By Vimal Punamiya, FCA, LLB
Accommodation Times Bureau
PROPERTY V/S BUSINESS INCOME
Earlier rental income earned by real estate developer was not of dispute, because developers
preferred to offer income under house property head so then can claim standard deduction of 30%.
But department wants to tax rent income under business head.
This issue was resolved by Hon’ble Supreme Court in Shambhu Investment (P) Ltd. v. CIT (2003)
263 ITR 143 (SC) where is was held that “income derived from letting assessable as income from
property and not business income.
Legislature also by inserting sub-section (5) to section 23 clarified that unsold flat are taxable under
house property head. Hence, unsold flat is taxable under house property head, than, flat given on
rent by real estate developer will also be taxable under house property head.
Renting income will be taxable under business head only in one condition, i.e. when renting
property is main business activity of assessee.
M/s Chennai Properties & Investment Ltd. V/s CIT Central III CA No.4494 of 2004