Business income treatment for godown lease rent where the asset was used as part of ongoing business operations

Rent received from leasing a godown constructed for the assessee's tobacco business, with excise and labour licences and related processing activity at the same premises, was treated as business income because the asset was exploited as part of the business operations and not as passive property. The existence of a lease deed did not change the underlying commercial character of the arrangement. Accordingly, the lease rent was taxable as business income and not as income from house property.

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Issues: Whether the rent received from leasing the Keesara godown was assessable as income from house property or as business income.

Analysis: The godown was constructed as part of the assessee's tobacco business, equipped with the necessary excise and labour licences, and leased to secure and facilitate business dealings with the lessee. The surrounding facts showed that the asset was intended to be and was in fact used in the course of the assessee's business operations, including processing work carried on for the lessee at the same premises. Applying the settled principle that ownership and leasing of property may constitute a business activity when done with that object, the rental receipt could not be treated as passive property income. The existence of a lease deed did not alter the underlying business character of the exploitation of the asset.

Conclusion: The lease rent was taxable as business income and not as income from house property.

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