Case Law Details
Case Name : 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 : 2010-11
CA Suraj R. Agrawal
Brief of the Case:-
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 therefore 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
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 at 93, 9th floor, 2 North Avenue at Maker Maxity, Bandra Kurla Complex 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 the Act 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.
- 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.
- 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.
- The learned 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.
Contentions of Appellant:
- 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.
- 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.
Contention by Revenue:
- 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.
Ruling of Honorable ITAT/Court:
- For giving the property on rent, the assessee has used the services of M/s. C B Richard Ellis South Asia Pvt. Ltd. for sourcing and securing a suitable licensee for the said office premises.
- 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.
- 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.
- 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..
- Thus, in ITAT opinion, the payment of brokerage cannot be allowed as deduction either u/s. 23 or u/s. 24. The CIT(A) has therefore, rightly confirmed the disallowance of such a payment of brokerage and ITAT hold that no such deduction can be allowed while computing the income from house property. Accordingly, the ground raised by the assessee is dismissed.
- In the result, the appeal of the assessee is dismissed.