SAIF ALI KHAN MANSURALI, MUMBAI V. ACIT 11(1), MUMBAI

ITA 1653/MUM/2009

• Counselvise Citation: 165319914 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K K LALKAKA
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI J. SUDHAKAR RE DDY (AM) I.T.A.NO.1653/MUM/2009 (A.Y.2004-05) SHRI SAIF ALI KHAN, C/O. K.K. LALKAKA & CO., 507, CHURCHGATE CHAMBERS, 5, NEW MARINE LINES,MUMBAI-20. PAN:AAHPK0520E VS. ASSTT. COMMR. OF INCOME-TAX- 11(1), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-20. APPELLANT RESPONDENT APPELLANT BY SHRI K.K. LALKAKA. RESPONDENT BY SHRI R .K. GUPTA. O R D E R 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 ASSTT. YEAR 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE 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/-. HOWEV ER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.3,44,38,540/- INCLUDIN G DISALLOWANCE OF DEDUCTION OF BROKERAGE PAID, SOCIETY CHARGES & MUNICIPAL TAXE S FROM THE INCOME FROM HOUSE PROPERTY AND DISALLOWANCE 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 DISALLOWANCE MADE BY T HE AO, DISMISSED THE ASSESSEES APPEAL. ITA NO.1653/M/09 SAIF ALI KHAN. 2 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 DISALLO WANCE 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 SUPPORTI NG MATERIAL INCLUDING RENT DEED AND RECEIPT OF BROKERAGE PAID, THE GROUND TAKE N BY THE ASSESSEE IS, THEREFORE, REJECTED BEING NOT PRESSED. 7. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE 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, T HE 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) S ETH 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. HO WEVER, THE AO WAS OF THE VIEW THAT THE METHOD OF COMPUTATION HAS BEEN SUBSTI TUTED BY THE FINANCE ACT, 2001, W.E.F. 01-04-2002 AND THE DECISIONS RELIED UP ON BY THE ASSESSEE ARE ALL RELATING TO THE ASSESSMENT YEARS PRIOR TO ASSTT. YE AR 2002-03 AND HENCE NOT APPLICABLE AND AS SUCH HE DISALLOWED THE CLAIM OF D EDUCTION OF BROKERAGE & SOCIETY CHARGES FROM THE ANNUAL VALUE OF THE PROPER TY. ON APPEAL, THE LD. CIT(A), WHILE AGREEING WITH THE VIEWS OF THE AO, OBSERVED T HAT 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 FICTIONA L DEDUCTION HAS BEEN ALLOWED ITA NO.1653/M/09 SAIF ALI KHAN. 3 ALONG WITH ALLOWANCE ON ACCOUNT OF SPECIFIC ITEMS L IKE 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 AN D 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 OR DERS 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 T HAT 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 A MOUNT 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 MU NICIPAL TAXES IS SEPARATELY PROVIDED UNDER SEC. 23(1) PROVISO WHICH READS AS UN DER : 23(1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL V ALUE OF ANY PROPERTY SHALL BE DEEMED TO BE (A) X X X X X X X X X X X X X (B) X X X X X X X X X X X X X (C) X X X X X X X X X X X X X PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPEC TIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TA XES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD OF AC COUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE ANNUA L 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 DEDUC TED IN DETERMINING THE ITA NO.1653/M/09 SAIF ALI KHAN. 4 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 : 29.4 THE SECTION ALSO PROVIDES THAT THE TAXES LEV IED 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 P REVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURR ED BY THE OWNER. UNDER THE EXISTING PROVISIONS, THIS DEDUCTIO N WAS ALLOWABLE ONLY IN RESPECT OF PROPERTY WHICH WAS IN THE OCCUPATION OF A TENANT. AS PER THE AMENDED PROVISIO NS, HOWEVER, THE DEDUCTION IS AVAILABLE IN EVERY CASE W HERE ANNUAL VALUE IS DETERMINED UNDER SUB-SECTION (1) IN CLUDING THE CASE OF A SECOND SELF-OCCUPIED HOUSE NOT FALLIN G 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 S INCE A FLAT AMOUNT OF 30% OF ANNUAL VALUE IS ALLOWED, NO OTHER DEDUCTION IS A LLOWABLE. HOWEVER, WE FIND THAT SEC. 24(A) READS AS UNDER : 24. INCOME CHARGEABLE UNDER THE HEAD INCOME FRO M HOUSE PROPERTY SHALL BE COMPUTED AFTER MAKING THE FOLLOWING DEDUCTIONS, NAMELY:- (A) A SUM EQUAL TO THIRTY PER CENT OF THE ANN UAL 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 CALCUL ATED ON THE BASIS OF, THE ANNUAL VALUE SO DETERMINED. 15. IN THE CASES RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE : ITA NO.1653/M/09 SAIF ALI KHAN. 5 16. IN SHARMILA TAGORE VS. JT. CIT (MU MBAI) (2005) 93 TTJ (MUM) 483, IT HAS BEEN OBSERVED AND HELD VIDE PARA 3 OF T HE ORDER AS UNDER : 3. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. AS REGARDS THE MAINTENANCE CHARGES WE FIND THAT TH E ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL DT. 15 TH NOV., 2000, IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. IN ITA 550/MUM/2000. IN THIS C ASE, 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 ME LLOW INVESTMENT & FINANCE (P) LTD. (ITA NO.1757/BOM/1993 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 PROPERT Y 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 : HOWEVER, THE OTHER PART OF THE EXPENDITURE WHIC H 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 LANDLOR D. SUCH EXPENDITURE, IF NOT DEDUCTIBLE UNDER COLLECTIO N CHARGES WOULD HAVE TO BE CONSIDERED IN COMPUTING TH E ANNUAL LETTING VALUE. EITHER WAY, THE ASSESSEE WOU LD GET THE BENEFIT OF THE EXPENDITURE. TAKING ALL THES E INTO ACCOUNT, WE ARE OF THE OPINION THAT THE ASSESSEES 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 DECISIO N IN PRAVEEN KUMAR VS. ITO (ITA NO.6159 (MUM) OF 2011), HAS OBSERVED AND HELD AS AS UNDER : 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT THERE IS NO DISPUTE THAT THE CHARGES PAID TO T HE 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 TAX ES. IN THE CASE OF PRAVEENKUMAR (SUPRA), THE EXPENDITURE INCURRED TOWARDS SERVICE CHARGES AND LEGAL EXPENSES WERE ALLOWED AS DEDUCTION WHILE COMPUTING THE ANNUA L ITA NO.1653/M/09 SAIF ALI KHAN. 6 LETTING VALUE UNDER SECTION 23 OF THE INCOME-TAX AC T. 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 COMPUTIN G 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 T HE 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 HONBLE DELHI HIGH COURT IN CIT VS. R.J. WOOD P. LT D. (2011) 334 ITR 358 (DELHI) WHEREIN IT HAS BEEN HELD THAT THE MAINTENANCE AND O THER CHARGES PAID BY THE ASSESSEE WERE DEDUCTIBLE FROM THE RENT WHILE COMPUT ING 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 DISAL LOWANCE 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 HI S OFFICE AND ACCORDINGLY CLAIMED 75% OF TOTAL ELECTRICITY EXPENSES OF RS.2,4 1,350/- AS BUSINESS EXPENDITURE, ALLOCATING 25% AMOUNT OF RS.60,337/- T OWARDS PERSONAL USE. HOWEVER, THE AO, CONSIDERING THE FACT THAT THE RESI DENTIAL PREMISES IS BEING USED FOR OFFICE PURPOSES ALSO, ALLOCATED 50% OF ELE CTRICITY EXPENSES TOWARDS PERSONAL NEEDS INSTEAD OF 25% CLAIMED BY THE ASSESS EE AND ACCORDINGLY MADE AN ADDITION OF RS.60,337/- TO THE TOTAL INCOME OF T HE ASSESSEE. ON APPEAL, THE LD. CIT(A), WHILE OBSERVING THAT BY NO STRETCH OF I MAGINATION 75% OF ELECTRICITY ITA NO.1653/M/09 SAIF ALI KHAN. 7 EXPENSES WOULD BE ALLOCATED FOR PROFESSIONAL PURPOS ES WITH 25% BEING FOR PERSONAL USER, HELD THAT THE DISALLOWANCE MADE BY T HE AO IS MOST REASONABLE AND HENCE UPHELD THE DISALLOWANCE 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 ART ISTS HELD ALL THE CONFERENCES WITH THE PRODUCERS & DIRECTORS AT HIS RESIDENCE AND HAVING REGARD TO HIS BUSY SCHEDULE, THE USE OF RESIDENTIAL PREMISES IS MINIMA L AND, THEREFORE, THE DISALLOWANCE MADE BY THE AO BE DELETED. 23. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THER E IS NO DISPUTE THAT THE RESIDENCE OF THE ASSESSEE IS ALSO USED FOR OFFICE P URPOSES. 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 CON TRA, THE AO HAS CONSIDERED THE PERSONAL USE OF ELECTRICITY AT 50% AND HENCE HE MADE DISALLOWANCE OF RS.60,337/-. IN THE ABSENCE OF ANY CONTRARY MATERIA L 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 KE EPING IN VIEW THE AMOUNT OF INCOME RETURNED BY THE ASSESSEE RS.3,41,46,040/ -, WE ARE OF THE VIEW THAT FURTHER DISALLOWANCE OF 25% RS.60,337/- OVER AND A BOVE ALREADY DISALLOWED BY THE ASSESSEE IS WITHOUT ANY BASIS AND UNREASONABLE AND ACCORDINGLY THE SAME IS DELETED. THE GROUND RAISED BY THE ASSESSEE IS, THER EFORE, ALLOWED. 24. IN THE RESULT, THE ASSESSEES APPEAL STANDS AL LOWED. ITA NO.1653/M/09 SAIF ALI KHAN. 8 ORDER PRONOUNCED ON THE DAY OF JUNE, 2 011. (J. SUDHAKAR REDDY) (D.K. AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: JUNE , 2011. NG: COPY TO : 1. ASSESSEE. 2. DEPARTMENT 3 CIT(A)-XI,,MUMBAI. 4 CIT-XI,MUMBAI. 5.DR,E BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 22-06-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 23-06-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER