Income from machinery, plant or furniture, belonging to the assessee and let on hire, is chargeable as income from other sources, if the income is not chargeable to income-tax under the head “Profits and Gains of Business or Profession”.
( In case any such assets are hired out as a part of the business activity carried on by the assessee or as commercial assets belonging to the assessee, the income derived therefrom is assessable as business income under section 28 and not as Income from other sources under section 56 )
1. Income from Composite Letting of Machinery, Plant or Furniture and Buildings [Section 56(2)(iii)]:
If an assessee lets on hire machinery, plant or furniture and also building and letting of building is inseparable from letting of machinery, plant or furniture, income from such letting is taxable as income from other sources, if the same is not chargeable to tax under the head “Profits and gains of business or profession”.
On the basis of the judicial pronouncements, the following broad conclusions can be drawn:
- If there is letting of machinery, plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable (in the sense that letting of one is not acceptable to the other party without letting of the other; for instance, letting of cinema house along with letting of furniture) then such income is taxable under section 56(2)(iii) under the head “Income from other sources” (if it is not taxable as business income). This rule is applicable even if sum receivable for the two lettings is fixed separately.
- If a building is let out but other assets like machinery, plant or furniture are not given on rent. However, certain amenities like lift services, air-conditioning, fire fighting facilities, etc., are provided, then section 56(2)(iii) is not applicable. The essential requirement of section 56(2)(iii) is that there should be letting of plant, machinery or furniture and also letting of building.For instance, if the owner of a building only undertakes to instal and operate an air-conditioning plant and to instal, and maintain a lift in the building for the benefit of all the tenants at specified charges (maybe on “no profit no loss basis” or some other basis), there is no letting of air-conditioning plant and lifts to the tenants. Consequently, in such case incomes from letting of building is taxable under section 22 under the head “Income from house property” and amount collected for providing different amenities shall be taxable under section 56(1).
The aforesaid rule is applicable even if the assessee receives composite rent from his tenant towards building as well as services/amenities. The portion of rent attributable to the building should only be assessed as “Income from house property” and balance portion attributable to amenities must be assessed as “Income from other sources”.
2. Deductions permissible from Letting out of Machinery, Plant or Furniture and Buildings [Section 57(ii) and (iii)]:
The following deductions are allowable:
- Current repairs, to the premises held otherwise than as tenant.
- Insurance premium against risk of damage or destruction of the premises.
- Repairs and insurance of machinery, plant or furniture.
- Depreciation based upon block of assets, in the same manner as allowed under section 32 in the case of Income from Business and Profession subject to the provisions of section 38 i.e. if it is partly let and partly used for own purpose, deduction of expenses (including depreciation) shall be allowed to the extent it is let out.
- Any other expenditure: Any other expenditure, not being a expenditure of a capital nature, laid out or expended wholly and exclusively for the purpose of making or earning such income can be claimed as a deduction.