Normally, taxpayers show rent received by letting out a property, as “income from house property.” However, intelligent tax planning is possible, particularly when furniture, fittings, machinery, etc., are let out together with house property. Due to ignorance of tax law most taxpayers commit the mistake of showing the income received from letting out property (including furniture, fittings, etc.) as income from house property, though the correct head of income in such a case, should be “income from other sources.” Due to this, taxpayers often suffer heavy taxes and fail to get the full relief to which they are entitled.
Let us first examine the case in which income from house property could be assessed under the head “income from other sources.” |
When property owned by a taxpayer is let out, the rent received is taxed under the head “income from house property.” However, when the rent is received by a person who is not the owner of the premises but has received the rent from sub-letting the premises, then it would not be taxed as “income from house property” but as “income from other sources.” Similarly, when items like furniture, machinery, plant, or other accessories are let out together with the building, then the income arising there from would be taxed under the head “income from other sources.” There is great advantage to this, since the tax-payer is entitled to limited deductions (like corporation tax, for repairs and collection charges, etc.), for “income from house property,” whereas in the computation of “income from other sources” a tax-payer is entitled to various deductions for expenses actually incurred by him. While cornputing “income from other sources” there is no restriction whatsoever for repairs, collection charges etc., because the claim for repairs and collection charges is allowed to the extent of actual expenditure. He would also get deduction for depreciation, salary to staff, printing, stationery, telephone, etc., and all other expenses necessary to earn the income. Thus, taxpayers should bear in mind that whenever any property is let out together with plant and machinery or furniture, etc., then the income arising from it would be computed under the head “income from other sources” and not under the head “income from house property.”
However, one basic point has to be kept in mind while taking a decision as to whether a particular income received is “income from house property” or “income from other sources.” The main test is that the letting out of machinery or plant or furniture should be inseparable from the letting out of the building. This is the most important criterion. The word “inseparable” does not contemplate either that machinery, plant or furniture should be, by its own nature, inseparable from the building so that the building has also necessarily to be let out along with plant, machinery, furniture, etc. The Supreme Court, while deciding a similar issue in the case of Sultan Brothers (P) Ltd. v. CIT 51 ITR 353 held that “inseparability” arises from the intention of the parties. Thus, this very important aspect should always be kept in mind when computing income from letting out of house property, along with furniture, etc.
Correct disclosure under the correct head of income entitles the taxpayer to greater reliefs and deductions and these would be much more than the deductions permissible for “income from house property.” However, as mentioned above, the important point to take care of is that the building and the letting out of furniture, machinery, etc., should be inseparable as is normally the case when a building or flat is let out on rent and there is no specific bifurcation of rental income between actual payment of rent and rent for the furniture, etc.
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