Case Law Details

Case Name : M/s. Radiant Premises Pvt. Ltd. Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No.5494/Mum/2013
Date of Judgement/Order : 05/06/2015
Related Assessment Year : 2010-2011
Courts : All ITAT (1731) ITAT Mumbai (490)

Brief of the Case

ITAT Mumbai held In the case of M/s. Radiant Premises Pvt. Ltd. vs. ACIT that the phrase rent received and receivable u/s 23, contemplates the amount received for the enjoyment of the property and certain rights in the said property by the tenant. If there is charge directly related to the rental income or for the property without which the rights in the property cannot be enjoyed by the tenant then it can be construed as part and parcel of enjoyment of the property from where rent is received then such charges can be held to be allowable from the rent received or receivable. However, the brokerage paid to the third party has nothing to do with the rental income paid by the tenant for enjoying the property to the owner. Brokerage cannot be said to be a charge that has been created in the property for enjoying the rights and at best it is only an application of income received/receivable from rent. Hence, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24.

Facts of the Case

The assessee company is in the business of finance and leasing of premises. In the books of account the assessee had shown rental income of Rs.1,29,13,475/- on letting out of office premises to M/s. Dow Jones consulting India Pvt. Ltd. While working out the “House property income’’ the assessee had shown the annual value of the property at Rs.17,21,348/- after reducing an amount of Rs.1,11,92,127 being brokerage paid for procuring tenant. Thereafter, the assessee has claimed standard deduction of 30% u/s. 24 of Rs.5,16,404/- and, accordingly, the income from house property was shown at Rs.12,04,944/-. In response to the show cause notice to justify the claim of brokerage as allowable expenditure under sections 23/24, the assessee submitted that an amount of Rs.1,11,92,127/- being two months license compensation and 2% of the security deposit was paid as brokerage to M/s. C B Richard Ellies South Asia P. Ltd., for sourcing and securing a suitable licensee for its office.

The Assessing Officer did not agree with the contention of the assessee and held that as per the expressed provisions of section 23, the computation has to be done only in accordance with the said section and standard deduction is allowable u/s. 24. There is no express provision regarding allowance of any expenditure like brokerage, commission, etc., for determination of annual value of the property except the taxes levied by the local authority on payment basis in respect of the said property. Accordingly, he disallowed the claim of brokerage paid by the assessee. Thus, the Assessing Officer computed the income from house property at Rs.90,39,432/- after giving standard deduction @30% u/s. 24.

Contention of the Assessee

The ld counsel of the assessee submitted that brokerage was paid by the assessee company for sourcing the licensee and letting out the premises. The payment of Rs.1,11,92,127/- was paid to C B Richard Ellies South Asia Pvt. Ltd. as profession fees/brokerage. Such a payment is directly related to the earning of rental income and, therefore, the same has to be deducted from the gross rent because section 23(1)(b) contemplates the actual rent received/receivable. She submitted that in various decisions, the Tribunal has held that stamp duty charges on license agreement, maintenance charges paid to the housing society etc., are allowable within section 23 itself, on the same analogy, brokerage paid also be allowed. He relied on various decisions naming Govind S Singhania vs. ITO (ITA No. 4581/Mum/2006), Aloo Bejan Daver vs. ITO in ITA Nos. 2381 & 2382/Mum/2010 for A.Y. 2005- 06 & 2006-07, Varma Family Trust vs. ITO (1984) 7 ITD 392 (Mum), Suman Didwania vs. ACIT in ITA No. 5805/Mum/2010 for A.Y. 2006-07, Sharmila Tagore vs. JCIT (2005) 93 TTJ (Mum) 483 and Lekh Raj Channa vs. ITO (1990) 37 TTJ (Del) 297.

Contention of the Revenue

The ld counsel of the revenue relied upon the order of the Assessing Officer as well as the CIT (A) and submitted that while computing income from house property only those deductions/expenses are allowed as are specified in sections 23 and 24. Beyond that no expenditure can be allowed. He further submitted that most of the decisions are in respect of maintenance charges paid to society, which stand on a different footing because it is for the maintenance of property itself so that rights in the property can be enjoyed.

Held by CIT (A)

The CIT (A) confirmed the findings of the Assessing Officer on the same ground that such deduction of brokerage against income from house property has nowhere been specified either in section 23 or in section 24. Therefore, such a claim is contrary to the provisions of law.

Held by ITAT

ITAT held that the case of the assessee is that, u/s. 23(1) (b), for the purpose of determination of annual letting value of the property, envisages that the property which has been let out, then the actual rent received or receivable is to be taken as rental income. The phrase “actual rent received” or “receivable” means net of deductions and the actual rent received in the hands of the assessee. Such a plea of the assessee cannot be accepted, because what is contemplated u/s. 23 is that the annual value of the property which is let out should be the portion of rent received or receivable by the owner from the tenant/licensee. The first and foremost condition is that it should be in the nature of rent as mutually agreed upon between the two parties for the enjoyment of rights in the property let out in lieu of rent. The deduction envisaged in the proviso to section 23(1) is that, taxes levied by any local authority shall be deducted in determining the annual letting value of the property in that previous year in which said taxes have actually been paid.

Further held that the phrase rent received and receivable contemplates the amount received for the enjoyment of the property and certain rights in the said property by the tenant. If there is charge directly related to the rental income or for the property without which the rights in the property cannot be enjoyed by the tenant then it can be construed as part and parcel of enjoyment of the property from where rent is received then such charges can be held to be allowable from the rent received or receivable. However, the brokerage paid to the third party has nothing to do with the rental income paid by the tenant for enjoying the property to the owner. Brokerage cannot be said to be a charge that has been created in the property for enjoying the rights and at best it is only an application of income received/receivable from rent.

Further held that if such a nature of expenses like brokerage, professional fee, etc., is held to be allowable, then numerous other expenses like salary or commission to an employee/agent who collects the rent can also be held to be allowable. This is not the mandate of the law. Also there is distinction between maintenance charges and the brokerage paid because such a charge is given/paid for the very maintenance of the property so as to enjoy the property itself; whereas brokerage has nothing to do with the property or the rent which is given to a third party who has facilitated the landlord and the tenant on agreeable terms to rent the property. Therefore, these decisions will not apply in the assessee’s case. Thus, in our opinion, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24.

Accordingly appeal of the assessee dismissed.

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