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Income from Letting of Plant/Machinery with/without Building

If you rent out your factory machinery or furniture, where is it taxed? Business or Other Sources? It depends on whether it's your main business or a side income.

1. Letting of Plant, Machinery, or Furniture (Section 56(2)(ii))

If an assessee lets on hire machinery, plant, or furniture (and it is NOT chargeable as Business Income), it is taxable under Income from Other Sources.

  • Example: You are a professor but own a generator you rent out occasionally. Taxed here.
  • Business Income: If you are in the business of renting generators, it's Business Income.

2. Composite Letting (Letting with Buildings) (Section 56(2)(iii))

Situation: You let out a Building along with Plant, Machinery, or Furniture. Is it House Property or Other Sources?

Case A: Letting is Separable

  • Rent for Building → Income from House Property.
  • Rent for Machinery/Furniture → Income from Other Sources.

Case B: Letting is Inseparable

If the letting of the building is inseparable from the letting of the machinery (e.g., A Central AC Cinema Hall, A Cold Storage, An Equipped Factory), the Entire Income is taxable as:

  • Profits & Gains of Business (if main business), OR
  • Income from Other Sources (if not main business).
  • NOT House Property.

Deductions Allowed (Section 57(ii) & (iii))

If taxed under Other Sources, you can claim:

  1. Repairs: Current repairs to machinery/plant/furniture.
  2. Insurance: Insurance premium paid.
  3. Depreciation: As per Section 32 rates.
  4. Any other expenditure: Wholly and exclusively incurred (not capital/personal).

Example

Mr. X rents out a furnished factory:

  • Rent Received: ₹5,00,000.
  • It includes building + machines (Inseparable).
  • Expenses incurred:
    • Repairs: ₹20,000.
    • Insurance: ₹10,000.
    • Depreciation: ₹50,000.

Computation:

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Summary

  • Machinery Rent: Other Sources (unless business).
  • Composite Rent (Inseparable): Entire rent taxed as Other Sources (or Business). House Property chapter does NOT apply.
  • Composite Rent (Separable): Split between House Property and Other Sources.
  • Deductions: Repairs, Insurance, Depreciation allowed.

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