ALOO BEJAN DAVER, MUMBAI V. ITO (IT) 1(1), MUMBAI

ITA 2381/MUM/2010

• Counselvise Citation: 238119914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 26-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT) AND SHRI R.K. P ANDA (A.M.) ITA NOS. 2381 & 2382/MUM /2010 ASSESSMENT YEARS 2005-06 & 2006-07 MS. ALOO BEJAN DAVER, 13, SHREYAS, 180 BACKBAY RECLAMATION, MUMBAI- 400 020. PAN : AAFPD 2874E VS. INCOME TAX OFFICER (IT) 1(1), SCINDIA HOUSE, N.M. ROAD, BALLARD PIER, MUMBAI 400038. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : MS. ASHIMA GUPTA O R D E R PER R.K. PANDA, A.M. T HE ABOVE 2 APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE SEPARATE ORDERS DATED 25.02.2010 PASSED BY THE LD. CIT(A)-10, MUMBAI RELATING TO A.YRS 2005-06 & 2006-07RESPECTIVELY. SI NCE COMMON GROUNDS ARE INVOLVED IN BOTH THE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. DENIAL OF DEDUCTION OF SOCIETY CHARGES AMOUNTING TO ` 1,26,000/- DURING A.Y. 2005-06 AND ` 1,32,000/- FOR A.Y. 2006-07 ARE THE MAIN GRIEVANCE OF THE ASSESSEE IN THE ABOVE TWO APPEALS. 3. FIRST, WE SHALL TAKE UP THE APPEAL FOR THE A.Y. 2005-06. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE IS A NON-RE SIDENT INDIVIDUAL AND DECLARED INCOME FROM HOUSE PROPERTY AT ` 2,00,424/-. FROM THE ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 2 COMPUTATION OF TOTAL INCOME FILED BY THE ASSESSEE, THE A.O. NOTED THAT THE ASSESSEE DEDUCTED AN AMOUNT OF ` 1,26,000/- BEING SOCIETY CHARGES FROM THE RENT RECEIVED FOR CALCULATION OF ANNUAL VALUE W HICH ACCORDING TO THE A.O. IS NOT ALLOWABLE U/S 23 OF THE ACT. HE, THERE FORE, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME SHOULD NOT BE DISA LLOWED. THE ASSESSEE IN HER REPLY STATED AS UNDER:- WITH REGARDS TO RENTAL INCOME IN RESPECT OF FLAT N O. 23B, BELVEDRE COURT, MUMBAI, IT MAY BE NOTED THAT YOUR ASSESSEE HAS CLAI MED DEDUCTION OF ` 1,26,000/- TOWARDS SOCIETY CHARGES. THE SAID DEDUC TION IS CLAIMED RELYING ON THE DECISION OF MS. NANDITA BANERJEE REP ORTED IN THE CASE OF BOMBAY TRIBUNAL ITA NO. 1360/MUM/2000. COPY OF THE SAID DECISION IS ENCLOSED HEREWITH. IN THE SAID DECISION THE TRIBUN AL HAS HELD THAT AFTER REDUCING SOCIETY CHARGES IF THE BALANCE AMOUNT CHAR GEABLE TO TAX IS MORE THAN ANNUAL RATABLE VALUE FIXED BY THE MUNICIPAL CO RPORATION, SAID SOCIETY CHARGES SHOULD BE REDUCED BEFORE ARRIVING A T THE AMOUNT TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. YOUR ASSESSEE IS ALSO ENCLOSING THE DECISION REPORTED IN 93 TTJ 483 MUMBA I IN THE CASE OF SHARMILA TAGORE V. JCIT WHEREIN IT WAS HELD THAT TH E MAINTENANCE CHARGE WAS TO BE DEDUCTED WHILE ARRIVING AT THE PRO PERTY INCOME LIABLE TO TAX. IT MAY BE APPRECIATED THAT THE LOGIC OF THESE DECI SIONS ARE THAT HAD THE SOCIETY CHARGES BEEN PAID DIRECTLY BY THE LESSE E AND THE LESSOR HAD RECEIVED THE NET RENT THEN WHAT WOULD HAVE BEEN CHA RGEABLE UNDER SECTION 23 WOULD HAVE BEEN THE NET RENT ACTUALLY RE CEIVED. THEREFORE, IF LESSOR COLLECT GROSS RENT AND PAYS FROM THAT THE AM OUNT TO THE SOCIETY, THEN IN SUCH A SITUATION ALSO THE TAX SHOULD BE LEV IED ON THE NET RENT PROVIDED THE NET RENT FAR EXCEEDS THE ANNUAL RATABL E VALUE THE SOCIETY CHARGES IS DULY ALLOWABLE AS A DEDUCTION. 4. HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EXP LANATION GIVEN BY THE ASSESSEE. HE DISCUSSED THE PROVISIONS OF SECTI ON 22, 23 & 24 AND NOTED THAT ONLY MUNICIPAL TAXES CAN BE DEDUCTED FRO M THE RENT RECEIVED FOR ARRIVING AT THE ANNUAL VALUE OF THE PROPERTY. F ROM THIS VALUE ONLY DEDUCTIONS AS PER SECTION 24 ARE ALLOWABLE AT A SUM OF 30% OF THE ANNUAL VALUE AND THE AMOUNT OF INTEREST PAYABLE IF THE PRO PERTY IS ACQUIRED WITH BORROWED CAPITAL IN VIEW OF THE AMENDED PROVISIONS OF SECTION 24 BY THE FINANCE ACT, 2001 W.E.F. 1.4.2002. VARIOUS DECISION S CITED BY THE ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 3 ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRE SENT CASE. HE ALSO REJECTED THE CONCEPT OF REAL INCOME THEORY. HE NOT ED THAT IN FACT WHAT IS TAXABLE IS THE NOTIONAL INCOME WHICH CAN BE DERIVED FROM THE HOUSE PROPERTY. THAT IS THE REASON A STANDARD DEDUCTION O F 30% IS PROVIDED U/S 24. WHETHER ASSESSEE INCURS ANY EXPENSE OR NOT AND BY PROVIDING FOR STANDARD DEDUCTION IT IS IMPLIED THAT ALL THE EXPEN SES (EXCEPT SPECIFICALLY PROVIDED UNDER THE ACT SUCH AS MUNICIPAL TAXES AND INTEREST ON BORROWED CAPITAL) FOR EARNING THE INCOME HAVE BEEN COVERED. HE, ACCORDINGLY, RECOMPUTED THE INCOME FROM HOUSE PROPE RTY BY DISALLOWING THE DEDUCTION OF SOCIETY CHARGES AMOUNTING TO ` 1,26,000/- FOR A.Y. 2005-06. 5. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT HE HAS PAID SOCIETY CHARGES AND NON-OCCUPANCY CHARGES AS PER CL AUSE 7 OF LEAVE AND LICENCE AGREEMENT DATED 14.3.20905 AND SAME HAS BEE N CLAIMED AS DEDUCTION WHILE COMPUTING ANNUAL LETTING VALUE. TO SUPPORT THE CONTENTION THAT SOCIETY CHARGE IS DEDUCTIBLE FOR AR RIVING AT ANNUAL LETTING VALUE OF PROPERTY AND ONLY THE NET AMOUNT IS CHARGE ABLE TO TAX, VARIOUS DECISIONS WERE BROUGHT TO THE NOTICE OF THE LD. CIT (A). IT WAS SUBMITTED THAT DEDUCTION ON SOCIETY MAINTENANCE CHARGES ARE A LLOWABLE AS DEDUCTION U/S 23 ITSELF. THE VARIOUS DECISIONS LAY DOWN THE PRINCIPLE THAT SOCIETY CHARGES HAVE DIRECT BEARING ON THE ALV AND THESE ARE DEDUCTIBLE U/S 23 AND NOT U/S 24. IT WAS SUBMITTED THAT THERE WAS NO AMENDMENT IN SECTION 23, HENCE, THE CHARGES ARE FUL LY ALLOWABLE U/S 23(1)(B) EVEN AFTER AMENDMENT. ACCORDINGLY, IT WAS SUBMITTED THAT ANNUAL VALUE IS TO BE DETERMINED AFTER REDUCING THE SOCIETY CHARGES PAID BY THE ASSESSEE. 4. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH T HE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE A.O. WHILE DOING SO, ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 4 HE RELIED ON THE DECISION OF HONBLE MUMBAI HIGH CO URT IN THE CASE OF CIT V. J.K. INVESTORS (BOMBAY) LTD. 248 ITR 723 (BO M) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. BARODAWALA P ROPERTIES LTD. (2002) 83 ITD 467 (MUM) DATED 26 TH DECEMBER, 2001. HE, ACCORDINGLY, UPHELD THE ACTION OF THE A.O. AGGRIEVED BY THE ORDER OF TH E LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE FOLLOWING DECISIONS AND SUBMITTED THAT WHILE COMPUTING ANNUAL VALUE U/S 23(1)(B) OF THE ACT, THE SOCIETY CHARGES PAID BY THE ASSESSEE HAS TO BE DEDUCTED. HE SUBMITTED THAT THE SAME IS PAID AS PER LEAVE AND LI CENCE AGREEMENT WITH THE LESSEE AND IF THE LESSEE HAD PAID SOCIETY CHARGES, THE ASSESSEE WOULD HAVE RECEIVED LESSER AMOUNT OF RENT. 1. VARMA FAMILY TRUST V. ITO [1984] 7 ITD 392 (BO M) 2. LEKHRAJ CHANNA V. ITO [1990] 37 TTJ (DEL) 297. 3. NEELAM CABLE MFG. CO. V. ACIT [1997) 63 ITD 1 ( DEL) 4. BOMBAY OIL INDUSTRIES V, DCIT [2002] 82 ITD 626 (MUM) 5. MS. NANDITA BANERJEE V. ITO (ITA NO. 1360/M/200 , DATED 8.4.04 6. SHARMILA TAGORE V. JCIT [2005] 93 TTJ (MUM) 483 7. ITO V. GOPICHAND P. GODHWANI [2005) 1 SOT 374 ( MUM) 8. REALTY FINANCE & LEASING (P) LTD. V. ITO [2006] 5 SOT 348(MUM) 9. ITO V. FAROUK D. VEVAINA [2008] 26 SOT 556 (MUM ) 10. GOVIND S. SINGHANIA V. ITO (ITA NO. 4581/M/06 DT. 3.4.08. 11. M/S SHERIFF CONSTRUCTIONS V. ACIT [2009] TIOL 126 (ITAT BANG) 12. SHRI TRILOCHAN SINGH SAHNEY V. ACIT (ITA NO. 5 304/M/08 DT. 30.11.09 13. J.B. PATEL V. DCIT [2009] 312 ITR(AT) 171 (AHD ) 14. M/S SAHARA DEVELOPERS V. CIT (ITA NO. 1039/M/0 4 DATED 6.5 08. ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 5 5.1 REFERRING TO CLAUSE 7 OF THE LEAVE AND LICENCE AGREEMENT WITH DEVELOPMENT CREDIT BANK LTD. (PAGE 13 OF THE PAPER BOOK ), HE SUBMITTED THAT AS PER THE SAID AGREEMENT LICENSOR SHALL BE EX CLUSIVELY LIABLE FOR THE PAYMENT OF ALL PRESENT AND FUTURE OUTGOINGS WITH RE SPECT TO THE SAID LICENSED PREMISES INCLUDING BUT NOT LIMITED TO THE SOCIETY OUTGOINGS, MUNICIPAL TAXES, CESSES, RATE ASSESSMENTS, DUTIES, LEVIES ETC. HE SUBMITTED THAT THE DECISIONS RELIED ON BY THE LD. C IT(A) ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6. THE LD. D.R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE A.O. AND LD. CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE A.O. AND LD. CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMPUGNED APPEAL IS REGARDING THE ALLOWABILITY OF DEDUCTION OF SOCIETY CHARGES FR OM 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 OUTGOI NGS FOR EARNING THE SAID RENTAL INCOME WOULD BE ADMISSIBLE DEDUCTION. WE FIN D THE TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES (SUPRA) HAS HELD THAT MAINTENANCE CHARGES AND MUNICIPAL TAXES PAID BY THE ASSESSEE AR E TO BE DEDUCTED FROM GROSS RENT TO ARRIVE AT THE ANNUAL VALUE. WE F IND THAT IN THE CASE OF SHARMILA TAGORE (SUPRA), THE TRIBUNAL HELD THAT MAI NTENANCE CHARGES PAID TO HOUSING SOCIETY HAVE TO DEDUCTED EVEN WHILE COMPUTING ANNUAL LETTING VALUE. SIMILAR VIEW HAS BEEN TAKEN IN VARI OUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE DECISIONS RELIED ON BY ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 6 THE 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 T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVES TORS (BOMBAY) LTD. (2001) 168 CTR (BOM) 189 HAS HELD THAT FOR THE PURP OSE OF DETERMINING ANNUAL VALUE OF THE PROPERTY ALL TAXES, CESSES AND OUTGOINGS BEING LIABILITIES OF THE ASSESSEE, HAVE TO BE EXCLUDED FR OM 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 WHI LE CALCULATING ANNUAL VALUE OF THE LET OUT PROPERTY, MAINTENANCE C HARGES PAID TO THE SOCIETY BY THE ASSESSEE IS ADMISSIBLE DEDUCTION FRO M THE ANNUAL LET OUT VALUE U/S 23(1)(B). IN VIEW OF THE SERIES OF DECISI ONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE SUPPORTING THE DEDUCTIBILI TY 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 EN TITLED 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 HO LD 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. ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 7 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.04.2011. SD/- (R.V. EASWAR) PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH APRIL, 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED , MUMBAI 4. COMMISSIONER OF INCOME TAX, CONCERNED, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 8 1 DRAFT DICTATED ON 25.4.2011 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 26.4.2011 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS ITA 2381 & 2382/M/10 MS. ALOO BAJEN DAVER. 9