PADAM CHAND GUPTA,NEW DELHI V. ACIT, CIRCLE- 35(1), NEW DELHI

ITA 7418/DEL/2017

AI Insights

The case involves Padam Chand Gupta, the appellant, who contested the disallowance of Rs. 8,91,950 as deduction for annual mixed use charges paid to the MCD for properties rented out for commercial use. The Assessing Officer initially disallowed these charges, leading to an appeal before the Commissioner of Income Tax (Appeals), which was partly allowed. The matter was then brought before the Income Tax Appellate Tribunal, which ruled in favor of the assessee, allowing the deduction of the mixed use charges. The Tribunal's decision was based on the interpretation of Section 23(1)(b) of the Income Tax Act, which pertains to the determination of the annual value of a property based on actual rent received or receivable.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312899 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Other Referred Cases: DCIT vs Haldiram Products Pvt. Ltd., Mamta Kapur vs. ACIT, Rima Arora vs. ACIT, Shri Saif Ali Khan vs. ACIT -11(1), CIT vs. R.J. Wood (P.) Ltd., Transmarine Corporation vs. ACIT -17(3)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARPREET KAUR HANSRA
• Assessee Lawyers: S.S. NAGAR
• Keywords: Set aside
• Section: 143(3); 2

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SH. SHAMIM YAHYA, ACCOUNTANT MEMBER AND SH. SUDHIR KUMAR, JUDICIAL MEMBER ITA No.7418/Del/2017 Assessment Year: 2014-15 Padam Chand Gupta, 1-C court Road Civil Lines Delhi 110054 PAN No. AANPG5120C Vs. Assistant Commissioner of Income tax, Income Tax Circle 35(1) New Delhi (APPELLANT) (RESPONDENT) Appellant by Sh. S.S. Nagar, CA Respondent by Ms. Harpreet Kaur Hansra, Sr DR Date of hearing: 23/04/2025 Date of Pronouncement: 30/04/2025 ORDER PER SUDHIR KUMAR, JUDICIAL MEMBER: This appeal is preferred by the assessee is against the order 21-09-2017 of the Commissioner of Income Tax (Appeals)- 12 New Delhi [hereinafter referred to as “Ld. CIT(A))”] arising out of the order dated 30-11-2016 passed by Assessing Officer 2 under section 143(3) of the Income Tax Act, 1961 [herein after, the Act] for the assessment year 2014-15. 2.The assessee has raised the following grounds in appeal: 1) That the learned Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of Rs.8,91,950/- made by the Assessing Officer in respect of the claim made by the assessee for deduction of annual mixed use charges paid by the assessee to the Municipal Corporation of Delhi, in respect of property rented out by the assessee. 2) That the learned Commissioner of Income Tax (Appeals) has erred in holding that such annual mixed use charges are not in the nature of taxes levied by any local authority. 3) That the learned Commissioner of Income Tax (Appeals) ought to have appreciated that the assessee was able to realize higher commercial rent in respect of the property only because of the statutory payment of mixed land use charges and accordingly such charges so paid by the assessee stood diverted at source by an overriding charge 3 on the receipt of such commercial rent derived by the assessee and accordingly ought to have been allowed as deduction. 3. The brief facts of the case are that the assessee filed return of income on 28-10- 2015 declaring total amount of Rs.1,83,76,610/-. The return of the assessee was processed under section 143(1) of the Act. The case of the assessee was selected for limited scrutiny under CASS with the flowing region. (i) High increase in annual lettable value of house property (ii) Large deduction claimed under chapter VI-A. A notice under section 143(2) of the Act was issued on 26 July 2016 which was duly served on the assessee. In the compliance of the notice the AR of the assessee was filed the submission before the AO. The AO completed the assessment order after disallowing the mixed used charges of amount Rs. 8,91,950/-. 4. Aggrieved the order of the Assessing officer filed the appeal before the Ld. CIT(A) who vide his order dated21-09-2017 partly 4 allowed the appeal against which the assessee is in appeal before the Tribunal. 5.The ld. AR of the assessee has submitted that the assessee is the owner of the various residential properties and has let out these residential properties to M/s PC Jeweller Ltd. and M/s NCGLLP for the commercial use. The assessee has offered the rental income for tax under the head of income from house property. The properties of the assessee are situated in the residential zone where the commercial activity is not permitted. The assessee paid an aggregate tax of Rs. 13,40,720/- in which Rs. 4,48,770/- paid towards the normal property tax and Rs. 8,91,950/- towards additional property tax being Mixed Use Charge to the MCD. He further submitted that the assessee has paid mixed land use charges which shall be reduce in computing annual value u/s 23 (1)(b) of the Act. He also submitted that AO has wrongly disallowed the mixed uses charges which was paid by the assessee. Reliance has placed on the following decisions: 5 1.DCIT vs Haldiram Products Pvt. Ltd.ITA NO. 5158/Del/2012 the Co-ordinate Delhi Bench held as under :- 10. In the present case, the assessee had paid amounts for one time conversion charges and for parking at the two outlets, the benefits of which might accrue to the assessee for indefinite period of time yet these were incurred to enable the profit making structures to work more efficiently leaving the source or the profit-making structure untouched and moreover, the expenditure were in the nature of levies/taxes paid by an assessee to a government authority for making available the required infrastructure to run the business efficiently and effectively. Therefore, on the facts & circumstances of the case and following judicial pronouncements, we do not find infirmity in the order of Ld. CIT(A). We are the considered opinion the Ld. CIT(A) had rightly deleted the additions. 2. Mamta Kapur vs. ACIT (ITA NO. 2743/Del/2018) 6 3. Rima Arora vs. ACIT (ITA NO. 3662/Del/2018 4. Shri Saif Ali Khan vs. ACIT -11(1) (ITA NO. (1653/Mum/2009 5.CIT vs. R.J. Wood (P.) Ltd. [2012]20 taxmann. Com 599 (Delhi) 6. Transmarine Corporation vs. ACIT -17(3) (ITANo. 7001/Mum/20018) 6. Contra, Ld. DR relied on the orders of the below authority. 7. We have heard the rival submission and perused the material available on record. In the present case the assessee claim of deduction of Mixed Use Charges paid by the assessee to the MCD. Whereas, the assessee has claimed the Mixed Use Charges paid as deduction from the rental income received from its tenants. The Ld. AR mentioned that the annual value of the property has to be determined as per the provisions of Section 23(1) of the Act. We consider it appropriate to refer to Section 23(1)(b) of the Act which is read as under: 7 (1) For the Purpose 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 there of is in excess of the sum referred to in clause (a) the amount so received or receivable or 8 We find in the case of Transmarine Corporation vs. ACIT - 17(3) the CO-ordinate bench held as under; 7. We find in the case of CIT Vs. RJ Woods P. Ltd (supra) the Hon'ble Delhi High Court has observed as under: \"Section 22 of the Income-tax Act, 1961 Income from house property Chargeable as -Assessment years 1996-97 to 2000-01 In respect of premises leased out by maintenance and other charges paid bu assessee were to be deducted from rent while computing assessee, annual letting value of said property In favour of assessee) 8 The assessee had leased out its premises to five tenants. Lease agreements were entered into in this behalf wherein rent to be received by the assessee from those tenants was specified. The tenancies became operative with effect from October, 1992. However, dispute arose about payment of the said rent. Said premises were in a multi- storey building and maintenance charges payable by the occupier to maintaining the building. The tenants claimed that the rent payable by them to the the were agency/builder maintenance charges and, therefore, it was the obligation included of the assessee to pay the maintenance charges. The assessee, on the other hand, wanted these tenants to pay the maintenance charges exclusive of contractual rent. Because of this dispute, the tenants filed a suit in Small Causes Court for fixation of standard rent. In that case, the Small Causes Court passed an interim order in 1994 fixing the rent at Rs.30,000 per month, which was less than the contractual rent agreed upon between the parties the rent agreement. Since the rent was fixed on lump sum basis at Rs. 30.000 9 per month, the assessee had to pay the maintenance charges, which were claimed as deduction. The Assessing Officer disallowed the claim on the ground that as per the lease agreement these maintenance charges were to be borne by the tenants. The Commissioner (Appeals), however, allowed this claim which view of the Commissioner (Appeals)was affirmed by the Tribunal as well. Held that since the maintenance and other charges were paid by the assessee, it was rightly held to be deductible from the rent while computing the annual letting value. 7.1 We also find in the case of M/s. Suman Didwania Vs. ACIT (supra), Hon'ble Tribunal has held as under: \"3. We have heard the parties. The Ld. Counsel placed his reliance on the decision of the ITAT in the case of Sharmila Tagore vs. JCIT 93 TTJ 483 and in the case of ITO vs. Gopichand P. Godwani 1 SOT 374 (Mum). The Ld. D.R. 10 placed reliance on the orders of the authorities below. We find that the assessee's claim is covered by the decision of the ITAT, Mumbai in the case of Sharmila Tagore (supra) in the said case it is held that the maintenance charges paid by the assessee have to be deducted even determining the annual value of the property u/s.23. We, accordingly, following the decision of the co-ordinate Bench allow the grounds taken by the assessee and direct the A.O. to re- compute the income under the head 'income from house property'. 7.2 We find in the case of ITO Vs. Gopichand P. Godhwani (supra) the Hon'ble tribunal has held as under: \"5. We have carefully considered the rival submissions in the light of material placed before us. It is the contention of the assessee that the actual rent received by it is in excess of fair rent or standard rent under the rent control legislation. If this contention of assessee is correct, then the house property income has to be determined under the provisions of section 23(1)(b) property income has to be 11 assessed under section 23(1)(a). Section 23(1)(a) & (b) being relevant provisions otherwise the house applicable for deciding the present controversy are reproduced below: \"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 in clause (a), the amount so received or receivable;\" It will be relevant to reproduce below the observations of jurisdictional High Court in the case of CIT v. J.K. Investors (Bombay) Ltd. (2001) 248 ITR 723 (Bom) relating to the above provision of Income-tax: 12 \"In this matter, we are required to consider the scheme of taxation of income from house property. Section 22 says that the measure of income from house property is its annual value. The annual value is to be decided in accordance with section 23. Sub-section (1) of section 23. by virtue of the amendment with effect from the assessment year 1976-77, has two limbs, namely, clauses (a) and (b). Clause (a) states that the annual value is the sum for which the property might reasonably be expected to be let from year to year. Clause (b) covers a case where the property is let and the actual rent is in excess of the sum for which the property might reasonably be expected to be let from year to year. In other words, insertion of clause (b) by the Taxation Laws (Amendment) Act, 1915, covers a case where the rent for a year actually received by the owner is in excess of the lawful rent which is known as the fairrent or standard rent under the rent control legislation. The provisions of section 23(1)(a) of the Income Tax Act apply both to owner-occupied property as also to property which is let out and the measure of 13 valuation to decide the annual value is the standard rent or the fair rent. However, section 23(1)(b) only applies to cases where the actual rent received is more than the reasonable rent under section 23(1)(a) of the Act and it is for this reason that section 23(1)(b) contemplates that in such cases the annual value should be decided on the basis of the actual rent received.\" 6. It is not disputed by revenue that only section 23(1)(b) is applicable to the present case as it is also not the case of assessing officer as he has computed the house property income as per actual rent received. In this view of the situation, if the outgoings in respect of which additions have been deleted by CIT (A) were the liability of the assessee, the same should be excluded from the assessable income as the net amount only can be considered which is received by the assessee or is eceivable by the assessee as per express provisions of section 23[1](b). However, this fact has not been considered ascertained that whether the amounts claimed 14 by the assessee and disallowed by the assessing officer in respect of car-parking, water charges and municipal charges and other charges were the actual liability of the assessee or not. This factual aspect has to be examined as per the terms of agreement as well as keeping in view the factual aspect of the matter. We, therefore, consider it necessary to restore these appeals as well as Cross Objections to the file of assessing officer to determine the fact that whether expenses claimed by the assessee on account of car parking, water charges, municipal charges and other charges (as shown in the charts framed buy the assessee and reproduced abovel were the liability of the assessee and were outgoings from the assessees rental income shown in respect of the property. If it is so, the same are rightly allowed by the CIT (A) as the assessee is entitled to get the same. The assessing officer will determine the house property income of the assessee in accordance with the above directions. We may point out here that the learned authorised representative of the assessee also accepted that for the purpose of examining 15 this factual aspect, the matter may be restored to the assessing officer. We order accordingly. The appeals filed by the revenue and Cross Objections filed by the assessee are considered allowed for statistical purposes. 8. We considering the Ratio of judicial decisions, the factual aspects and provisions of Section 23(1)(b) of the Act are of the view that the assessee is entitled for claim of deduction of lease rent paid to the Bombay Port Trust(BPT) against the Leave and License fee/rent received from the tenants in determining the annual value of the property. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete the addition and allow the grounds of appeal of the Assessee. 9. In the result, the appeal filed by the assessee is allowed. 9. We considering the Ratio of Judicial decisions, the factual aspect and provision of Section 23 (1) (b) of the Act are of the 16 view that the assessee is entitled for claim of deduction of Mixed uses Charges paid to the MCD against the use of residental properties for commercial activities. Accordingly, we set aside the order of the Ld. CIT(A) and direct the Assessing officer to delete the addition and allow the grounds of appeal of the Assessee. 10. In the result the appeal of the assessee is allowed. Order pronounced in the open court on 30.04.2025 Sd/- Sd/- (SHAMIM YAHYA ) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *Neha, Sr. PS* Date:30.04.2025 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) ` 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "