Sec. 24 has been amended w.e.f. 01-04-2002. Before the amendment, various categories of expenditure like collection charges, insurance premium, ground rent, land revenue, etc., were allowable, but after the amendment, only two types of deductions are possible, namely, 30% of the total annual value and amount of interest paid for acquisition of property. No other deduction is possible and accordingly we hold that the amount of expenditure incurred on account of brokerage, professional consultancy, maintenance, etc., relating to the property is not allowable under the head ‘income from house property’.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No.: 403/Mum/2008 -Assessment Year: 2004-05
M/s. Scaffold Properties Pvt. Ltd.
The Assistant Commissioner of Income Tax
Date of Pronouncement : 25.04.2012
O R D E R
Per Vijay Pal Rao, J.M.:
This appeal by the assessee is directed against the order dated 18.10.2007 of the Ld. CIT(A)-V, Mumbai for the A.Y. 2004-05. The assessee has raised the following effective grounds in this appeal:
“1. The learned Commissioner of Income Tax (Appeals) erred in law in upholding the action of the learned Income-tax Officer (the Assessing Officer) disallowing interest amounting to Rs..19,61,446/- under section 14A of the Act on the ground that the interest bearing funds were utilized to earn tax free income.
2. (a) The learned Commissioner of Income-tax (Appeals) erred in not allowing a sum of Rs..33,80,328/- being brokerage and commission paid to brokers for arrangements of lease and for arrangements of sale of space, to arrange for tenants and to negotiate higher amount of rent and deposits as business expenditure on the ground that the said expenditure is in relation to letting out of the property, income from which is chargeable under the head “Income from house property” and the same cannot be allowed as a business expenditure.”
2. Ground no. 1 is regarding the disallowance of interest u/s. 14A. We have heard the learned AR as well as the learned DR and considered the relevant material on record. Both the parties have agreed that this issue is required to be reconsidered and decided at the level of the Assessing Officer in the light of the decision of Hon’ble Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Company Ltd. vs. DCIT reported in 328 ITR 81. Accordingly, we set aside this issue to the record of the Assessing Officer for deciding the same in accordance with the decision of Hon’ble High Court (supra).
3. Ground no. 2 is regarding the disallowance of brokerage and commissioner paid for lease and sale of the space. The assessee debited to the profit and loss account the brokerage and commission paid for acquisition of the property and claimed the deduction of the same against the rental income. The Assessing Officer denied the claim of the assessee and held that section 24 of the Act does not permit the payments of brokerage as deduction.
4. On appeal, the Ld. CIT(A) has confirmed the disallowance made by the Assessing Officer and also turn down the alternate plea raised by the assessee that the brokerage and commission amount should be allowed to be reduced from the annual letting value computed u/s.23 of the Income Tax Act.
5. Before us, the learned AR of the assessee has submitted that the annual letting value should be computed after reducing the amount of the brokerage and commissioner paid by the assessee if it is not permitted as a deduction u/s.24. He has relied upon the orders of the Tribunal in the case of Varma Family Trust vs. Sixth Income Tax Officer reported in 7 ITD 392 as well as in the case of Sharmila Tagore vs. JCIT reported in 93 TTJ (Mumbai) 483.
6. On the other hand, the learned DR has relied upon the order of the lower authority as well as the order of this Tribunal dated 04.04.2012 in the case of Township Real Estate Developers (India) Pvt. Ltd. in ITA No.1715/Mum/2008 & 3370/Mum/2010 and ITA No.2072/Mum/2008. He also relied upon the decision of the Hon’ble Punjab and Haryana High Court in the case of Aravali Engineers (P) Ltd. vs. CIT & ANR reported in 237 CTR 312 and the decision of Hon’ble Delhi High Court in the case of CIT vs. H. G. Gupta and Sons reported in 149 ITR 253. The learned DR has also relied upon the order of the Tribunal in the case of ACIT vs. Piccadily Hotels (P) Ltd. reported in 97 ITD 564 (Chd).
7. We have considered the rival contentions as well as the relevant material on record. At the outset, we note that in the recent order dated 04.04.2012 in the case of Township Real Estate Developers (India) Pvt, Ltd. (supra), this Tribunal has considered and adjudicated an identical issue after considering the decision relied upon by the assessee as well as the Revenue. One of us, the Judicial Member is the party of the said order of this Tribunal. In para 6 of the said order, this Tribunal has adjudicated the issue as under: -
“6. We have considered the rival submissions of the ld. DR. Admittedly, the property acquired by the assessee has been let out and income has been reflected as lease rent and compensation. The income has been returned under the head ‘income from house property’. Under section 14 of the Act, five heads of income have been provided, namely:
C.—Income from house property
D.—Profits and gains of business or profession.
F.—Income from other sources.
Total income of the assessee has to be assessed under the above heads. It is settled position of law that only those deductions can be allowed by computing the income which are provided under a particular head. Same proposition has been approved by the Hon’ble Delhi High Court in the case of CIT vs. H.G. Gupta & Sons (supra). Paragraph 5 of the judgment reads as under:
“5. The annual value of the property, which is the subject of charge, was originally defined in s. 23(1) as “The sum for which the property might reasonably be expected to be let from year to year”. The annual value is thus the sum for which a landlord could let the premises having regard to the condition of the property and of the revailing circumstances as the language suggest. The taxes are charged on the artificial or notional income. It is based on the annual value of the property. The authorities under the Act, therefore, have to make the assessment on the basis of the notional annual value. Sec. 23 lays down how the annual value is to be determined. Sec. 24 provides that income chargeable under the head “Income from house property” shall, subject to the provision of subs. (2), be computed after making the deductions specified therein. The legislature has used the word “namely” and this shows that the heads of expenditure wherefor deduction can be claimed are exhaustive. The expenses incurred in providing the property stamp paper in the case of a lease or agreement to lease is by virtue of the provisions contained in s. 29of the Indian Stamp Act, 1899, and is on the lessee or intended lessee, in the absence of an agreement to the contrary. It may be for this reason that the legislature did not include such expenses in the permissible deductions under s. 23 or s. 24. If a particular type of expenditure is not specifically provided to be deductible, deduction therefore cannot be claimed from out of the annual value. Neither . 23 nor s. 24 provides for the deduction of the expenses incurred towards stamp duty or registration charges in respect of the lease.”
Again, the Chandigarh Bench of the Tribunal in the case of ACIT vs. Piccadily Hotels (P) Ltd. (supra) observed as under:
“Income from house property – Annual value – Deduction for commission paid to brokers – There is no express provision regarding allowance of any, brokerage or commission for determining ALV of the property – It cannot be inferred that ‘actual rent’ in the term ‘actual rent received or receivable’ occurring in cl. (b) of s. 23(1) means net rent after allowance of expenditure in connection with rent – Statute does not empower the assessing authority or the assessee either to add or subtract anything from the ALV—Also, the plea of diversion by overriding title cannot be accepted as no obligation has been cast on the assessee to pay brokerage – Therefore, commission not allowable as deduction.”
The Hon’ble Punjab & Haryana High Court in the case of Aravali Engineers (P) Ltd. (supra) took similar view. Relevant portions of paras 2 and 14 are as under:
“With regard to commission payment of Rs.2,50,000 there is no eligibility under any section for the assessee company to claim this expenditure under s. 24. The deductions from house property are available only under s. 24 and have been clearly specified. The rent received in assessee’s case for the full year is the annual letting value. As the commission is not eligible as a deduction under s. 24 it shall not be allowed as a expenditure under house property income.
14. As regards question (iii), learned counsel for the assessee submits that rent to the extent of brokerage was an independent transaction envisaging payment to the broker. Wherever deductions out of income from property are permissible, the same have been specified in s. 24. De hors the said provision, deduction from income is not permissible.”
Therefore, it is clear that annual value cannot be reduced by the amount of expenses because sec. 23(1) clearly talks of annual rent received and the expenditure can be claimed only u/s. 24. It is to be noted that sec. 24 has been amended w.e.f. 01-04-2002. Before the amendment, various categories of expenditure like collection charges, insurance premium, ground rent, land revenue, etc., were allowable, but after the amendment, only two types of deductions are possible, namely, 30% of the total annual value and amount of interest paid for acquisition of property. No other deduction is possible and accordingly we hold that the amount of expenditure incurred on account of brokerage, professional consultancy, maintenance, etc., relating to the property is not allowable under the head ‘income from house property’. As far as the decisions relied on by the ld. counsel of the assessee are concerned, the decision in the case of Banwari Lal Anand vs. ITO was rendered for assessment year 1989-90 when there were various clauses u/s. 24. Clause (vii) was a deduction in respect of land revenue and brokerage was held to be covered under clause (vii). But, since the section itself has been amended, therefore, this decision is no more applicable. The other two decisions i.e. Govind S. Singhania vs. ITO (supra) and Sharmala Tagore v. JCIT can also not be applied because these decisions have not considered the decision of Hon’ble Delhi High Court in the case of CIT vs. H.G. Gupta & Sons. In any case, the latest decision on this issue in the case of Aravali Engineers (P) Ltd. is from Hon’ble Punjab & Haryana High Court and the same has to be followed in preference to the decision of the Tribunal. Accordingly, we reject the ground raised before us.”
8. Thus it is clear that after considering the decision as relied upon by the learned AR, this Tribunal has decided the issue against the assessee and in favour of the Revenue by following the decision of Hon’ble Delhi High Court in the case of CIT vs. H. G. Gupta and Sons (supra) as well as the decision of Hon’ble Punjab and Haryana High Court in the case of Aravali Engineers (P) Ltd. vs. CIT & ANR (supra). Since the issue is covered by the decisions of the Hon’ble Delhi
Court as well as Hon’ble Punjab and Haryana High Court, therefore, by following the earlier order of this Tribunal, we decide this issue against the assessee and in favour of the Revenue.
9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 25th day of April, 2012.