PRIYA MURLIDHARAN, MUMBAI V. ASST CIT RG 21(3), MUMBAI

ITA 7345/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6681 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Assessee Lawyers: D H SHAH
• Section: 143(3); 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUD ICIAL MEMBER . / ITA NO. 7345 /MUM./ 2012 ( / ASSESSMENT YEAR : 200 9 10 ) MRS. PRIYA MURALIDHARAN 1902, ODYSSEY I CHS LTD. HIRANANDANI GARDENS, POWAI MUMBAI 400 076 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX RANGE 21(3), C 11 PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (W), MUMBAI 400 051 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AEKPM5274Q / ASSESSEE BY : MR. D. H. SHAH / REVENUE BY : MR. SUMIT KUMAR / DATE OF HEARING 19 .06.2014 / DATE OF ORDE R / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE ASSESSEE , CHALLENGING THE IMPUGNED ORDER DATED 22 ND OCTOBER 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) X I I I , MUMBAI , FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 MRS. PRIYA MURALIDHARAN 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 200 9 10 , ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER WHEREBY HE HAD DISALLOWED THE CLAIM OF DEDUCTION OF MAINTENANCE CHARGES PAID TO SOCIETY / BUILDER IN RESPECT OF THE FOLLOWING FLATS LET OUT BY THE APPELLANT. (I) FLAT NO.2702, OCTAVIUS, POWAI, MUMBAI ` 24,240 (II) FLAT NO.503 DELPHI PREMISES, POWAI ` 1,01,088 2. THE SAID CIT(A) ERRED IN NOT APPRECIATING THAT THE LEAVE AND LICEN CE AGREEMENT WITH THE TENANT THERE IS A SPECIFIC MENTION THAT THE MAINTENANCE CHARGES OF THE FLATS PAYABLE TO SOCIETY / BUILDER WILL HAVE TO BE PAID BY THE APPELLANT OUT OF THE ACTUAL RENT PAID BY THE TENANT AND THAT THE DEDUCTION FOR THE MAINTENANCE CHARG ES WAS CLAIMED BY THE APPELLANT U/S 23(1)(B) IN COMPUTING THE ANNUAL LETTING VALUE OF THE FLAT . 2 . FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME UNDER THE HEADS INCOME FROM HOUSE PROPERTY , CAPITAL GAINS AND INCOME FROM OTHER SOURCES. SHE HAS RECEIVED RENT OF ` 33 LAKHS FROM LETTI NG OUT OF FLAT NO.2702, AT OCTAV IOUS, HIRANANDANI GARDENS, POWAI, MUMBAI, AND ` 47,11,200, FROM LETTING OUT OF FLAT NO.503, DELPHI, HIRANANDANI GARDENS, POWAI, MUMBAI. THE ASSESSING OFFICER NOTED THAT IN ADDIT ION TO THE DEDUCTION OF 30% OF THE ANNUAL LETTING VALUE OF THE T WO PROPERTIES UNDER SECTION 24( A ), THE ASSESSEE HAD ALSO CLAIMED DEDUCTION OF MAINTENANCE CHARGES OF ` 24,240, AND ` 1,01,088, PAID TO THE SOCIETY AGAINST THE RENTAL INCOME OF THE TWO PROPERTI ES. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: I ) REALTY FIN . & LEASING PVT. LTD. V/S ITO , [2006] 5 SOT 348 (MUM.) II ) ITO V/S FAROUK D. VEVAINA, [2008] 26 SOT 556 (MUM.) III ) SHARMILA TAGORE V/S JCIT, [2005] 93 TTJ 483 ( MUM.) MRS. PRIYA MURALIDHARAN 3 IV ) CIT V/S MODEL MFG. CO. PVT. LTD., 159 ITR 270 (CAL.) V ) ITO V/S VIJAY KUMAR BAWARI, 19 TTJ (GAUHATI) 562 VI ) CIT V/S R.J. WOODS PVT. LTD., [2011] 334 ITR 358 (DEL.) IN THE AFORESAID CASES, THE TRIBUNAL / COURTS HAVE HELD THAT MAINTENANCE AND OTHER CHARG ES ARE DEDUCTIBLE FROM THE RENT WHILE CALCULATING THE ANNUAL LETTING VALUE. 3 . THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT OTHER THAN THE AMOUNTS COVERED BY CLAUSE (A) AND (B) OF SECTION 24, NO OTHER DEDUCTION CAN BE CLAIMED BY THE ASSESSEE AGAINST THE RENTAL INCOME OF THE PROPERTY. THUS, THE SOCIETY MAINTENANCE CHARGES CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY . HE SUBMITTED THAT THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY T HE ASSESSEE RELATE TO THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2002 03 AND, HENCE, CANNOT BE SAID TO BE APPLICABLE TO THE CURRENT PROVISIONS OF SECTION 23 AND 24. THUS, HE DISALLOWED THE CLAIM OF MAINTENANCE CHARGES CLAIMED BY THE ASSESSEE. 4 . THE LEARN ED COMMISSIONER (APPEALS) ALSO REJECTED THE ASSESSEES CONTENTION AND UPHELD THE REASONING OF THE ASSESSING OFFICER THAT MOST OF THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL RELATE TO PRIOR PERIOD OF THE ASSESSMENT YEAR 2002 03 AND AFTER 1 ST APRIL 2002 , THE LAW DOES NOT ENVISAGE THAT SUCH A CLAIM FOR DEDUCTION COULD BE ALLOWED. HE ALSO REFERRED TO THE FOLLOWING DECISION OF THE TRIBUNAL IN HOLDING THAT THE MAINTENANCE CHARGES PAID TO THE ASSESSEE BY THE ASSESSEE IS NOT A DEDUC TION AVAILABLE UNDER SECTION 23: I ) BARODAWALA PROPERTIES LTD., 83 ITD 467 (MUM.) ; II ) J.B. PATEL & CO., V/S DCIT, 118 ITD 556 (AHD.) ; AND III ) B.N. MATHUR, 34 TTJ (DEL.) 230 . MRS. PRIYA MURALIDHARAN 4 5 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO MATERIAL CHANGE IN SECTION 23, IN THIS REG ARD , AS SECTION 23(1)(B) ENVISAGES THAT THE ACTUAL RENT RECEIVED OR RECEIVABLE WHICH CLAUSE WAS IN EXISTENCE EARLIER ALSO. FURTHER, THE PROVISO TO SECTION 23(1), WHICH HAS BEEN REFERRED BY THE LEARNED COMMISSIONER (APPEALS) PROVIDES FOR DEDUCTION OF TAXES LEVIED BY LOCAL AUTHORITY. THIS DOES NOT LEAD TO THE INFERENCE THAT ANY PROHIBITION HA S BEEN BROUGHT FOR MAINTENANCE CHARGES FROM THE RENT RECEIVED OR RECEIVABLE. HE FURTHER RELIED UPON THE DECISIONS OF THE TRIBUNAL, MUMBAI, IN SAIF ALI KHAN V/S ACIT, ITA NO.1653/MUM./2009, WHEREIN THE TRIBUNAL HAS CONSIDERED THE SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2004 05 AND IN CASE OF MS. ALOO BEJAN DANER V/S ITO, ITA NO.2381 AND 2382/MUM./2010, WHICH WAS FOR THE ASSESSMENT YEAR 2005 06 AND 2006 07 . IN THESE DECISIONS, THE TRIBUNAL HAS CONSIDERED OTHER DECISIONS , WHEREIN IT HAS BEEN HELD THAT MAINTENANCE CHARGES TO THE SOCIETY ARE TO BE ALLOWED WHILE CONDUCTING THE ANNUAL VALUE DETERMINED UNDER SECTION 23(1). 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED THAT ONCE THE STATUTORY DEDUCTION OF 30% IS ALLOWED , THEN THE SAME EXCLUDES ALL KIND OF MAINTENANCE AND CHARGES. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT F INDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS) HAVE STRONGLY RELIED UPON THE FACT THAT THE SECTION 23(1)(A) AND 23(1)(B), WHICH WERE PRIOR TO 1 ST APRIL 1962, WERE D IFFERENT FROM THE PROVISIONS BROUGHT IN STATUTE BY THE FINANCE ACT, 2001, W.E.F. 1 ST APRIL 2002. FOR THE SAKE OF READY REFERENCE, THE EARLIER PROVISIONS OF SECTION 23(1)(A) AND 23(1)(B) ARE REPRODUCED HEREIN BELOW: MRS. PRIYA MURALIDHARAN 5 23. ANNUAL VALUE HOW DETERMINED (1) FOR THE PURPOSES 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 OW NER 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 VALU E OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM: THE SUBSEQUENT PROVISIONS BROUGHT IN STATUTE W.E.F. 1 ST APRIL 2002, READ AS UNDER: ANNUAL VALUE HOW DETERMINED . 23. (1) FOR THE PURPOSES 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 OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO I N CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE : PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LI ABILITY 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. MRS. PRIYA MURALIDHARAN 6 8 . ON A PERUSAL OF THE A BOVE, IT CAN BE SEEN THAT INSOFAR AS CLAUSE (A) IS CONCERN, THERE IS NO CHANGE. ONLY THE CHANGE IN CLAUSE (B) IS THAT, INSTEAD OF THE WORD PROPERTIES LET AND ANNUAL RENT RECEIVED OR RECEIVABLE , THE SAME HAS BEEN SUBSTITUTED WITH PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE . THUS, THERE IS NO MATERIAL CHANGE EXCEPT FOR ANNUAL RENT RECEIVED OR RECEIVABLE HAS BEEN REPLACED BY ACTUAL RENT RECEIVED OR RECEIVABLE AND, THEREFORE, ON THIS BASIS, TO CONCLUDE THAT THE EAR LIER DECISIONS WILL NOT BE APPLICABLE IS NOT CORRECT. THE HONBLE HIGH COURT IN CIT V/S R.J. WOOD PVT. LTD. (SUPRA) HELD THAT MAINTENANCE CHARGES AND OTHER CHARGES PAID BY THE ASSESSEE IS DEDUCTIBLE FROM THE RENT WHILE COMPUTING ANNUAL LETTING VALUE. FURTH ER, AS PER THE LEASE AGREEMENT, WHICH HAS BEEN PLACED IN PAPER BOOK, IT IS SEEN THAT THE ASSESSEE WAS LIABLE TO PAY THE MUNICIPAL CHARGES OUT OF THE RENT RECEIVED FROM THE LICENS EE. IF THE LICENSEE HAD TO MAKE SUCH PAYMENT, THEN THE ACTUAL RENT RECEIVED WO ULD HAVE BEEN LESS. THE DEDUCTION UNDER SECTION 24, IS TO BE CALCULATED ON THE BASIS OF INCOME WHICH IS EARNED AND CHARGEABLE TO TAX UNDER SECTION 22 AND 23. IF THE GROSS RENT ALSO INCLUDES SOCIETY CHARGES, WHICH IS TO BE PAID BY THE ASSESSEE, THEN WHILE C OMPUTING THE ANNUAL VALUE, THE AMOUNT OF RENT WHICH IS ACTUALLY RECEIVED IN THE HANDS OF THE OWNER IN RESPECT OF THE LEASE PROPERTY SHOULD BE TAKEN INTO CONSIDERATION WHILE GIVING THE DEDUCTION UNDER SECTION 24. THUS, THE ACTUAL RENT RECEIVED AS ENVISAGED IN SECTION 23, SHOULD BE CONSTRUED AS NET RENTAL INCOME RECEIVED AFTER DEDUCTING MANDATORY SOCIETY CHARGES. THIS VIEW HAS BEEN UPHELD BY THE TRIBUNAL, MUMBAI BENCHES, IN SAIF ALI KHAN (SUPRA), WHEREIN THE FOLLOWING DECISIONS HAVE BEEN RELIED UPON: I ) SHARMI LA TAGORE V/S JCIT, [2005] 93 TTJ 483 (BOM.) ; II ) LEKRAJ CHANNA V/S ITO, [1990] 37 TTJ 297 (DEL.) ; AND III ) REALTY FINANCE & LEASING (P) LTD. V/S ITO, [2006] 5 SOT 348 (MUM.) MRS. PRIYA MURALIDHARAN 7 9 . BESIDES THIS, IN CASE OF MS. ALOO BEJAN DAV ER (SUPRA), THE TRIBUNAL HAS AGAIN REFERRED TO VARIOUS DECISIONS FOR COMING TO THE FOLLOWING CONCLUSIONS: 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE A.O. AND LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VAR IOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMPUGNED APPEAL IS REGARDING THE ALLOWABILITY OF DEDUCTION OF SOCIETY CHARGES FROM THE RENTAL INCOME FOR THE PURPOSE OF CALCULATION OF ANNUAL LETTING VALUE U/S 23(1)(B). WE FIND THE MUMBAI BENCH OF TH E 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 OUTGOINGS FOR EARNING THE SAID RENTAL INCOME WOULD BE ADMISSIBLE DEDUCTION. WE FIND THE TRIBUN AL IN THE CASE OF BOMBAY OIL INDUSTRIES (SUPRA) HAS HELD THAT MAINTENANCE CHARGES AND MUNICIPAL TAXES PAID BY THE ASSESSEE ARE TO BE DEDUCTED FROM GROSS RENT TO ARRIVE AT THE ANNUAL VALUE. WE FIND THAT IN THE CASE OF SHARMILA TAGORE (SUPRA), THE TRIBUNAL H ELD THAT MAINTENANCE CHARGES PAID TO HOUSING SOCIETY HAVE TO DEDUCTED EVEN WHILE COMPUTING ANNUAL LETTING VALUE. SIMILAR VIEW HAS BEEN TAKEN IN VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE DECISIONS RELIED ON BY 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 THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF J.K. INVESTORS (BOMBAY) LTD. (2001) 168 CTR (BOM) 189 HAS HELD THAT FOR THE PURPOSE OF DETERMINING ANNUAL VALUE OF THE PROPERTY ALL TAXES, CESSES AND OUTGOINGS BEING LIABILITIES OF THE ASSESSEE, HAVE TO BE EXCLUDED FROM 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 WHILE CALCULATING ANNUAL VALUE OF THE LET OUT PROPERTY, MAINTENANCE CHARGES PAID TO THE SOCIETY BY THE ASSESSEE IS ADMISSIBLE DEDUCTION FROM THE ANNUAL LET OUT VALUE U/S 23(1)(B). IN VIEW OF THE SERIES OF DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE SUPPORTING THE DEDUCTIBILITY 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 ENTITLED 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. TH E GROUND RAISED BY THE A SSESSEE IS ACCORDINGLY ALLOWED. MRS. PRIYA MURALIDHARAN 8 THUS, CONSISTENT WITH THE VIEW TAKEN BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE AFORESAID DECISION, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND HOLD THAT THE SOCIETY MAINTENANCE CHARGES PAID TO THE SOCIETY BY THE ASSESSEE IS DEDUCTIBLE FROM THE GROSS RENT RECEIVED BY THE ASSESSEE , WHILE COMPUTING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROP;ERTY . THUS, THE GROUNDS RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED. 10 . 1 0 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 30 TH JUNE 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 30 TH JUNE 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER . MUMBAI, DATED : 30 TH JUNE 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / TH E CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI