IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI A K GARODIA ACCOUNTANT MEMBER AND SHRI KUL BHARAT JUDICIAL MEMBER ITA NO.68/AHD/2009 (ASSESSMENT YEAR:-2005-06) SMT. CHANCHALBEN K PATEL TAMANNA BUNGLOW, MAHADEV NAGAR, MAJURA GATE, SURAT V/S THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2, SURAT PAN: ABAPP 0140 M [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI J P SHAH, AR REVENUE BY:- SHRI B L YADAV, SR. DR DATE OF HEARING:- 22-03-2012 DATE OF PRONOUNCEMENT:- 13-04-2012 O R D E R PER KUL BHARAT (JM) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER DATED 31-10-2008 PASSED B Y THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-II, [HEREINAFT ER REFERRED TO AS THE LEARNED CIT(A)] SURAT FOR ASSESSMENT YE AR (AY) 2005-06. THE ONLY EFFECTIVE GROUND RAISED BY THE AS SESSEE IN THIS APPEAL READS AS UNDER:- THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN LAW AN D ON FACTS IN CONFIRMING THE ADDITION OF RS.1,23,538/- MADE BY DI SALLOWING DEDUCTION U/S 24 OF THE ACT ON SERVICE CHARGES RECE IPTS ON THE GROUND THAT SERVICE CHARGES ARE NOT INCOME FROM HOUSE PRO PERTY BUT INCOME FROM OTHER SOURCES DISREGARDING THE FACTS OF COMPULSION TO INCUR EXPENSES FOR PROVIDING SERVICES. THE ADDITION SHOULD BE DELETED. 2 2 2 THE BRIEF FACTS OF THE CASE AS EMERGED FROM THE O RDER OF THE LEARNED CIT(A) ARE THAT THE ASSESSEE HAD SHOWN RENT AL INCOME FROM THREE PROPERTIES WHICH THE AO HAS LISTED OUT O N PAGE-2 OF THE ASSESSMENT ORDER. FROM THE SCRUTINY OF THE AGRE EMENT WITH THE ABN AMRO BANK, THE AO NOTICED THAT THE ASSESSEE HAD RECEIVED RS.26,900.64 AS RENT PER MONTH AND RS.19,9 85.33 AS SERVICE CHARGES. WHILE ALLOWING DEDUCTION U/S 24 OF THE ACT ON THE RENTAL INCOME OF RS.3,76,609, THE AO ASKED THE ASSESSEE TO EXPLAIN WHY A SIMILAR CLAIM AGAINST THE SERVICE CHA RGES OF RS.2,79,794 SHOULD NOT BE DISALLOWED. ALLEGEDLY, TH E ASSESSEE FAILED TO FURNISH ANY EXPLANATION. SIMILARLY, THE A SSESSEE ALSO RECEIVED BOTH RENT AND SERVICE CHARGES FROM THE KAR NATAKA BANK. THE RENT WAS OF RS.9,000 WHILE THE SERVICE CHARGE W AS OF RS.11,000 PER MONTH. WHILE ALLOWING THE DEDUCTION U /S 24 OF THE ACT ON THE ANNUAL RENTAL INCOME OF RS.1,08,000 THE AO DISALLOWED SIMILAR DEDUCTION ON THE SERVICE CHARGES OF RS.1,32,000. 3 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WE NT IN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A ) HAS DEALT WITH THE ISSUE AS UNDER:- SUBMISSIONS OF THE ASSESSEE: 5 IT HAS BEEN ARGUED BY THE AR THAT EVEN THOUGH IT WAS TERMED AS 'SERVICE CHARGES' IT WAS ACTUALLY IN THE FORM OF RE NT. THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE AGAINST SUCH RECEIPT OF R S 2,79,794 FROM THE ABN AMRO BANK AND RS1,32,000 FROM THE KARNATAKA BAN K (TOTALING RS.4,11,794). IT HAS BEEN ARGUED THAT IF THE AO'S A CTION OF TREATING SUCH RECEIPTS AS INCOME FROM OTHER SOURCE IS CONFIR MED, THEN THE ASSESSEE SHOULD BE ALLOWED A DEDUCTION OF MAINTENAN CE EXPENSES WHICH THE ASSESSEE HAD INCURRED @ 30% OF THE RECEIP T. THE ASSESSEE 3 3 HAD NOT CLAIMED ANY SEPARATE DEDUCTION SINCE THE TO TAL EXPENSES WERE LIMITED TO THE ELIGIBLE DEDUCTION @ 30%. IT HAS THU S BEEN ARGUED THAT THE DEDUCTION OF RS.1,23,538 BE ALLOWED U/S 24 OF T HE IT ACT. DECISION 6 I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE AO AS ALSO THE WRITTEN SUBMISSION OF THE AR. SECTION 24 ALLOWS FOR DEDUCTION FROM HOUSE PROPERTY INCOME TO THE EXTENT OF 30% OF THE A NNUAL VALUE AND THE INTEREST PAID ON THE CAPITAL BORROWED TO ACQUIR E, CONSTRUCT, AND REPAIR ANY HOUSE PROPERTY. IT IS THEREFORE A PRESUM PTIVE DEDUCTION WHICH IS MEANT TO COVER TAXES, COLLECTION CHARGES, ETC. INCOME FROM HOUSE PROPERTY IS THE ANNUAL VALUE OF ANY PROPERTY CONSISTING OF BUILDING OR LAND APPURTENANT THERETO OF WHICH THE A SSESSEE IS THE OWNER (SECTION 22). THE ANNUAL VALUE OF THE PROPERT Y AS PER SECTION 23(1) IS THE SUM FOR WHICH THE PROPERTY MIGHT REASO NABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR OR, WHERE THE PROPERTY OR ANY PART IS LET, THEN THE ACTUAL RENT OR RECEIVABLE BY THE OWNER ETC . ETC. THEREFORE, THE PROVISIONS OF SECTIONS 22-AND 23 CLEARLY LAY DOWN T HAT WHAT IS TO BE TAXED UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY IS THE RENT THAT THE OWNER EARNS FROM LETTING OUT SUCH PROPERTY OR, WHAT IS EXPECTED TO BE EARNED IF SUCH PROPERTY IS LET OUT FROM YEAR TO YEAR. THIS MEANS THAT ANY OTHER INCOME FROM A HOUSE PROPERTY CANNOT BE TA XED UNDER THE HEADS OF INCOME FROM HOUSE PROPERTY. IN THE CASE OF THE ASSESSEE, THERE WERE TWO SEPARATE AGREEMENTS WITH REGARD TO T HE PROPERTIES OCCUPIED BY ABN AMRO BANK AND THE KARNATAKA BANK, O NE WAS FOR LEASING OUT THE PROPERTY ON RENT WHILE THE SECOND W AS WITH REGARD TO SERVICE CHARGES. THEREFORE, EARNINGS IN THE FORM OF SERVICE CHARGES CANNOT BE ASSESSED UNDER THE HEAD OF INCOME FROM HO USE PROPERTY, AND WILL HAVE TO BE ASSESSED UNDER THE HEAD OF INCO ME FROM OTHER SOURCES, THE AO THEREFORE WAS FULLY JUSTIFIED IN DI SALLOWING THE DEDUCTIONS U/S 24 OF THE IT ACT ON THE SERVICE CHAR GES RECEIVED BY THE ASSESSEE FROM BOTH THE PROPERTIES. 6.1 THE ASSESSEE HAS CLAIMED MAINTENANCE EXPENSES I N THE EVENT OF DENIAL OF DEDUCTION U/S 24 OF THE IT ACT. THE POINT TO NOTE HERE IS THAT EVEN THOUGH THERE WERE TWO SEPARATE AGREEMENTS, THE PROPERTY BEING ONE, ALL EXPENSES INCURRED ON MAINTENANCE, IN PAYIN G TAXES, COLLECTING RENT WOULD HAVE BEEN COVERED BY THE DEDUCTION ENJOY ED U/S 24 OF THE IT ACT ON THE RENTAL INCOME. THEREFORE, THERE COULD NOT BE ANY SEPARATE MAINTENANCE EXPENSES INCURRED BY THE ASSES SEE TO BE ALLOWED AS DEDUCTION UNDER THE HEAD OF THE SERVICE CHARGES, ESPECIALLY WHEN, THE SERVICE CHARGES IN SUCH CASES IS ONLY AN ARTIFI CIAL NOMENCLATURE TO 4 4 REDUCE THE INCIDENCE OF RENTAL INCOME. THE CONTENTI ON OF THE AR IS SIMPLY NOT ACCEPTABLE, AND THE ACTION OF THE AO IS THEREFORE, FULLY SUSTAINED. 4 AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IS DISALLOWANCE OF RS.1,23,538/- MADE BY THE AO BEING NOT ELIGIBLE FOR DEDUCTION U/S 24 OF THE ACT. ADMITTEDLY IN THIS CASE THE AGREEMENT EXECUTED WITH ABN AMRO BANK AND KARNATAKA BANK BY THE ASSESSEE IT IS CONTEMPLATED THAT THE LESSEE WILL PAY A SUM OF RS.11000/- P.M. AS SERVICE CHARGES AND RENT OF R S.9000/-. THE LEARNED AR SUBMITTED THAT THE SERVICE CHARGES IS NO THING BUT THE RENTAL INCOME AND IN SUBSTANCE THE SAME MAY BE TREA TED AS INCOME FROM THE HOUSE PROPERTY. WE HAVE GIVEN OUR T HOUGHTFUL CONSIDERATION TO THE SUBMISSIONS MADE BY THE LEARNE D AR. WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE LEARNE D AR SINCE THE AMOUNT RECEIVED ON ACCOUNT OF SERVICE CHARGES FALLS UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SCHEME OF TH E ACT CONTEMPLATES DIFFERENT HEADS OF INCOME. THEREFORE, INCOME SPECIFIED UNDER ONE HEAD CANNOT BE TREATED INCOME O F ANOTHER HEAD. THE INCOME RECEIVED AS SERVICE CHARGES CAN NO T BE TREATED AS INCOME FROM HOUSE PROPERTY AS SUCH SAME IS NOT P ERMISSIBLE UNDER LAW. SINCE THE SERVICE CHARGES ARE NOT INCOME FROM HOUSE PROPERTY, ON SUCH AMOUNT DEDUCTION PRESCRIBED U/S 2 4 OF THE ACT WOULD NOT BE AVAILABLE. IN VIEW OF THIS MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THE SAME I S HEREBY UPHELD. 5 5 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 13-04-2012 SD/- SD/- (A K GARODIA) ACCOUNTANT MEMBER (KUL BHARAT) JUDICIAL MEMBER DATE : 13-04-2012 COPY OF THE ORDER FORWARDED TO: 1. SMT. CHANCHALBEN K PATEL TAMANNA BUNGLOW, MAHA DEV NAGAR, MAJURA GATE, SURAT 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2, SURAT 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD