Allowability of society maintenance charges from rental income – Section 22 : deals the Annual value of property and Section 23 determine the ‘Annual value’, whereas the Allowable deductions from ‘Income from House property’ is in section 25 and Section 25 the amounts not deductable from ‘Income from House property’. Section 22 provides for taxation of ‘annual value’ of a property consisting of any buildings or lands appurtenant thereto. The term ‘buildings’ includes any building- office building, go down, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. as long as they are not used for business or profession by owner. For the purpose of section 22, the owner has to be a legal owner. However, the Supreme Court in the case of CIT v/s. Podar Cement (P) Ltd. etc. 226 ITR 625 (SC). held that ‘owner’ is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of Section 22 is not warranted. Annual value of property is assessed to tax under section 22 in the hands of owner even if he is not in receipt of income or even if income is received by some other person. In case where property is owned jointly by two or more persons, and where shares of such joint owners are definite and ascertainable, the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property the rent/ annual value will be taken in proportion to his share in the property. In such an eventuality, the relief admissible under section 23(2) shall also be separately allowable to each such person [Explanation to Section 26]. However, where the share is not definite, the income of the property shall be assessed as that of an Association of persons.(s 26). Section 27 deals with deemed ownership.
Under Section 23(1) of the Income tax Act, annual value of property shall be deemed to be the following:
- The sum for which the property might reasonably be expected to be let out from year to year;
- Where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable
- Where the property or part of the property is let and was vacant during the whole or any part of the previous year and, owing to such vacancy, the actual rent received or receivable by the owner in respect thereof is less than the sum referred to clause (a) the amount so received or receivable.
Under Section 24 permit deductions from Income from house property :- Amount left after deduction of municipal taxes is net annual value. Following permissible deductions are allowed from Annual Value in cases of let out properties (Section 24).
(1) Deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the taxpayer (s.24(a)). No other allowance for depreciation, repairs, maintenance etc. would be allowable.
(2) Interest on borrowed capital (s.24(b)). Interest on borrowed capital is allowable as deduction on accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the house property.
> M. Gupta & Sons (HUF) Vs ACIT (Del) 299 ITR 410 :- Interest-free security deposit taken by assessee hugely disproportionate to monthly rent charged – Device to circumvent liability to income tax – Notional interest on security deposit to be treated as income from House Property.
> CIT Vs M/s Transmarine Corporation (SC) SLP CC 8999/09 in CA no. 5470/2011 – order dated 15/07/2011 :- If a particular expenditure (eg. brokerage) is not specifically provided to be deductible, deduction thereof cannot be claimed under Section 24 since the word used is ‘namely’
> CIT Vs Late Sohanlal ( by L/H ) (Del) 257 ITR 242 CIT Vs Satyanarayana Sikaria (Gau) 238 ITR 855 : As per lease agreement, lessees were to carry out day-to-day repairs – No deduction to lessor on account of repairs.
> K. Mahindra Vs ITO (ITAT, Del) 44 ITD 430:- Damages recovered by tenant by way of adjusting from rent payable- Not deductible.
> Shri Saif Ali Khan Vs. Asst. Commissioner. of Income Tax (ITAT Mumbai)-T.A. No. 1653/Mum/2009 DT 29/06/2011- With regard to the deduction of Society charges, we find that it has also been disallowed by the AO on the ground that since a flat amount of 30% of annual value is allowed, no other deduction is allowable. However, we find that sec. 24(a) reads as under B
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:–
(a) a sum equal to thirty per cent of the annual value;”
Thus, from the above, it is clear that a sum equal to 30% is allowable from the annual value so determined u/s.23(1) of the Act. In other words, the deductions u/s. 24 are to be given from, and calculated on the basis of, the annual value so determined.
15. In the cases relied on by the ld. counsel for the assessee B
16. In Sharmila Tagore vs. Jt. CIT (Mumbai) (2005) 93 TTJ (Mum) 83, it has been observed and held vide para 3 of the order as under B
“3. The assessee is in further appeal before the Tribunal. As regards the maintenance charges we find that the issue is covered in favour of the assessee by the order of the Tribunal dt. 15th Nov., 2000, in the case of Bombay Oil Industries Ltd. in ITA 550/Mum/2000. In this case, the decision of the Delhi Bench of the Tribunal in the case of Neelam Cable Mfg. Co. vs. Asst. CIT (1997) 59 TTJ (Del) 474: (1997) 63 ITD 1 (Del), Lekraj Channa vs. ITO (1990) 37 TTJ (Del) 297 and the decision of the Bombay Bench of the Tribunal in the case of Blue Mellow Investment & Finance (P) Ltd. (ITA No.1 757/Bom/1 993 dt. 6th May 1993) were followed and it was held that the maintenance charges have to be deducted even while arriving at the annual letting value of the property under s. 23. Following the said order, we hold that the maintenance charges have to be deducted even while determining he annual value of the property under s. 23.”
: Krishna N Bhojwani, Vs. Asstt. (ITAT Mumbai)– I.T.A. No.1463/Mum/2012 dated 03/07/2017:- While calculating annual value of the let out property, maintenance charges paid to the society by the assessee is admissible deduction from the annual let out value under section 23(1)(b). Hence, disallowance made by AO was not justified.
Income Tax Appellate Tribunal – Mumbai:- Income Tax Officer vs Barodawala Properties Ltd. on 26 December, 2001 –2002 83 ITD 467 Mum_ Under these circumstances, we prefer to follow the decision of the Delhi High Court and in the light of the ratio laid, down by the Hon’ble Bombay High Court in the case of Gopal Krishna Suii and J.K. Investors, we hold that the society’s maintenance charges payable by the assessee in respect of leased property is not allowable as deduction either under Section 23 or under Section 24 of the Act. We, therefore, set aside the order of the learned CIT(A) on this issue and restore that of the AO. The appeal of the Revenue succeeds.
ITAT MUMBAI : ROCKCASTLE PROPERTY PRIVATE LTD VERSUS ITO-5 (3) (1) , MUMBAI- No.- I.T.A. No.7377/Mum/2018 Dated.- May 18, 2021
Income from house property – allowability of society maintenance charges from rental income – as urged that gross rent received by the assessee included society maintenance charges which were to be paid by the assessee, thus in computing the annual value, the amount of rent which actually goes into the hands of the owner should be taken into consideration since the provisions of Sec. 23(1)(b) uses the expression actual rent received or receivable by the owner – AO opined that the same is not allowable since the assessee is already allowed deduction of 30% u/s 24(a), consequently, the rental income was taken on gross basis.
HELD THAT:- Upon perusal of the agreements, it could be gathered that the payment of municipal taxes and other outgoings was the liability of the assessee. Any increase was also to be borne by the assessee. The licensee was required to pay fixed monthly lump sum payment to the assessee as license fees irrespective of assessee’s outgoings.
Therefore, to say that the actual rent received by the assessee was net of ‘society maintenance charges’, would not be correct as per the terms of the agreement entered into by the assessee.
We find that as per the provisions of Section 23(1)(b), annual value shall be deemed to be the actual rent received or receivable by the assessee. The proviso provides for deduction of municipal taxes levied by any local authority. As per Explanation, the actual rent received or receivable would not include the amount of rent which owner could not realize. We find that the statutory provisions are quite clear and provide for deduction of only specified items i.e. taxes paid to local authority and the amount of rent which could not be realized by the assessee, from the expression ‘actual rent received or receivable’. No other deduction is permissible. Allowing the other deduction would amount to distortion of the statutory provisions and such a view could not be countenanced. To accept the plea that rent which actually goes into the hands of the assessee is only to be considered, would enable the assessee to claim any expenditure from rent actually received or receivable since the same would ultimately reduce the amount which actually goes into the hands of the assessee. The same is not the intention of the legislatures. The statutory provisions, as noted earlier, provide for deduction of specified items only.
Proceeding further, we are of the considered opinion that the ‘society maintenance charges’ as paid by the assessee, by no stretch of imagination, could be held to be taxes paid to local authority.
>TOWNSHIP REAL ESTATE DEVELOPERS (INDIA) (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX-2 (3) [2012 – ITAT MUMBAI] – Decided against assessee.
Citations:
Hon’ble Shri Saktijit Dey, JM And Hon’ble Shri Manoj Kumar Aggarwal, AM
For the Assessee : Shri Gopal Sharma-Ld. AR
For the Revenue : Ms. Smita Verma – Ld. Sr. DR
ORDER
PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER)
1. In this appeal for Assessment Year (AY) 2012-13, the assessee is aggrieved by the order of Ld. Commissioner of Income-Tax (Appeals)- 10, Mumbai, [in short referred to as ‘CIT(A)’] dated 25/10/2018 which has held that the assessee is not eligible to claim ‘society maintenance charges’ from rental income.
2. The Ld. AR advanced argument in support of assessee’s claim and relied upon various decisions of this Tribunal, a copy of which has been placed on record. It was urged that gross rent received by the assessee included society maintenance charges which were to be paid by the assessee. Therefore, in computing the annual value, the amount of rent which actually goes into the hands of the owner should be taken into consideration since the provisions of Sec. 23(1)(b) uses the expression actual rent received or receivable by the owner.
The Ld. DR, on the other hand, submitted that the assessee’s claim is not admissible as per statutory provisions.
We have carefully considered the same. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.
3. The assessee being resident corporate assessee has been assessed u/s 143(3) on 19/09/2014 wherein it transpired that it earned rental income from a commercial property which is situated in a condominium. The assessee credited an amount of ₹ 91.42 Lacs as rental income in Profit & Loss Account as against receipts of ₹ 93.65 Lacs. The differential of ₹ 2.23 Lacs was due to the fact that the assessee credited rental receipts net of ‘society maintenance charges’.
The Ld. AO opined that the same is not allowable since the assessee is already allowed deduction of 30% u/s 24(a). Consequently, the rental income was taken on gross basis.
4. The Ld. CIT(A) noted that the action of Ld. AO was in line with the decision of Mumbai Tribunal in Township Real Estate Developers India Private Limited V/s CIT (51 SOT 411 04/04/2012 AY 2004-05) which considered the decisions of Hon’ble Delhi High Court in H.G. Gupta & Sons (149 ITR 253), the decision of Hon’ble Punjab & Haryana High court in Aravali Engineers P. Ltd. (200 Taxman 81) and the decision of Chandigarh Bench in case of Piccadilly Hotels Private Ltd. (97 TTJ 411). The decision of Mumbai Tribunal in Sharmila Tagore (93 TTJ 483) was held to be not applicable since this decision did not consider the decision of Hon’ble Delhi High Court in H.G.Gupta & Sons.
Resultantly, the action of Ld. AO was upheld. Aggrieved, the assessee is in further appeal before us.
5. Upon perusal of clause-9 of Leave & License agreement dated 15/11/2004 entered into by the assessee with one of the Licensee, we find the assessee as a licensor was liable to pay municipal taxes and any outgoings and any further increase thereof to the respective and appropriate local authority / organizations save and except electricity, water and telephone connection / usage charges in respect of the licensed premises. The licensee is obligated to pay lump sum license fees to the assessee. The assessee is also providing certain amenities and facilities of varied nature to the users under separate agreement against lump sum monthly payment as well as against interest free security deposit. All these charges have been offered as well as accepted under the head ‘Income from House Property’. Similar are the terms of the other agreements as placed before us.
6. Upon perusal of the agreements, it could be gathered that the payment of municipal taxes and other outgoings was the liability of the assessee. Any increase was also to be borne by the assessee. The licensee was required to pay fixed monthly lump sum payment to the assessee as license fees irrespective of assessee’s outgoings.
Therefore, to say that the actual rent received by the assessee was net of ‘society maintenance charges’, would not be correct as per the terms of the agreement entered into by the assessee.
7. We find that as per the provisions of Section 23(1)(b), annual value shall be deemed to be the actual rent received or receivable by the assessee. The proviso provides for deduction of municipal taxes levied by any local authority. As per Explanation, the actual rent received or receivable would not include the amount of rent which owner could not realize. We find that the statutory provisions are quite clear and provide for deduction of only specified items i.e. taxes paid to local authority and the amount of rent which could not be realized by the assessee, from the expression ‘actual rent received or receivable’. No other deduction is permissible. Allowing the other deduction would amount to distortion of the statutory provisions and such a view could not be countenanced. To accept the plea that rent which actually goes into the hands of the assessee is only to be considered, would enable the assessee to claim any expenditure from rent actually received or receivable since the same would ultimately reduce the amount which actually goes into the hands of the assessee. The same is not the intention of the legislatures. The statutory provisions, as noted earlier, provide for deduction of specified items only.
8. Proceeding further, we are of the considered opinion that the ‘society maintenance charges’ as paid by the assessee, by no stretch of imagination, could be held to be taxes paid to local authority. This view has already been expressed by this very bench in the case of Sterling & Wilson Property Developers Pvt. Ltd. V/s ITO (ITA NO.1085/Mum/2015 dated 11/11/2016) as under: –
3. Ground No. 1 to 3 pertains to claim of the assessee with respect to maintenance charges against lease income. The assessee has not contested the assessability of lease income under the head ‘Income from House property’ and hence, the only dispute is with respect to allowability of impugned charges/taxes from lease income which has been disallowed by revenue primarily on the ground that the assessee has offered income only against one property. First of all, to delve into the matter properly, we find that the assessee has debited a sum of ₹ 3,74,100/- in Profit & Loss Account under the head ‘Sterling Seaface Maintenance Charges’, the break-up of which is as follows:-
| Flat No. | Maintenance Charges (Rs.) | Municipal Taxes (Rs.) |
| 704 | 0 (since recovered from tenant) | 0 (since recovered from tenant) |
| 1101 | 61,036 | 61,920 |
| 1102 | 46,000 | Nil |
| 1202 | 61,036 | 61,920 |
| Godown | Nil | 82,188 |
| Total | 1,68,072/- | 2,06,028/- |
Therefore, we find that CIT(A) has erred in allowing two deductions to the extent of ₹ 1,22,956/- & ₹ 61,920/- separately on account of maintenance charges and municipal taxes respectively which pertained to Flat No. 1101 whereas in fact the total amount pertaining to Flat No. 1101 was, in fact, ₹ 1,22,956/- inclusive of municipal taxes. Further, when Income is calculated under the head House Property, then besides statutory deduction of 30% u/s 24, an assessee is entitled only for deduction with respect to taxes levied by any local authority. Therefore, society maintenance charges levied by the Society which is not a local authority are not at all allowable to the assessee. Therefore, we held so and accordingly, maintenance charges of four flats amounting to ₹ 1,68,072/- are not allowable under the head ‘Income from House Property’. Further, the assessee has contended that Godown has been used by assessee for business purposes and therefore, we restore this matter to file of AO for limited purpose of verifying assessee’s claim that the godown was used for business purpose during impugned AY or not and if so, allow the deduction for municipal taxes under the head ‘Business Income’. So far as regarding, municipal taxes for four properties are concerned, a combined perusal of Statement of Total Income for AY 2006-07 & 2005-06 strengthens the claim the assessee that lease income has been offered on receipt basis as per TDS certificates to avoid mismatch of TDS credit. Therefore, we held that municipal taxes relating to four properties are allowable under the head ‘Income from House Property. The appeal of the assessee against Ground Nos. 1 to 3 is partly allowed.
The decisions as referred to by Ld.CIT(A) also supports the same view.
The decision of this Tribunal in Township Real Estate Developers India Private Limited V/s CIT (supra) has been passed after considering the two decisions of Hon’ble High Courts. The case law of Sharmila Tagore (93 TTJ 483) as cited by Ld.AR, has already been distinguished therein. The other case laws as cited by Ld. AR primarily follow the ratio of Sharmila Tagore (supra). In any eventuality, we are inclined to follow our earlier view taken in the cited order as extracted above.
9. Therefore, on the facts & circumstances of the case, finding no infirmity in the impugned order, we dismiss the appeal.
10. The appeal stands dismissed.
Order pronounced on 18th May, 2021.
Krishna N Bhojwani, Vs. ACIT (ITAT Mumbai)
ORDER
The captioned are cross-appeals by the assessee and Revenue pertaining to assessment year 2007-08. The appeals are directed against the order of the CIT(A)-30, Mumbai, dated 5.12.2011 which in turn has arisen from an order passed by the Assessing Officer dated 27.10.2009 under section 143(3) of the Income Tax Act, 1961(in short ’the Act).
2. The issue raised by the assessee in grounds of appeal no.1 is against the order of ld.CIT(A) in not allowing the maintenance charges paid in respect of let out properties bearing flat at 15thfloor in Steesha Apartment amounting to Rs.85,726/- and in respect of flat at Bhojwani Enclave 1,42,144/- while computing the income from house property.
3. Facts of the case in brief are that the assessee during the course of assessment proceedings made a claim before the AO to allow maintenance charges of two flats as deduction while computing the Annual Letting Value of the property (ALV). As per the lease and license agreement of the assessee with the licensees, the assessee was to meet the maintenance charges and only lease was to be received from the tenants. However, the AO did not accept the contention of the assessee by observing that the said claim was not made at the time if filing of original return of income and therefore, the claim made during the course of assessment proceedings cannot be accepted and hence did not allow the same while computing the ALV of the property.
4. During the appellate proceedings, the First Appellate Authority upheld the action of the AO by observing and holding as under (para 6.11):
“7.11 I have considered the facts of the case and the submissions made on behalf of the appellant. The AO. has taxed the amount by considering it as rent. The AO. has held that any amount received on leave and licence is rent. On the other hand the Ld. AR has contended that the same is not right as the parties have clearly agreed to pay the damages in the event of default on the part of the licensee to vacate the premises on expiry of the license period. The parties have honoured their commitments under the agreement entered into by them. The amount of Rs. 10,40,000 received by the appellant has been claimed to be in the nature of mesne profits. The Ld. AR of the appellant has relied upon the case of Narang Overseas (supra) in his favour. However, a close look at this decision reveals that in thiscase the question of law was based in the light of the case of P. Mariappa Gounder vis CIT(1998) 232 ITR 2(SC)/[1998] 149 CTR 322 (SC). I have also gone through the case of P.Mariappa Gounder 01 Hon’ble Supreme Court. The brief facts of this case are as under :-
“The assessee had agreed to purchase a tile factory, vide written agreement dated 22-5-1950, When the vendor did not convey the property, as promised, the appellant filed a suit for specific performance. This suit was ultimately decreed in appeal by the Supreme Court vide judgment dated 22-4-1958. The Supreme Court also passed decree declaring that the appellant was entitled to mesne profits against the vendor. The Trial Court determined the quantum of mesne profits by its order dated 22- 12-1962 relevant to the assessment year 1963-64. The amount of mesne profits determined was received by the assessee the following accounting year relevant to the assessment year 1964- 65. The ITO assessed the sum of the mesne profits in the assessment year 1963-64. On appeal, the AAC deleted that amount on ground that the same could taxed only in the year 1964-65. On further appeal, the Tribunal came to the conclusion that the said sum was taxable only in the assessment year 1963-64. On reference, the High Court held that the mesne profits were rightly taxed in the assessment year 1963-64 and the same could not be taxed in the assessment year 1964-65.
In this case, the Hon ‘ble supreme court held as under-
Under Order XX, rule 12 or t he Code of Civil Procedure 1908, when the Court passes a decree for possession and mesne profits, by clause (ba) it may pass a decree “for mesne profits or directing an enquiry as to such mesne. profits”. In the instant case, from the relevant portion of the decree, it was clear that the Supreme Court passed passed. an order directing an enquiry as to the mesne profits which would be payable by “the judgment-debtor to the decree holder. As on the day when the Supreme Court decreed the assessee ‘s suit, there was only an inchoate right which arose in his favour. It was only when the Trial Court determined the amount of mesne profits that the right to receive the same accrued in favour of the assessee. In other words, the liability became ascertained only with the order of the Trial Court on 22-12-1962, and not earlier Following the mercantile system of accounting, the mesne profits awarded by the said order were rightly taxed in the assessment year 1963-64 and it was wholly irrelevant as to when the amount awarded was in fact realized by the assessee. The appeal was, accordingly, dismissed”
From the above it can be seen that one of the foremost conditions for mesne profits is that there should be an order by Court to the effect of mesne profit. However, in the case of the appellant there is no order or Decree by any Court of Law. Thus, in my considered opinion, the case of the appellant does not fHII within the meaning of mesne profit. Mesne profit has not been defined in the Income-tax Act but the same has been defined in section Lt 12) of the Code of Civil Procedure, 1908, which reads as under :-
“mesne profits’ of property means those profits which the person in wrongful possession of iucn property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession”
From the above definition it becomes quite clear that the case of the appellant does not fall within the ambit of mesne profit and hence the case law relied upon by the appellant are not applicable to the facts of the case of the appellant. Therefore, in my considered view the A.O. was quite justified in holding that the so called mesne profit is nothing but rental income only and therefore the addition made by the A.O. on this around is confirmed-d and this appeal is dismissed.”
5. At the time of hearing, the ld.AR submitted before us that the case of the assessee is squarely covered by the decision of Mumbai Bench of Tribunal in the case of Ms. Aloo Bejan Daver V/s ITO in ITA No. 2381 and 2382/Mum/2010 (AY-2005-06 and 2006-07) dated 29.4.2011 and accordingly prayed that the same be applied to the case of the assessee and the maintenance charges which were paid by the assessee in terms of agreement between the assessee and the licensees should be allowed while working out the ALV of the property.
6. The ld. DR on the other hand, reiterated the facts of the case and relied upon the orders of authorities below.
7. We have considered the rival consideration and perused the material placed before us including the orders of authorities below and case law relied upon by the parties. We find that the issue raised in this ground is covered by the decision of the Tribunal in the case of Ms.Allo Bejan Daver (supra) wherein it has been held that the maintenance charges paid to the society are to be reduced the rent received while calculating the ALV u/s 23(1) of the Act. The relevant part of the Tribunal order is reproduced below:
“7. We have considered the submissions made by both the parties, perused the orders of the A.O. and ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute in the impugned appeal is regarding the allowability of deduction of society charges from the rental income for the purpose of calculation of annual letting value u/s 23(1)(b). We find the Mumbai Bench of the ITAT in the case of Varma Family Trust (supra) has held that section 23(1)(b) proceeds on the basis of actual rent received or receivable and therefore all the outgoings for earning the said rental income would be admissible deduction. We find the Tribunal in the case of Bombay Oil Industries (supra) has held that maintenance charges and municipal taxes paid by the assessee are to be deducted from gross rent to arrive at the annual value. We find that in the case of Sharmila Tagore (supra), the Tribunal held that maintenance charges paid to housing society have to deducted even while computing annual letting value. Similar view has been taken in various other decisions relied on by the ld. counsel for the assessee. The decisions relied on by he ld. CIT(A), in our opinion, are distinguishable and not applicable to the facts of the present case.
8. We find the Mumbai Bench of the Tribunal in the case of Gopichand P. Godhwani (supra), after considering the decision of the Hon’ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (2001) 168 CTR (Bom) 189 has held that for the purpose of determining annual value of the property all taxes, cesses and outgoings being liabilities of the assessee, have to be excluded from assessable income in view of s. 23(1)(b). So far as the decision of the Tribunal in the case of Barodawala Properties Ltd. (supra) is concerned, we find that the Tribunal in subsequent judgments have held that while calculating annual value of the let out property, maintenance charges paid to the society by the assessee is admissible deduction from the annual let out value u/s 23(1)(b). In view of the series of decisions relied on by the ld. counsel for the assessee supporting the deductibility of society charges from the gross rent for the purpose of determining the annual let out value u/s 23(1)(b), we hold that the assessee is entitled to deduction of society charges amounting to ` 1,26,000/- from the rent so received for the purpose of determining ALV u/s 23(1)(b) of the I.T. Act. The ground raised by the assessee is accordingly allowed.
9. Since the grounds raised by the assessee in ITA No. 2382/M/2020 are identical to the grounds raised in ITA No. 2381/M/2010 for A.Y. 2005-06, therefore, following the same ratio, we hold that the assessee is entitled to deduction of society charges of ` 1,32,300/- for A.Y. 2006-07 for the purpose of determining ALV.”
The facts of the case in hand and relied upon by the assessee are materially same, therefore, we respectfully following the decision of the co-ordinate Bench of the Tribunal (supra), set aside the order of the ld.CIT(A) and direct the AO to allow the maintenance charges by computing the ALV. Resultantly, grounds of appeal no.1 is allowed.
8. The issue raised in the grounds of appeal no.2 by the assessee is regarding damages received by the assessee from the licensee for the period falling beyond the period of the leave and license agreement and the licensee was not vacating the flats which as per the assessee was a capital receipt which was not taxable not rental income whereas the authorities below holding the same to be chargeable tax under the head “income from house property” as ALV of such property.
9. The facts of the case are that the during the year the assessee received an amount of Rs.17,60,000/- fro M/s Nortel Networks (India) Pvt Ltd as per clause 17 of the leave and license agreement entered into by the assessee with the licensee and the said amount was credited in the profit and loss account and offered for taxation under the head “income from business”. The assessee claimed before the AO that the said amount comprised of Rs.7,20,000/- being license fee for the period from 1.4.2006 to 31.5.2006 and balance amount of Rs.10,40,000/- being damages for delay in handing over the possession by the licensee and accordingly submitted that Rs.7,20,000/- could be assessed under the head income from house property whereas the amount of Rs.10,40,000/- was capital receipt and not taxable. However, the AO rejected the contention of the assessed and added the same to the total income of the assessee while determining the ALV in respect of the flat in Steesha Apartment, Mount Mary road, Bandra (W), Mumbai-400050. In the appellate proceedings, the ld.CIT(A) dismissed the appeal of the assessee vide para 7.11 to 7.9 of the appellate order which is already reproduced above.
10. The ld. AR submitted before us that the issue raised in this ground also covered by the following decisions:
i) CIT V/s Goodwill Theatres (P.) Ltd.
[2016] 72 taxmann.com 190 (Bombay);
ii) Narang Overseas (P) Ltd V/s ACIT (2008) 111 ITD 1(Mum) (SB).
The ld.AR therefore prayed that in view of the aforesaid decisions the orders of the authorities below should be set aside and direct the AO be directed to exclude the amount of Rs.10,40,000/- while calculating the ALV for the purpose of determining income under the head income from house property as was not taxable being capital receipt.
11. On the other hand, the ld.DR relied on the orders of authorities below.
12. We have heard both the parties on the issue and carefully perused the material placed before us including the orders relied upon by the assessee. The undisputed facts of the case that the licensee did not vacate the flats as per the terms of leave and license agreement and as a result the assessee received Rs.10,40,000/- as damages pertaining to that period when the licensee occupied the premises without any valid authority as per the licensee deed dated 31.5.2006 and the said damages related to the period after 31.5.2006. We find merit in the argument of AR that the said receipt is a capital receipt and not liable to tax as the issue is directly covered in favour of the assessee by the following decisions of the jurisdictional high court and coordinate benches as relied and referred to by the ld AR. The relevant portion of the judgement t is reproduced below :
> In the case of Narang Overseas (P) Ltd, the Mumbai Special Bench of the Tribunal has held :
“48. The above analysis clearly reveals that there is cleavage of opinion between High Courts. The Hon ’ble Madras High Court has held that mesne profits is recompense for deprivation of income which the owner would have enjoyed but for the interference of the persons in wrongful possession of the property. Consequently, the same is revenue receipt chargeable to tax. On the other hand the Hon’ble High Courts of Andhra Pradesh, Calcutta, Kerala and Patna have held that mesne profit is in the nature of damages for deprivation for use and occupation of the property and therefore capital receipt not chargeable to tax. There is no judgment of the jurisdictional High Court on this issue. In our view, such conflict can be resolved only by the Hon’ble Supreme Court in some appropriate case. In the absence of the judgment of the highest court of land or of the jurisdictional High Court, the legal position is that where there are two views then the view favourable to the subject should be preferred. Reference can be made to various judgments of the Apex Court : CIT v. Vegetable Product Ltd. [1973] 88 ITR 192, CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236, CIT v. Madho Prasad Jatia [1976] 105 ITR 179, CIT v. J. K. Hosiery Factory [1986] 159 ITR 85 1, Smt. Shashi Gupta v. LIC of India [1995] 84 Comp. Cas. 436, therefore, following the same, it has to be held that mesne profit received for deprivation of use and occupation of property would be capital receipt not chargeable to tax. We hold accordingly. Consequently, the decision of the Special Bench of the Tribunal in the case of Sushil Kumar & Co. (supra), holding to the extent that mesne profit is taxable as revenue receipt is overruled”
> In the case of Goodwill Theatres (P.) Ltd, the Hon’ble Bombay High Court has held as under:
“11. We make it clear that we have not examined the merits of the question raised for our consideration. We are not entertaining the present appeal on the limited ground that the Revenue must adopt an uniform stand in respect of all assessees. This is more so as the issue of law is settled by the decision of the Special Bench of the Tribunal in Narang Overseas (P.) Ltd. (supra). The fact that even after the dismissal of its Appeal (L) No. 1791 of 2008 for non-removal of office objections on 25th June, 2009, no steps have been taken by the Revenue to have the appeal restored, is evidence enough of the Revenue having accepted the decision of the Special Bench of the Tribunal in Narang Overseas (P.) Ltd. (supra). Thus, the question as framed in the present facts does not give rise to any substantial question of law.
12. Accordingly, Appeal is dismissed. No order as to costs”.
13. The facts of the case in hand are materially same to the facts of the cases discussed as above. We, therefore, respectfully following the ratio laid down in the aforesaid cases set aside the order of the ld. CIT(A) and direct the AO to exclude the amount of Rs.10,40,000/- from the ALV. Accordingly, the appeal of the assessee sands allowed on this ground.
14. Resultantly, the appeal of the assessee is allowed.
I.T.A. No.1772/Mum/2012
15. The grounds of appeal raised by the revenue are as under :
(i) “On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition made on account of notional interest @ 10% on interest free security deposits received by the assessee while computing the annual value of the residential properties u/s 23 of the I.T.Act ignoring the fact that the decision in the case of J.K. Investors is not applicable in the instant case as there is no finding by the Hon ‘ble ITAT in the appellant’s case that the actual rent received, even without notional income is more .than the annual value determinable u/s 23(1)(a) of the Income Tax Act.
(ii) The appellant prays that the order of the CIT(A) on the above ground be set side and that of the AO be restored.”
15. The issue raised by the revenue is against the deletion of notional interest on security deposits in respect of both the flats which was stated as part of the ALV by computing the income from house property.
16. The facts of the case are that the AO added notional interest at the rate of 10% of the security deposits received by the assessee from the licensee while calculating the ALV in respect of both the flats and added the same to the rent received.
17. The ld. AR submitted that the issue raised by the revenue is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case in ITA No. 5819/Mum/2008 (AY-2004-05) dated 21.11.2011 vide para 8 of the order and thereafter the same has been confirmed by the Hon’ble jurisdictional High Court in Income Tax Appeal (L) No.1245 of 2011 dated 11.2011.
18. The ld.DR could not bring any material contrary to this submissions of the ld.AR.
19. We have heard both the parties on this issue. We find that the issue raised by the revenue is covered against the revenue by the decision of the Tribunal in assessee’s own case as well as the finding of the Tribunal confirmed by the Hon’ble jurisdictional High Court. For the sake of ready reference, we reproduce the finding of the Tribunal order and judgment of Hon’ble Bombay High Court as under :
> The operative part of the decision of the Co-ordinae Bench of the Tribunal in ITA No.5819/Mum/2008 (para 8,9 and 10) are as under:
“8. We have heard the parties. We find that the identical issue has been considered by the Tribunal in the assessee’s own case for A.Ys. 2003-04, 2005-06 & 2006-07 being ITA Nos.109-110/M/2010 & 1072/M/2007 order dated 30th March, 2011, dismissing the ground taken by the revenue in those years the Tribunal has held as under:-
“10. Learned CIT (A) has followed the judgment of Hon ‘ble Jurisdictional High Court in the case of J.K. Investors (Bombay) Ltd.., 112 Taxman 107 and held that notional interest cannot be added to annual rent receipt.
11. Learned DR relied on the decision of the Third Member in the case of ITO vs. Baker Technical Services (P) Ltd., 125 ITD 1 (TM). “D” Bench of the Tribunal in ITA No. 1411/Mum/2007 in the case of DCIT 10(1) vs. Reclamation Realty India Pvt. Ltd., after considering the Third Member decision relied upon by learned DR held as follows:-
12. For the reasons given above, we hold that the annual value (also referred to as municipal valuation / rateable value) adopted by the municipal authorities in respect of the property of Rs.27,50,835 should be the determining factor for applying the provisions of sec.23(1)(a) of the Act. Since the rent received by the Assessee was more than the sum for which the property might reasonably be expected to let from year to year, the actual rent received should e the annual value of the property u/s.23(1)(b) of the Act. Notional interest on interest free security deposit / rent received in advance should not be added to the same in view of the decision of the Hon ‘ble Bombay High Court in the case of J.V. Investors (Bombay) Ltd. (supra). We hold accordingly. The appeal of the revenue is dismissed.”
13. Respectfully following the same, we uphold the order of the First Appellate Authority and dismiss ground No. 1&2 of the “
14. Now, this issue also stands covered in favour of the assessee by the decision of the Hon’ble High Court of Delhi (Full Bench) in the case of CIT vs. Monikumar Subba 333 ITR 38 (Del) (FB). We find no reason to interfere with the order of the Ld. CIT (A).
15. In the result, both the appeals, assessee ‘s as well as revenue’s are dismissed.”
> The decision of the jurisdictional High Court in Income Tax Appeal (L) No.1245 of 2011 are as under :
“1. Whether the notional interest income on the security deposit/advance rent is liable to be included in the income from house property for the purpose of Section 23(l)(a) of the Income Tax Act, 1961, is the question raised in these Appeals.
2. The finding of fact recorded by the CIT(A) and upheld by the ITAT in the e Appeal i that the actual rent received by the assessee far exceed the Municipal ratable value and, therefore, the annual value of the property need to be computed under section 23(1)(b) of the Income Tax Act, 1961. This Court in the ea e of Commissioner of Income Tax Vs. J.K. Investors (Bombay) Ltd., reported in 248 ITR 723 has held that while computing the annual value under Section 23(1)(b) of the Income Tax Act, 1961 the notional interest on the security deposit / advance rent cannot be included in the income from house property under section 23(1)(b) of the Income Tax Act.
3. The SLP filed by the Revenue being S.L. P. (Civil) 0.5480 of 2001 again t the decision of this Court in the case of J.K. Investors (supra) has been dismissed by the Apex Court on 1st November, 2002.
4. In these circumstances , we see no reason to entertain these Appeals.
Accordingly, all the three Appeals are dismissed. “
20. After hearing of both the parties and on perusal of the above said decisions, we find that the issue raised by the revenue stands covered in favour of the assessee. Therefore, we have no other option but to dismiss the appeal of the revenue. Accordingly, we dismiss the same.
21. In the result, the appeal filed by the assessee is allowed and that of revenue is dismissed.
Order pronounced in the open court on 3rd July, 2017
Shri Saif Ali Khan Vs. Asst. Commissioner. of Income Tax (ITAT Mumbai)
ORDER
This appeal preferred by the assessee is directed against the order dated 23-01-2009 passed by the ld. CIT(A) for the asst. year 2004-05.
2. Briefly stated facts of the case are that the assessee is a film artist and also derives income from house property and other sources. The return was filed declaring a total income of Rs. 3,41,46,040/-. However, the assessment was completed at an income of Rs. 3,44,38,540/- including dis-allowance of deduction of brokerage paid, Society charges & municipal taxes from the income from house property and dis-allowance of part electricity expenses vide order dated 04- 09-2006 passed u/s. 143(3) of the I.T. Act, 1961 (“the Act”). On appeal, the ld. CIT(A), while confirming the dis-allowance made by the AO, dismissed the assessee’s appeal.
3. Being aggrieved by the order of the CIT(A), the assessee is in appeal before us.
4. Ground no.1 is against the sustenance of disallowance of brokerage paid Rs.37,780/- against rent received from letting out of property at Oxford Towers, Andheri, Mumbai.
5. At the time of hearing, the ld. counsel for the assessee submits that he does not want to press the above ground, which was not objected by the ld. D.R.
6. That being so and in the absence of any supporting material including rent deed and receipt of brokerage paid, the ground taken by the assessee is, therefore, rejected being not pressed.
7. Ground no. 2 is against the sustenance of disallowance of municipal taxes and Society charges of Rs.1,36,066/- out of income from house property.
8. Briefly stated facts of the above issue are that out of income from house property known as Oxford Towers, Andheri, Mumbai, the assessee claimed deduction of municipal taxes and Society charges of Rs.1,36,066/- and in support reliance was also placed on the decisions in
(1) Seth Raj Channa vs. ITO (1990) 37 TTJ Del. 297,
(2) Realty Finance & Leasing Pvt. Ltd. 5 SOT 348 and
(3) Nandita Banerjee vs. ITO – ITA No.1360/Mum/2000.
However, the AO was of the view that the method of computation has been substituted by the Finance Act, 2001, w.e.f. 01-04-2002 and the decisions relied upon by the assessee are all relating to the assessment years prior to asst. year 2002- 03 and hence not applicable and as such he disallowed the claim of deduction of brokerage & Society charges from the annual value of the property. On appeal, the ld. CIT(A), while agreeing with the views of the AO, observed that u/s.24 a flat amount of 30% of annual value is allowed as deduction besides municipal taxes and hence no further allowance is permissible once a fictional deduction has been allowed along with allowance on account of specific items like municipal taxes etc., rejected the claim of the assessee.
9. At the time of hearing, the ld. counsel for the assessee, while reiterating the same submissions as submitted before the AO and ld. CIT(A), further submits that in view of the decisions cited before the AO, the deduction of municipal taxes & Society charges are allowable and hence the same be allowed.
10. On the other hand, the ld. D.R. supports the orders of the AO and the CIT(A).
11. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the claim of deduction of municipal taxes & Society charges amounting to Rs.1,36,066/- was disallowed by the Revenue authorities on the ground that a flat amount of deduction of 30% is allowable u/s.24(a) by the Finance Act, 2001, w.e.f. 01-04-2002 and, therefore, no further deduction in respect of municipal taxes & Society charges is allowable. However, we find that the amount of deduction of municipal taxes is separately provided under sec. 23(1) proviso which reads as under B
“23(1) For the purposes of section 22, the annual value of any property shall be deemed to be –
(a)xxxxxxxxxxxxx
(b)xxxxxxxxxxxxx
(c) xxxxxxxxxxxxx
Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.”
The above proviso clearly provides that the taxes levied by any local authority in respect of the property shall be deducted in determining the annual value of the property of that previous year in which such taxes are actually paid by the assessee.
12. The above proviso has also been explained vide para 29.4 of departmental circular no. 14 of 2001 which reads as under B
“29.4 The section also provides that the taxes levied by a local authority in respect of the property shall be deducted in determining the annual value for that previous year in which such taxes are actually paid, irrespective of the previous year in which the liability to pay such taxes was incurred by the owner. Under the existing provisions, this deduction was allowable only in respect of property which was in the occupation of a tenant. As per the amended provisions, however, the deduction is available in every case where annual value is determined under sub-section (1) including the case of a second self-occupied house not falling under sub-section (2) of the section.”
13. In view of the above provision of law, we are of the view that the ld. CIT(A) was not justified in upholding the order of the AO in disallowing the claim of deduction of municipal taxes and hence the AO is directed to allow the same.
14. With regard to the deduction of Society charges, we find that it has also been disallowed by the AO on the ground that since a flat amount of 30% of annual value is allowed, no other deduction is allowable. However, we find that sec. 24(a) reads as under B
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:–
(a) a sum equal to thirty per cent of the annual value;”
Thus, from the above, it is clear that a sum equal to 30% is allowable from the annual value so determined u/s.23(1) of the Act. In other words, the deductions u/s. 24 are to be given from, and calculated on the basis of, the annual value so determined.
15. In the cases relied on by the ld. counsel for the assessee B
16. In Sharmila Tagore vs. Jt. CIT (Mumbai) (2005) 93 TTJ (Mum) 83, it has been observed and held vide para 3 of the order as under B
“3. The assessee is in further appeal before the Tribunal. As regards the maintenance charges we find that the issue is covered in favour of the assessee by the order of the Tribunal date 15th Nov., 2000, in the case of Bombay Oil Industries Ltd. in ITA 550/Mum/2000. In this case, the decision of the Delhi Bench of the Tribunal in the case of Neelam Cable Mfg. Co. vs. Asst. CIT (1997) 59 TTJ (Del) 474: (1997) 63 ITD 1 (Del), Lekraj Channa vs. ITO (1990) 37 TTJ (Del) 297 and the decision of the Bombay Bench of the Tribunal in the case of Blue Mellow Investment & Finance (P) Ltd. (ITA No.1 757/Bom/1 993 dt. 6th May 1993) were followed and it was held that the maintenance charges have to be deducted even while arriving at the annual letting value of the property under s. 23. Following the said order, we hold that the maintenance charges have to be deducted even while determining he annual value of the property under s. 23.”
17. In Lekraj Channa vs. ITO (1990) 37 TTJ (Del) 297, it has been observed and held as under B. However, the other part of the expenditure which is for the maintenance of the building security of the building and to attend to the requirements of the tenants is also an expenditure borne by the landlord. Such expenditure, if not deductible under collection charges would have to be considered in computing the annual letting value. Either way, the assessee would get the benefit of the expenditure. Taking all these into account, we are of the opinion that the assessee’s claim should be accepted in toto.”
18. In Realty Finance & Leasing (P) Ltd. vs. ITO (2006) 5 SOT 348 (Mum.), the Tribunal, after relying on the decision in Praveen Kumar vs. ITO (ITA No.6159 (Mum) of 2011), has observed and held as as under B
“12. We have heard the rival submissions. We find that there is no dispute that the charges paid to the society are not covered in the allowable deductions as enumerated under section 24 of the Income-tax Act. The claim of the assessee is that the said society charges are to be allowed as deduction from annual letting value (ALV) as in the case of Municipal taxes. In the case of Praveenkumar (supra), the expenditure incurred towards service charges and legal expenses were allowed as deduction while computing the annual letting value under section 23 of the Income-tax Act. It is an admitted fact that the gross rent receipt by the assessee also include the society charges which are to be paid by the assessee. In our view while computing the annual value the amount of rent which actually goes to the hands of the owner in respect of leased property should be taken into consideration. As per the provisions of section 23 the annual value of any property is to be determined on the basis of actual rent received by the owner.”
19. In the absence of any contrary decision placed on record by the Revenue, we, respectfully following the consistent view of the Tribunal, hold that the Society charges paid by the assessee in respect of the let out property are allowable while computing the annual letting value of the property under section 23 of the Act. This view also finds support from the recent decision of Honourable Delhi High Court in CIT vs. R.J. Wood P. Ltd. (2011) 334 ITR 358 (Delhi) wherein it has been held that the maintenance and other charges paid by the assessee were deductible from the rent while computing the annual letting value. Accordingly, the AO is directed to allow the same. Ground no. 2 taken by the assessee is, therefore, allowed.
20. Ground no. 3 is against the sustenance of dis-allowance of 50% electricity charges.
21. The brief facts of the above issue are that it has been observed by the AO that the assessee is using the residence also as his office and accordingly claimed 75% of total electricity expenses of Rs. 2,41,350/- as business expenditure, allocating 25% amount of Rs. 60,337/- towards personal use. However, the AO, considering the fact that the residential premises is being used for office purposes also, allocated 50% of electricity expenses towards personal needs instead of 25% claimed by the assessee and accordingly made an addition of Rs. 60,337/- to the total income of the assessee. On appeal, the ld. CIT(A), while observing that by no stretch of imagination 75% of electricity expenses would be allocated for professional purposes with 25% being for personal user, held that the dis-allowance made by the AO is most reasonable and hence upheld the dis-allowance made by the AO.
22. At the time of hearing, the ld. counsel for the assessee, while reiterating the submissions as submitted before the AO and the ld. CIT(A), further submits that the assessee being one of the leading film artists held all the conferences with the producers & directors at his residence and having regard to his busy schedule, the use of residential premises is minimal and, therefore, the disallowance made by the AO be deleted.
23. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that there is no dispute that the residence of the assessee is also used for office purposes. The assessee allocated the total electricity expenses of Rs. 2,41,350/- in the proportion of 25% being personal and 75% for office purposes. Per contra, the AO has considered the personal use of electricity at 50% and hence he made dis-allowance of Rs.60,337/-. In the absence of any contrary material placed on record by the Revenue to show that conferences with the producers & directors were not held at the residence of the assessee for the purpose of his profession or part of the residence was not used for business purposes and keeping in view the amount of income returned by the assessee Rs. 3,41,46,040/-, we are of the view that further dis-allowance of 25% Rs. 60,337/- over and above already disallowed by the assessee is without any basis and unreasonable and accordingly the same is deleted. The ground raised by the assessee is, therefore, allowed.
Order pronounced on the 29th day of June, 2011.
Income Tax Appellate Tribunal – Mumbai
Income Tax Officer vs Barodawala Properties Ltd. on 26 December, 2001
Equivalent citations: 2002 83 ITD 467 Mum
Bench: D Manmohan, Jaidev
ORDER Jaidev, A.M.
1. This appeal of the Revenue is directed against CIT(A)’s order dt. 13th Aug., 1998. The following ground of appeal is raised :
“On the facts and circumstances of the case and in law the learned CIT(A) erred in directing to allow society maintenance charges out of house property income without appreciating the fact that such charges are not covered under the meaning of term ‘Annual charge’ as appearing in Clause (iv) of Section 24(1) of the Act.”
2. The house properties belonging to the assessee are given on lease to the banks. These properties are situated in the co-operative societies and the assessee is required to pay society’s maintenance charges which were claimed as deduction by the assessee. The reason for such claim was that the premises are exclusively us,ed for the purpose of earning rental income and the society’s maintenance charges paid are allowable deduction from “income from house properties” under Section 24(1) of the IT Act. The AO observed that the assessee had already been allowed deduction @ 1/5th of the property income for repairs and maintenance, hence, no other deduction like society’s maintenance charges is allowable under Section 24 of the IT Act. In the first appeal, the learned CIT(A) allowed the assessee’s claim by observing that such claim was allowed by the Department for the preceding years. The Revenue is aggrieved by the CIT(A)’s order.
3. The learned Departmental Representative relied on the assessment order and also on the decision of Delhi High Court in the case of CIT v. KG. Gupta & Sons (1984) 149 ITR 253 (Del) and contended that society’s maintenance charge is not an. allowable deduction either under Section 23 or under Section 24 of the IT Act.
3.1. On the other hand, the learned counsel of the assessee contended that under Section 23(1)(b) net annual letting value (ALV) has to be taken into consideration. In other words, the learned counsel means that from the gross rent received, the society’s maintenance charge has to be deducted to arrive at the correct or net ALV. The learned counsel contended that the decision of Delhi High Court in the case of H.G. Gupta & Sons (supra), relied on by the learned Departmental Representative, is not applicable as it pertains to Section 24 and hence it is not material. He stated that the assessee’s claim for deduction of the impugned expenditure is under Section 23. The learned counsel referred to the lease agreement dt. 24th May, 1999 (copy of which is available at pp. 73 to 79 of the paper book) and contended that the gross rent of Rs. 24,800 was split up into Rs. 14,880 towards rent and Rs. 9,920 towards service charges. The learned counsel also referred to the agreement dt. 12th Nov., 1976. (copy available at p. 47 of the paper book) wherein there is no bifurcation of the gross rent given. The learned counsel stated that even where no bifurcation of the gross rent was given expressly, there was an understanding that a portion of the rent will be utilised towards payment of society’s maintenance charges, etc. The learned counsel further contended that it is not a case of specific deduction as provided by the statute but it is a case based on theory of real income principle. It was stated that as per the agreement or as per the understanding the assessee has to part with a portion of the gross rent towards society’s maintenance charges, etc. Reliance was placed by the learned counsel on the following decisions :
(1) Varma Family Trust v. ITO (1984) 7 ITD 392 (Bom);
(2) Neelam Cable Mfg. Co. v. Asstt. CIT (1997) 59 TTJ (Del) 474 : (1997) 63 ITD 1 (Del);
(3) Sir Sobha Singh & Sons (P) Ltd. v. IAC (1996) 55 TTJ (Del) 699;
(4) Bagree Estates (P) Ltd. Dy. CIT ITA No. 1661 (Cal) of 1990 : 1996 Case Digest/ITAT p. 207;
(5) ITO v. Vijay Kumar Bawri (1984) 19 TTJ (Gau) 562; and (6) ITO v. Smt. Durga Devi Bawri (1984) 19 TTJ (Gau) 386.
4. We have given a careful consideration to the rival submissions in the light of material made available to us. Admittedly the AO has taken into consideration the actual rent received under Section 23(1)(b) of the Act. The case of the assessee is that real income theory has to be applied in which event the actual rent received minus the society maintenance charges should be taken as usual rent. In this regard, the assessee has relied upon the decision of the Tribunal, Bombay Bench, in the case of Verma Family Trust cited (supra) wherein the Bench followed the decision of Tribunal in the case of Addl. ITO v. J.M. Shah(1983) 4 ITD 303 (Bom). It may be noted that in the case of J.M. Shah (cited supra) the Tribunal held that the expenditure incurred for earning commission income should be deducted and only balance amount should be treated as salary income under Section 15 of the Act. Learned JM has passed separate but concurring judgment wherein it was held that while computing property income under Section 23(1)(b) of the Act the outgoings for earning the rental income have to be deducted. Learned JM has also referred to the decision of the Hon’ble Bombay High Court in the case of CIT v. Khandelwal Mining and Ores (P) Ltd. Upon careful consideration of the matter, we are of the view that the decision in the case of Verma Family Trust was impliedly overruled by the Hon’ble Bombay High Court in the following decisions :
(i) CIT v. J.K. Investors (Bombay) Ltd (1999) 240 ITR 723 (Mad); and
(ii) CIT v. Gopal Krishna Suri and Ors. in IT Ref. 52 of 93 and batch dt. 13th Oct., 2000.
4.1. In the case of J.K. Investors (supra), the Hon’ble Bombay High Court observed that in a case where Section 23(1)(b) is applied, there is no question of taking notional interest on interest-free deposit received by the assessee because the word ‘receivable’ used in Section 23(1)(b) denotes payment of actual annual rent to the assessee. Similarly in the case of Gopal Krishna Suri and Ors. (cited supra) the assessee in their capacity of development officers of LIC of India, and in order to earn bonus certain expenditure was incurred by them. It was contended that the expenditure incurred to earn incentive bonus is necessary outgo and hence the net incentive bonus should be taken into consideration as forming part of salary, by applying the real income principle. This was not accepted by the Hon’ble Bombay High Court. Their Lordships observed that the entire incentive bonus is assessable as salary income under Section 15 of the Act and in the absence of any provision to claim deduction towards expenditure incurred for earning incentive bonus, deduction is not permissible against the salary income. Their Lordships also observed that under Section 16 of the Act the standard deduction is prescribed and thus, no other deduction is permissible. The decision in the case of J.M. Shah cited supra is thus overruled by the Hon’ble Bombay High Court (cited supra). It may also be noticed that in the case of J.K. Investors (P) Ltd. (cited supra) the Hon’ble Bombay High Court having held that the actual rent received should be taken into consideration under Section 23(1)(b) of the Act, the question of allowing any deduction under Section 23(1)(b) does not arise. If notional interest is not to be taken into consideration under Section 23(1)(b), society maintenance charges cannot be deducted under that section, by extending the same logic. In the case of CIT v. H.G. Gupta & Sons (supra), the Hon’ble Delhi High Court categorically held that under Section 24 of the Act stamp duty charges borne by the lessor are not allowable as deduction in computing the income under the head ‘house property’. The Court observed that Section 24 of the Act uses the word ‘namely’ which shows that the heads of expenditure whereof deduction can be claimed in the computation of income from house property are exhaustive; if a particular type of expenditure is not specifically proved to be deductible, deduction thereof cannot be claimed from out of the annual value. Thus, their Lordships concluded that neither Section 23 nor Section 24 provides for the deduction of the expenses incurred towards stamp duty.
4.2. The decisions of Gauhat Bench of Tribunal in Vijay Kumar Bawri and Smt. Durga Devi Bawri’s (supra), relied on by the learned counsel of the assessee, are distinguishable in facts. In those cases the assessee’s claim was that rents realised by him from his tenants were inclusive of electricity charges and, therefore, payments for electricity were to be excluded while determining the annual letting value of the property. It was held by the learned Members that the claim was allowable only if it is established as a fact by leading the cogent evidence that there was such an agreement of the assessee with his tenants. It was further held in the aforecited cases that the salary of Chowkidar is not deductible, as it is neither mentioned in Section 23 nor in Section 24, while computing the assessee’s income from property. The society’s maintenance charges normally include the salary of Chowkidar also and hence the decisions of Gauhati Bench of Tribunal, relied upon by the learned counsel of the assessee in fact go against the assessee. The decision of Delhi Bench “A” in the case of Neelam Cable Mfg. Co. (supra), relied on by the learned counsel of the assessee, is also distinguishable in facts. In that case, the gross rent received by the assessee also included the security service charges whereas in the present case the gross rent received by the assessee included society’s maintenance charges. For the repairs and maintenance of the building separate deduction @ 1/5th of the property income has already been allowed by the AO. Therefore, no further deduction for the repairs or maintenance charges can be allowed. The learned counsel of the assessee has relied on the decision of Delhi Bench of the Tribunal in the case of Sir Sobha Singh & Sons (P) Ltd. We find that in that case the issue was not decided on merits and it was held that though deductions on account of salaries paid to watchmen, sweepers, Mails, pump operators and manager are not admissible under the existing provisions, yet the same were allowed to maintain consistency as they were allowed in the past. Hence, this decision also does not come to the rescue of the assessee. The decision in the case of Bagri Estates (P) Ltd. (supra), though apparently is in favour of the assessee, yet we find that in this case also the issue was not decided on merits but the appeal was allowed to maintain consistency as the claim was allowed in the past.
4.3. Under these circumstances, we prefer to follow the decision of the Delhi High Court and in the light of the ratio laid, down by the Hon’ble Bombay High Court in the case of Gopal Krishna Suii and J.K. Investors, we hold that the society’s maintenance charges payable by the assessee in respect of leased property is not allowable as deduction either under Section 23 or under Section 24 of the Act. We, therefore, set aside the order of the learned CIT(A) on this issue and restore that of the AO. The appeal of the Revenue succeeds.
5. In the result, the appeal of the Revenue stands allowed.
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I have rented a property ownership. I receive rent from the property. Is society maintaince charges deductible from rent received over an above 30% deduction us 24
Very informative. However, for a layman understanding the legal parts are very difficult.
For FY 22-23 can I, as a landlord in Bengaluru, deduct the maintenance charges paid to the society/RWA and show the net amount as actual rent received in my IT returns ?
The lease agreement explicitly states the rent amount as INCLUSIVE of maintenance charges.
Appreciate if you can give me your valuable input.
Dear Agrawal Ji,
Jai Hind !
Very elaborative article. Is there any further activity on this case and whether the decision still stands or any different decision is available ?
Regards