Rental income from occasional let out is not business income even if mentioned in object clause

 

The High Court in a case clarified that income earned by letting out godowns when they were not in its use for business shall be treated as income from property. Rental income from occasional let out is not business income even if mentioned in object clause. 

 

Case: Commissioner of Income Tax vs. Sileman Khan Mahaboob Khan

 

Facts:

The assessee being partnership firm was engaged in the business of export of tobacco. To carry on the business, assessee constructed godowns. Assessee used to let out the godowns when it was not in use.

 

When the return was filed, assessee showed the rental income as business income. During the assessment proceedings, the AO treated the rental income as income from property.

 

On appeal, the CIT (A) and the Tribunal held that the rental income from letting out of godowns shall be treated as business income.

On this, Revenue appealed to the High Court.

 

Held:

The assessee argued before the Court that the godowns were being used for the business of export of tobacco, and whenever they were not in use, was let out. In addition, assessee highlighted the Clause.3 of the partnership deed wherein the godowns of the firm can be let out and that being a part of their business. Hence, the rent received from the lessee should be treated as income from business.

 

The Court noticed that the main business of the assessee was the export of tobacco and for that purpose they had constructed godowns. These godowns were let out only when they were not in use by the assessee. Apart from letting out the godowns, no other services were extended by the assessee to the lessee. Merely because one of the objectives in the partnership deed was to let out the godowns would not conclude that letting of godowns shall be treated as business activity.

It was also noticed that renting of godowns was not continuous activity and the character of the income would not be altered on the basis that letting of godowns was one of the objects of the partnership deed. Godowns could be let out only when they were not in use. Therefore, the Court concluded that rental income from letting out of godowns shall be treated as income from property and not as business income.

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