Rental receipts from letting warehouses treated as business income, not house property; s.24(a) deduction denied on appeal

Whether rental receipts from letting out warehouses are taxable as business income or as income from house property. The Tribunal found on facts that the assessee's dominant activity was construction and organized letting of godowns (supported by Form 3CD and conduct), invoked precedents of SC (Chennai Properties; Rayala) treating income from bare letting as business where letting is the taxpayer's sole/organised business, and distinguished contrary authorities. Consequence: the receipts were held to be profits and gains of business (not income from house property), with the assessee's plea for deduction under s.24(a) rejected; appeal decided against the assessee.

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Issues: Whether rental receipts from letting out warehouses/godowns should be assessed as income from business and profession (with denial of standard deduction under section 24(a)) or as income from house property for Assessment Years 2012-13, 2014-15, 2015-16 and 2017-18.

Analysis: The assessment and reassessment proceedings examined (including audit report Form 3CD entries and treatment of properties as closing stock) were considered against the statutory heads of income and applicable principles from authoritative decisions. Relevant factors applied include the assessee's main business objective as recorded in statutory/business documents, the nature and conduct of operations (rent being the dominant component of revenue), treatment of the properties in books of account as stock-in-trade, and absence of evidence that properties were constructed with intent to sell. The analysis applied the legal tests distinguishing income chargeable under the head 'house property' and under 'profits and gains of business or profession' (including the significance of dominant intention, object clause, and whether letting forms part of organized trading operations), and applied those tests to the facts before the Tribunal. Coordinate-bench precedents treating unsold/stock-in-trade property and organized letting as business operations were applied to the facts to conclude that the rental receipts arose from the business activity of letting and were not liable as income from house property.

Conclusion: The rental receipts are to be treated as income from business and profession and not as income from house property; the appeals challenging that treatment are dismissed, i.e., the decision is against the assessee and in favour of the Revenue.

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