Short Overview:

In the absence of any facilities or business infrastructure provided by the assessee-firm to its lessee, rental income from let out of ‘premises only’ was rightly taxed by the department under the head ‘Income from house property’ and not as business income and rental value of second floor to fifth floor of the property used for hotel business determined at Rs. 30.00 lakhs per annum for the relevant year, as against Rs. 49.95 lakhs determined by the AO, and after allowing Rs. 2 lakhs for municipal tax.

Assessee in the present case was a partnership firm and deriving its income by way of letting out the property on rent which was offered to tax under the head business and profession. The assessee was the owner of the building comprising of 5 floors. The assessee had given on rent its ground and 1st floor to V-Mart on a monthly rent of Rs. 3,04,999 only. The assessee at the same time had let out its 4 floors (2nd to 5th floor) to its related party on annual rent of Rs. 1 lakh. Thus, the AO found the difference in the amount of rent charged by the assessee from the unrelated and related party. Accordingly the AO determined the fair rent of the property rented out to the related party for Rs. 49,95,546 only. AO made the addition of Rs. 49,95,546 to the total income of the assessee by treating the fair market rent as income under the head house property. CIT(A) partly confirmed the order of the AO.

It is held that in the absence of any facilities or business infrastructure provided by the assessee-firm to its lessee, rental income from let out of ‘premises only’ was rightly taxed by the department under the head ‘Income from House Property’. The ends of justice shall be met, if the rental value of second floor to fifth floor of the property used for hotel business was determined at Rs. 30.00 lakhs per annum for the relevant year, as against Rs. 49.95 lakhs determined by the AO, and after allowing Rs. 2 lakhs for municipal tax paid by the assessee, and also 30% of the annual value of the property, the income from second floor to fifth floor of the property let out to M/s. Sudarshan Palace, should be assessed at Rs. 19.00 lakhs as against Rs. 32,96,882 assessed by the AO and the grounds of the appeal of the assessee, on this issue, were partly allowed.

Decision: In assessee’s favour.