Assessee is entitled to deduction for society charges for the property given on rent

Saif Ali Khan Vs ACIT (ITAT Mumbai)- 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. 15^th 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. 6^th 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.”

Shri Saif Ali Khan Vs. Asst. Commissioner. of Income Tax

ITAT Mumbai

I.T.A. No. 1653/Mum/2009

(A.Y. 2004- 05)

ORDER

PER D.K. AGARWAL, JM:

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.”

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 15^th 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. 6^th 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.

21. 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.

22. 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.