2.6 A careful perusal of the various items of expenditure specified in section 24 which have been reproduced in para 2.4 earlier shows that there is no provision for deduction on account of brokerage paid in connection with renting out of the property. Brokerage could be claimed as collection charges if as per the agreement, it is the responsibility of the broker to collect the rent but provision relating to deduction on account of collection charges in sub-clause (viii) of section 24 stand deleted from Assessment year 1993-94 and collection charges are included in the lump-sum deduction of 1/4th of annual value allowable as deduction under sub-clause (i). It has been argued on behalf of the assessee that the claim could be allowed as annual charge under sub-clause (iv) of section 24, which was in operation during the relevant year. As per the said sub-clause, annual charge on the property not being a capital charge or charge created voluntarily by an assessee is allowable as deduction Annual charge is amount payable annually on account of any liability, which is secured by creation of a charge on the property. The charge should be involuntary charge in respect of some existing liability of assessee, which is enforceable by law. Involuntary charge means that the assessee has no option in the matter and would include cases such as charge created or thrust upon the assessee by operation of law or by a decree of a court or by the act of his predecessor in title, or by the reason of the property coming into his hand by an existing and overriding charge. In this case, there is no case made out that the brokerage payable was a charge created on the property. The brokerage payable is the expenditure of the assessee incurred during the year, which can be allowed only if the same is allowable under the provisions of section 24. This is not an annual charge nor there is any other provision for allowing the same in computation of income from house property. Merely because the brokerage may have been paid out of the rental income, it cannot be said that a charge has been created in the property, much less an involuntary charge. It is only an application of income. The claim for deduction under section 24(1)(iv) has, therefore, to be rejected.
2.7 It has also been argued by the LD. A. R. for the assessee that the brokerage is the amount payable at the time of renting out of the property and this has the effect of reducing the rental income and therefore, has to be deducted from rent while computing the annual value u/s 23. The annual value is required to be determined u/s 23 of the Act and the said provisions are reproduced below as a ready reference:
” 23:- Annual value how determine d(1) for the purpose of section 22 the annual value of any property shall be deemed to be
(a) the sum for which the property might reasonably be expected to let from year to year, or
(b) where the property is let and the annual 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,
Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall to the extent such taxes are borne by the owner 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.”
2.8 It is thus clear that the annual value of the property, which has been let out is the rent received or receivable in respect of the user of the property and only deduction allowable while computing the annual value u/s 27 on account of any expenditure incurred by the assessee is the payment of municipal taxes Deduction from the annual rent -accrued/receivable can however, be considered in cases where rent also includes the payment in respect of any other services provided by the landlord in addition to renting out of the property and rent is inclusive of consideration for such services. For instance, there may be situations where the land lord in addition to letting out the property has also provided some services such as lift facilities, services of sweeper and darwan, electricity etc. and the rent fixed includes consideration in respect of these services also. In that case, the charges payable in respect of the services provided by the landlord have to be excluded from the composite rent while computing the income from house property because under the head ‘house property’ only the income from rent in respect of the bona fide use of the property can be taxed, as held by the Hon’ble High Court of Calcutta in case of Kanak Investments Pvt. Ltd. (95 ITR 419). But in this case, there is no other services provided by the assessee and, therefore, inclusion of any consideration on this account in the rental value does not arise. In fact, in this case, the services have been provided by a third party to whom the brokerage is payable by the assessee and this is not included in the rent. There may also be cases where part of the rent may become payable to a third party before the same accrued to the assessee in terms of some overriding charge. In such cases there may be diversion of rent at the source and the rent to that extent could be claimed as deduction while computing the income from house property. But in this case, as we have held earlier, there is no charge created on the property, much less an involuntary charge enforceable by law, which can be claimed as a deduction.
2.9 Thus, the brokerage payable by the assessee for renting out the premises neither can be deducted from the rent u/s 23 nor the same is allowable as a deduction u/s 24 of the Act. The Id Sr. DR appearing for the revenue has also referred to the certain decisions of the tribunal which support the case of the revenue. The Chandigarh bench of the tribunal in case Pieeadily Hotels Pvt. Ltd. (281 ITR 01)(AT) and the Mumbai bench of the tribunal in case of Excellent Associates (280 ITR 060)(AT) have also taken the same view that brokerage paid in connection with renting out of the property cannot be allowed as deduction u/s23 or u/s24 of the IT Act. We are therefore unable to accept the claim of the assessee and see no infirmity in the order of CIT (A) rejecting the claim. The order of CIT (A) is accordingly upheld on this point.