Rent from warehouse as per agreement terms was not rental income – ITAT

Receipts for carrying out warehouse operations as per the terms of agreement was not rental income but were business receipts

ABCAUS Case Law Citation
ABCAUS 3572 (2022) (01) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition by adopting the income from warehouse as income from house property instead of business income as shown by the appellant.  

That the appellant craves leave to add, to urge, to later or to amend any of the grounds of the appeal on or before the date of hearing.

The assessee was a partnership firm engaged in the business of trading. The case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Income Tax Act, 1961 (the Act).

During the course of assessment proceedings, the AO observed that assessee has shown profit from warehouse operations as business income. 

The AO concluded that assessment holding that the gross receipts from warehouse operation was income from house property and assessee was only eligible for deduction u/s 24(a) of the Act.

The CIT(A) confirmed the view taken by the AO holding that warehouse receipts were arising simply from letting out of property and there was apparently no activity incidental to running the warehouse.

Thus the question before the ITAT was whether the income was in the nature of rent from house property or business income.

The Tribunal observed from the agreement entered by the assessee that assessee was required to maintain the 24 hours security arrangement, cleaning and fumigation of   the premises on regular intervals, provide labour on daily wages and also to ensure the compliance of labour rules was also responsible to compensate the labourers towards any liability under labour laws arising at the warehouse. Also, the assessee was required to provide the equipment for storage of goods.

Tribunal found merit in the contention of the assessee that the alleged gross receipts were not in the nature of rental income from letting out the property but are business receipts received for carrying out warehouse operations   as per the terms of the agreement.

Accordingly, the Tribunal reversed the finding of CIT(A) and the net profit shown from operations of warehouse was directed to be treated as business income.

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