between 'income from house property' and 'income from other sources' based on the nature of asset utilization and commercial exploitation.