Industrial Leased property Rental Income- What is CBDT stand on it

The Central Board of Direct Taxes (CBDT) has cleared the air on taxation on Industrial Leased property Rental Income for letting out industrial leased property along with other amenities in industrial park including special economic zones (SEZs). Now on, these earnings would only be treated as “business income” and not as “income from house property.” This new rule will have a significant effect on the overall business of the related firms.

Industrial Leased property Rental Income- What does CBDT opine on its taxability?

As per the new circular no. 16/2017 from The Central Board of Direct Taxes (CBDT), the income earned from the Industrial Park or SEZ established under various schemes, must provide the applicable income tax as notified under section 80IA(4)(iii) of the Income Tax Act, 1961.The rent is to be treated as income from business provided the conditions prescribed under the schemes are met.

Industrial Leased property Rental Income- CBDT Clarification on it settles the long outstanding debate on it

The clarification is in the light of a debatable issue in recent years and now settled with this new rule. The Karnataka High Court, in 2013, had held a decision that any other interpretation would defeat the object of section 80IA of the Act and government schemes for development of Industrial Parks in the country. Apex court also upheld this decision. The Karnataka High Court had mentioned the same view in a related decision during the case of CIT v. Information Technology Park Ltd. The court declared that since the appealing party was engaged in providing infrastructural facilities to other businesses and industrial parks, this would be treated as their business, and would be considered as their business income.

It was a debatable issue in recent years as the applicants claimed this income as their business income under the head ‘income from house property.’ The circular mentioned that this is now a settled provision and liable to be charged to tax under the head ‘profits and Gains of Business & Profession.’

Industrial Leased property Rental Income not to be considered as Rental Income but Income from Business and Profession- Impact on the Industry

The new law has come as a significant relief to income tax payers. This also puts to rest the debate around the classification of income in the hands of industrial parks and SEZs. The CBDT has clarified the legal issue to be brought to be an end to the further process of taking legal action. Section 80-IA exemptions are to be used by SEZ developers and their income from developing and letting out the premises along with facilities in SEZs. This cannot be considered as income from house property, and has to be seen as income from business and profession,

In view of the above, it is now a confirmed decision that in the case of a leasing business which is related to development, development, and operation or maintenance and operation an Industrial Park/SEZ is notified in agreement with the scheme framed and notified by the Government. The income from leasing out of buildings/developed space along with other facilities in an industrial park/SEZ is to be charged to income tax under the head ‘Profits and Gains of Business’.

So, after that, Appeals may not be filed by the Department on the above-settled issue and those already filed may be withdrawn/ not pressed upon.

This ultimately brings more active regulation in building leasing for business purpose.

Also Read- Service Tax on Rented Immovable Property