When Rent Becomes Business Income – And When Property Deals Trigger Section 69
Case: Rajesh Kumar Jaiswal vs. DC/ACIT (Central)
Citation: [2025] 174 taxmann.com 276 (Allahabad – Trib.)
Date: 02-05-2025
Part 1 – Rental Income Can Be Business Income
Most people think:
“Rent = Income from House Property Period.”
But the Income Tax Act has a twist – if you’re not merely collecting rent but running an organized commercial activity with your property, the income may be taxed as Business Income.
What happened here?
• The assessee was in the liquor and kirana trading business.
• He owned two properties which he rented out on a day-to-day basis.
• He also provided certain facilitiesto the occupants (directly or via third parties) and had even appointed a manager for each property.
• In his return, he claimed deduction under section 24(a) and showed the income as “Income from House Property.”
Assessing Officer’s view:
• This wasn’t passive renting; it was an organized activity with additional services – making it a composite business operation.
• Deduction under section 24(a) was disallowed, and the income was treated as Business Incomeunder section 28(i).
ITAT’s decision:
• Renting on a day-to-daybasis + providing facilities = business activity.
• The scale of organization, appointment of managers, and arrangement of services pointed towards commercial exploitationof the property.
• Hence, rental receipts were Business Income, not “House Property” income.
Part 2 – Unexplained Investments & Section 69
While the rental dispute was one issue, the assessee also faced another serious addition – unexplained investment in a property purchase.
Facts:
• The registered sale deed mentioned a purchase price of ₹15 crore.
• A survey revealed that the actual consideration paid was ₹3 crore– admitted by the assessee during the survey.
• The extra ₹85 crore was not recorded in booksnor shown in the original return.
• The assessee later included this amount in a revised return and paid tax, claiming that Section 69 should not apply since it was disclosed voluntarily.
Assessing Officer’s view:
• Section 69 applies when the assessee fails to explain the nature and sourceof an investment.
• Disclosure later in the return does not erase the initial omission or the requirement to explain the source.
• The amount would be taxed under Section 69 and subjected to Section 115BBE– meaning a higher tax rate without set-off of losses.
ITAT’s decision:
• First step: The assessee must explain the source; only then can the AO assess whether it’s satisfactory.
• Here, no satisfactory explanation was given.
• Later disclosure and payment of tax do not nullify Section 69 applicability.
• The AO was right in taxing the unexplained portion under Section 69 read with Section 115BBE.
Key Takeaways
1. Rental Income Isn’t Always “House Property” Income
• If property letting is systematic, short-term, and accompanied by additional services, it may be taxed as Business Income.
• The difference matters because:
• Business income allows more deductions (expenses, depreciation, etc.) but no flat 30% standard deduction.
• House property income gets 30% standard deduction but limited other expenses.
2. Section 69 Has Teeth – And Section 115BBE Bites Hard
• Failing to explain an investment’s source invites Section 69.
• Once taxed under Section 115BBE, the rate is steep (currently 60% plus surcharge & cess), and no set-off of losses is allowed.
3. Disclosure After Detection Is Not “Voluntary”
• Declaring unrecorded amounts in the return after a survey/search does
The copy of the order is as under:
