M&A Critique

M/s Rayala Corporation Pvt. Ltd. vs ACIT


Rental Income from Business

Facts of the Case

The appellant-assesse, a private limited company, is having house property, which has been rented and the assesse is receiving income from the said property by way of rent. 

As per the assesse, it is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head “Profits and gains of business or profession” whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head “Income from House Property.

High court held that the rental income to be taxable under the head “Income from House Property”. Aggrieved assesse is in appeal before the Hon’ble Supreme Court                                                              


Whether the income so received should be taxed under the head “Income from House Property” or taxed under the head of “Profit and gains of business or profession?


  1. As per object clause of Memorandum of Association, the business of the company is to lease its property and to earn rent & Assesse Company has only one Business and that is leasing & earning rent.
  2. In case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) court held that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent from the said property as his business income, the said income, even if in the nature of rent, should be treated as “Business Income” because the assesse is having a business of renting his property and the rent which he receives is in the nature of his business income.
  3. Relying on the above decision , the honourable supreme court reversed the high court ruling and directed that the income of the assesse shall be subject to tax under the head “Profits and gains of business or profession”.

Date of Judgement/Order: 11th August 2016

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Prajakta Deshpande