LLP rental income under House property or Business Income ?????

[milan bamal]

A new LLP firm named XYZ LLP was formed by two persons. After its formation, the LLP purchased 12 acres of land in its own name means purchase land on name of LLP and constructed a warehouse on that land. The warehouse was then rented out to another company.

The XYZ LLP does not have any other source of income and earns only monthly rental income.

Now, the question is whether XYZ LLP should report this rental income in Income tax under the head 'Income from House Property' or treat it as 'Business Income' and claim related expenditures.

[YAGAY andSUN]

The issue relates to the appropriate head of income under the Income-tax Act, 1961 for rental income earned by XYZ LLP from letting out a warehouse owned by it.

As per Section 22 of the Act, income from buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable under the head "Income from House Property", except where such property is used for the purposes of the assessee's own business or profession. The charging provision is attracted primarily by virtue of ownership of property and receipt of rental income, and not by the nature of the entity or the number of income streams.

In the present case, XYZ LLP owns the land and the warehouse constructed thereon and has leased the same to another company for earning rent. The activity undertaken is limited to letting out immovable property, without any indication of systematic or organized commercial operations or provision of substantial ancillary services. The mere fact that the LLP was formed with the object of earning rental income, or that such rental constitutes its sole source of income, does not alter the character of the receipt.

Accordingly, where the income arises from simple letting of property, it is assessable under the head "Income from House Property". Treatment as "Business Income" would arise only in cases where the letting is part of a complex commercial activity or involves exploitation of property as a commercial asset with significant value-added services.

Therefore, in the given facts, the rental income earned by XYZ LLP is liable to be assessed under the head "Income from House Property", and deductions shall be governed strictly by Section 24 of the Act.

AI Summary

House Property income treatment governs LLP warehouse rent when letting is simple and not a commercial exploitation activity. Rental income received by an LLP from a warehouse owned by it and let out to another company is ordinarily assessable under the head Income from House Property where the activity is limited to simple letting of immovable property. Ownership of the land and warehouse, rather than the nature of the entity or the fact that rent is its sole source of income, determines the tax head in such a case. Treatment as Business Income arises only where letting forms part of a complex commercial operation or the property is commercially exploited with significant ancillary services.