Business Closed - Let out of Godowns - House Property or Business

[Rajendra Prasad]

ABC is a Small Private Limited Company.

After carrying manufacturing activity for 20 years business was discontinued in FY 2017-18.

The Factory was closed , Machinery was removed and part of the machinery was sold. There are no sales or operations in the year FY 2018-19. The company will not carry any business in future. But godowns were let out.

Company incurred the following amounts.

1. Gratuity Paid ₹ 50.00 Lacs

2. Salaries ₹ 5.00 Lacs

3 . Interest Paid to Bank on working capital limits : ₹ 20.00 Lacs (Still debtors are not realized and hence working capital limits could not be closed)

As there was no turnover can we claim these expenses as business loss.

Rent from godowns are to be treated as house property or business income.

Please clarify.

AI Summary

Business cessation expenses may be nondeductible unless directly linked to earning business income; godown rent may be house property or business income. Whether post cessation expenditure qualifies as a business loss depends on whether the expenses are wholly and exclusively for the business and remain attributable to income earning; gratuity and salaries on cessation must be examined for their character and incidental connection to winding up. Interest on working capital may be deductible if borrowing was for bona fide business purposes and remains linked to business operations or asset realization. Rent from letting former godowns is income from house property if the premises are let as property, but may be business income if the letting is integrally connected to a commercial activity.