Composite Rent

Composite Rent is the rent charged in cases where the assessee does not merely let-out a property, but also provides other facilities like Furniture, Plant and Machinery, Lift, Security, Power Back—up, etc.

Objective of letting out:  If from agreement between two parties, it is clear that primary object was to let out portion of a property with the additional right of using Furniture, Fixtures and other common facilities, then Rent charged from month to month is income derived from said property, and is assessable as Income from House Property. [Shambhu Investment (P) Ltd 129 Taxman 70 (SC)]

Tax Treatment of Composite Rent

Separately identifiable: Where building is let-out along with Plant & Machinery and amenities, and the income towards Building and Other Assets are separately identifiable, then Income from Building shall be taxed under the head “Income from House Property” and the Other Income shall be taxed under the head either “Profits and Gains of Business or Profession” or “Income from Other Sources”.

Not separately identifiable: If such Income is inseparable, it will be charged to tax under the head “Income from Other Sources”. [Sultan Bros. (P) Ltd 51 ITR 353 (SC)]. When the other party does not accept letting
of buildings without other assets, then the rent is taxable either as Business Income or Income from Other Sources. This is applicable even if sum receivable for the two lettings is fixed separately.

Special Aspects

Issue Treatment
Hotel or Lodging House If the Assessee does not merely let-out a property, but also provides other facilities, it is on par with activity of a Hotel or Lodging House & hence shall be recognized as a Business Activity. [Manohar Singh (1965) 58 ITR 592]
Motive to earn Income As per MOA of the Company, if the objective of the Company is to acquire property and to earn Income, then such Income is assessable under Profits and Gains from Business or Profession.

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