Common maintenance charges received from tenants taxable as business income

DCIT Vs Arham IT Infrastructure Pvt Ltd (ITAT Delhi)

Conclusion: Common maintenance charges received from tenants of property were towards maintenance and promotion of common area and the same were business receipts liable to be assessed under the head ‘Income from business’.

Held:  Assessee was the owner of a multi-stories properties comprising of ground plus six floors. Assessee had shown revenue from operation of Rs. 2,99,57,551/- and miscellaneous income of Rs. 13,67,06,889/-. During the assessment proceedings, it was explained that income from revenue operation was from common area maintenance charges received from the tenants. Assessee was asked to justify treating income from revenue operation as ‘income from business’. Assessee explained that it was working as contractor for providing repair and maintenance only at the common area and in contracts, these were based on cost plus method, which might fluctuate. AO treated the receipt from common area maintenance charges as ‘income from house property’. It was held that assessee had agreement with the tenants and in such agreement, there was specific clause in respect of common area maintenance charges and in the agreement it has been specifically mentioned that maintenance charges shall be payable from rent commencement date. Following the decision in the case of Runwal Developers Pvt Ltd 115 com 196 it was held that maintenance charges received were towards maintenance and promotion of common area and the amounts received towards maintenance charges were business receipts liable to be assessed under the head ‘Income from business”.

FULL TEXT OF THE ORDER OF ITAT DELHI

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