Man doesn’t own office but earns Rs 95 lakh by renting it to Reliance; ITAT decides tax

The Income Tax Appellate Tribunal (ITAT), Bangalore, recently dealt with a similar case involving Anurag Konduru, who had taken a commercial office space from Bangalore Metropolitan Transport Corporation (BMTC) on lease and later sub-let it to Reliance Projects and Property Management Services Ltd. He received around Rs 95 lakh from Reliance during the year. He treated the receipts as business income. The Income Tax Department, however, treated them as income from house property.

The ITAT has now ruled in favour of Konduru and said the receipts should be assessed as business income.

What was the dispute?

Konduru had entered into an agreement with BMTC on February 26, 2022, for operating a commercial office space. He later entered into a lease deed with Reliance Projects and Property Management Services Ltd on December 2, 2022, and sub-let the premises to the company.

Konduru was not the owner of the property. He was a lessee.

He also said that his activity was not limited to simply giving the premises to Reliance. He was providing maintenance, security, cleaning and other related services.

Based on this, he treated the income as business income under Section 44AD of the Income Tax Act.

However, the tax department did not agree.

Income Tax Department treated it as rental income

During the assessment, the Assessing Officer noticed that Konduru had received around Rs 95 lakh from Reliance.

The AO treated this as rental income. He also considered the fact that Konduru had paid around Rs 59.14 lakh to BMTC as lease rent.

After deducting this amount from the gross receipts, the AO calculated rental income of around Rs 35.86 lakh. He then made an addition of around Rs 24.46 lakh to Konduru’s income.

The tax officer also noted that Konduru was earning salary income and took the view that the activity of taking premises on lease and sub-letting them could not be treated as his regular business activity.

Konduru challenged the decision before the CIT(A), but the first appeal did not bring him relief. The CIT(A) upheld the AO’s action.

He then approached the ITAT.

ITAT looked at who actually owned the property

The Tribunal focused on an important point.

Konduru did not own the property. BMTC was the owner and Konduru was only a tenant.

The ITAT noted that Section 22 deals with income from house property and that such income is generally chargeable in the hands of the owner. Since Konduru was not the owner, the basic requirement for treating the receipts as income from house property was not met in this case.

This was one of the key reasons why the Tribunal did not agree with the Income Tax Department.

It was more than just collecting rent

The Tribunal also looked at what Konduru was actually doing.

He had taken the commercial premises on lease from BMTC and then sub-let the premises to Reliance. But the arrangement also involved several services.

These included maintenance, cleaning, water facilities and repair work. The Tribunal noted that the arrangement was therefore not limited to simply collecting rent from another party.

The ITAT said the entire arrangement had to be considered while deciding the nature of the income.

In simple terms, the Tribunal found that Konduru was commercially exploiting the leasehold rights he had acquired from BMTC.

Therefore, the money received from Reliance was held to be business income.

Salary income does not stop a person from doing business

There was another interesting point in the case.

Konduru was also earning salary income. The AO had relied on this fact while questioning whether the sub-letting activity could be treated as his business.

The ITAT rejected this reasoning.

It said there is nothing in the Income Tax Act that stops a person from earning salary income and also carrying on an independent business. The nature of the activity has to be examined separately.

Dinkar Sharma, Partner, Jotwani Associates, said the ruling shows why the actual nature of the arrangement is important while deciding the tax treatment.

“The important point is that the taxpayer was not the owner of the property. He had taken the premises on lease and was commercially exploiting the space while also providing related services. The ITAT therefore looked at the complete arrangement instead of treating the receipts simply as rent.”

What does the ruling mean for taxpayers?

The ruling does not mean that every person who sub-lets a property can automatically treat the receipts as business income.

The facts of the arrangement matter.

In Konduru’s case, the Tribunal considered several factors. He was not the owner of the property. He had taken the commercial premises on lease. He had sub-let the entire premises and was also providing several services connected with the property.

Sharma said taxpayers should therefore not look at the word “rent” alone while deciding how such income should be reported.

“The tax treatment cannot be decided only by looking at the fact that the taxpayer received rent. The nature of the activity, the rights acquired under the lease and the services provided as part of the arrangement are all relevant.”

ITAT allows appeal

After considering the facts, the Bangalore ITAT held that the receipts from Reliance should be assessed under the head “Profits and gains of business or profession” and not under “Income from house property”.

It directed the Assessing Officer to compute the income accordingly and allowed Konduru’s appeal.

For taxpayers, the key takeaway is simple: when a person takes commercial premises on lease and uses the premises as part of a broader commercial activity, the tax treatment may be different from ordinary rental income. The actual nature of the arrangement becomes important.

Disclaimer: This story is based on the order of the Income Tax Appellate Tribunal, Bangalore Bench, in the case of Anurag Konduru vs DCIT, Circle-2(2)(1), Bangalore, pronounced on September 24, 2026. The ruling is based on the specific facts and circumstances of the case and should not be treated as a general rule that all income from sub-letting commercial premises will qualify as business income. Tax treatment can vary depending on the nature of the property, lease arrangement, services provided, ownership rights and other facts. Readers should consult a qualified tax professional before taking any tax position or making decisions based on this ruling.

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