LI Network
Published on: January 18, 2024 at 12:30 IST
The Calcutta High Court has clarified that income derived from sub-letting or sub-licensing space is considered “business income” if the primary objective of the assessee is the business of renting, licensing, or sub-licensing shops.
The Court emphasized that such income falls under the business income category rather than being categorized as income from house property.
The Division Bench, comprising Justice Surya Prakash Kesarwani and Justice Rajarshi Bharadwaj, based its decision on the fact that the income from sub-letting/sub-licensing had consistently been acknowledged by the Income Tax Department as business income.
The case involved Oberoi Building & Investment (P) Ltd, a subsidiary of EIH Limited, which entered into a leave and license agreement with EIH for office space in the Oberoi Sheraton Hotel in Bombay.
The company sub-let or sub-licensed the space to various individuals and received monthly consideration. The Income Tax Department treated the receipts as rental income, but the assessee contended that it should be considered business income.
The High Court held that since the primary object of the assessee company was the business of renting, licensing, and sub-licensing shops, the income derived from such activities should be categorized as business income.
The Court criticized the Income Tax Appellate Tribunal (ITAT) for overlooking the business objectives of the assessee and misinterpreting the nature of the sub-license transactions.
The Court emphasized that when the Income Tax Department consistently accepted the income as business income, it cannot take a contrary stand in the appeal. The High Court allowed the appeal of the assessee, directing the refund of any amount already deposited towards the demand made by the department.
Case Title: Oberoi Building & Investment (P) Limited vs. CIT and Another
