Income Tax Appellate Tribunal - Kolkata
Subroto Ghose & Satyabroto Ghose ... vs Assistant Commissioner Of Wealth Tax ... on 12 April, 1996
Equivalent citations: [1996]58ITD517(KOL)
ORDER
D. Manmohan, J. M.
1. These six appeals arise out of a common order of the CWT(A)-V, Calcutta, dt. 30th Sept., 1993, for the asst. yrs. 1989-90 to 1991-92.
2. We shall first take the Departmental appeals. All the three appeals filed by the Department are filed belatedly. The order of the CWT(A) was communicated to the Department on 6th Oct., 1993, and hence the due date for filing the appeals ended on 5th Dec., 1993, whereas the appeals were presented on 7th Dec., 1993, resulting in a delay of two days in filing the appeals. A condonation petition was filed in this regard wherein it was mentioned that 5th December, being Sunday, the papers could not be prepared on that date. However, the papers were prepared on 6th Dec., 1993, and the same were filed on 7th Dec., 1993, resulting in a delay of 2 days. As we are satisfied that the delay is supported by reasonable cause, we condone the delay and proceed to dispose of the appeals on merits.
3. The two common grounds raised by the Revenue in all the three appeals are with regard to allowability of expenditure on account of service charges such as lift maintenance charges, generator charges, etc. against the income earned by the assessee under the head "Income from house property".
4. The assessee-trust owned one building consisting of 12 flats all of which were let out on long-term lease of 21 years. As per the deed of tenancy, the assessee is duty-bound to provide and maintain lift, water pump, electricity of the staircase and common space area and also bound to provide a generator and maintain the same. The assessee has received the rent and also received deposits from the tenants which are subject to the above charge. As the additional amount is charged by the assessee for providing these additional facilities, the expenses incurred by the assessee in maintenance of the lift, generator, etc. are claimed as deduction against the composite rent. The AO has disallowed the same.
5. In appeal before the first appellate authority, it was contended that these expenses are allowable against the rental income received by the assessee. The CWT(A) has accepted the contention of the assessee. He observed that the gross rent received by the assessee includes the expenditure of electricity, lift maintenance, expenses for generator, etc. and as these facilities are to be provided by the assessee to the tenants as per the lease deed, the expenditure is allowable as deduction against the gross rent which includes the element of expenditure on these accounts.
6. Aggrieved thereby, the Revenue is in appeal before us. The learned Departmental Representative contended that the entire rent received is taxable under the head "Income from house property" and hence, the expenditure that is allowable should fall within the provisions of s. 24 of the Act. In the present case he submitted, that s. 24 does not speak of allowability of lift operating expenses, generator expenses, etc. and hence the said expenditure is not allowable as deduction. He further submitted that the CWT(A) is not correct in directing the Assessing Officer (AO) to allow depreciation on generator as the assessee was not engaged in the business or profession or he has earned the income under s. 56 of the Act.
7. On the other hand, the learned counsel for the assessee submitted that the composite rent received includes the amount towards expenses for maintenance of the lift, generator, etc. and hence that part of the income should be treated as income from 'Other sources' against which the expenses are allowable as deduction.
8. We have heard the rival submissions and also perused the records. We find that the matter is no longer res integra, inasmuch as the Hon'ble High Court in the case of CIT vs. Kanak Investments (P) Ltd. (1974) 95 ITR 419 (Cal) has held that the income derived from letting out the building is assessable as income from house property under s. 22 and the lift charges and air-conditioning charges are assessable under s. 56 as income from 'Other sources'. In fact, in ITA No. 380(Cal) of 1992, dt. 27th Dec., 1995 (wherein one of us - the JM - was a party), the Tribunal has held that the expenses for offering services and maintenance to the tenants have to be allowed as deduction under s. 56 of the Act. Following the aforesaid judgment of the Hon'ble Calcutta High Court and the order of the Tribunal, we hold that the CWT(A) is justified in directing the AO to allow the expenses as deduction against the composite rent received by the assessee.
9. In the result, the appeals filed by the Revenue are dismissed.
10. In the three appeals filed by the assessee, the only issue involved centres round the interpretation of the provisions contained in Sch. III to the WT Act, 1957. As has been mentioned earlier, the assessee has let out the building consisting of 12 flats on a long-term lease of 21 years. As per the deed of tenancy, the tenants have the right to use the main entrance, lawn, road, childrens playground, compound, lift, staircase and other common passage ways in the said building for the purpose of ingress to and egress out of the said flat. While computing the value of the said property, the AO has applied Sch. III of the WT Act, 1957, and valued the property by multiplying the net maintainable rent at 12.5 times as provided in r. 3 of Sch. III. However, he was of the opinion that r. 6 of Part B of Sch. III is applicable to the facts of this case, inasmuch as the unbuilt area is calculated by him at 1,906.03 sq. mt. as against the total area of the land of 2,597.05 sq. mt. In other words, he has applied r. 6, according to which, the excess unbuilt area over specified area was worked out at 13.39% of the aggregate area. He accordingly increased the value of the immovable property by 30% of the value arrived at as per r. 3 of Sch. III. Thus, the value of the property was taken at Rs. 88,53,959.
11. Aggrieved thereby, the assessee filed an appeal before the CWT(A) wherein it was contended that the net maintainable rent itself includes the rent for the other amenities such as lawn, road, childrens playground, compound, lift and staircase, etc. and hence by again increasing the value by 30% would amount to double addition. However, the CWT(A) held that the addition of 30% of the value of the building made by the AO was in accordance with the provisions of Sch. III of the WT Act. He thus confirmed the addition.
12. Further aggrieved, the assessee is in appeal before us. The learned counsel for the assessee contended that the addition made by the AO is arbitrary, inasmuch as the net annual letting value was computed by the assessee and also by the AO by taking into account the rent received for the entire property which, in turn, includes the land comprising the area of main entrance, lawn, roads, childrens' play-ground, compounds, etc. He thus submitted that by again adding 30% of the value arrived at as per r. 3 would amount to double addition. In the alternative he submitted that if addition of 30% has to be made, only the rent for the building and the appurtenant land should be taken into consideration and not the rent which is attributable towards letting out the lawn, roads, childrens' playground, generator, etc. He has also submitted that the composite rent received by the assessee includes the payment for the use of lawn, roads, lift, etc. and hence the same can be reasonably taken at 30% of the composite rent and in such an event, the net annual value would be reduced.
13. On the other hand, learned Departmental Representative contended that the procedure followed by the AO is in accordance with the provisions of Sch. III of the WT Act and hence no interference is called for.
14. We have heard the rival submissions and also perused the records. Rules 3 and 6 of Part B of Sch. III of the WT Act, 1957, which are relevant for the disposal of these appeals may be extracted hereinbelow :
"Valuation of immovable property
3. Subject to the provisions of rr. 4, 5, 6, 7 and 8, for the purposes of sub-s. (1) of s. 7, the value of any immovable property, being a building or land appurtenant thereto, or part thereof, shall be the amount arrived at by multiplying the net maintainable rent by the figure 12.5 :
Adjustments to value arrived at under r. 3, for unbuilt area of plot of land
6. Where the unbuilt area of the plot of land on which the property referred to in r. 3 is constructed exceeds the specified area, the value arrived at in accordance with the provisions of r. 3 shall be increased by an amount calculated in the following manner, namely :
(a) where the difference between the unbuilt area and the specified area exceeds five per cent, but does not exceed ten per cent, of the aggregate area, by an amount equal to twenty per cent of such value;
(b) where the difference between the unbuilt area and the specified area exceeds ten per cent but does not exceed fifteen per cent of the aggregate area, by an amount equal to thirty per cent of such value;
(c) where the difference between the unbuilt area and the specified area exceeds fifteen per cent but does not exceed twenty per cent of the aggregate area, by an amount equal to forty per cent of such value.
Explanation. - For the purposes of this rule and r. 6, -
(a) "aggregate area", in relation to the plot of land on which the property is constructed, means the aggregate of the area on which the property is constructed and the unbuilt area;
(b) "specified area", in relation to the plot of land on which the property is constructed, means -
(i) where the property is situate at Bombay, Calcutta, Delhi or Madras, sixty per cent of the aggregate area;
(ii) where the property is situate at Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Cochin, Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur, Lucknow, Ludhiana, Madurai, Nagpur, Patna, Pune, Salem, Sholapur, Srinagar, Surat, Tiruchirapalli, Trivendrum, Vadodara (Baroda) or Varanasi (Banaras) sixty-five per cent of the aggregate are; and
(ii) where the property is situate at any other place, seventy per cent of the aggregate area :
Provided that where, under any law for the time being in force, the minimum area of the plot of land required to be kept as open space for the enjoyment of the property exceeds the specified area, such minimum area shall be deemed to be the specified area;
(c) "unbuilt area", in relation to the aggregate area of the plot of land on which the property is constructed, mean that part of such aggregate area on which no building has been erected."
15. On a perusal of both the rules, we find that for the purpose of valuation of immovable property being a building or land appurtenant thereto, the net maintainable rent should first be computed. The net maintainable rent, in our opinion, is the rent received or receivable on the said building or land appurtenant thereto or part thereof. The value arrived at as per r. 3 shall be increased if the unbuilt area of the plot of land, on which the property referred to in r. 3 is constructed, exceeds the specified area. The addition depends upon the extent of the unbuilt area on which no building has been erected. Admittedly, the AO has considered the area occupied by lawn, compound wall, lift, childrens' playground, etc. as unbuilt area, by which the unbuilt area was found to be more which, in turn, resulted in the addition. The word 'building', to the best of our knowledge, has not been defined in the Act. Same is the position under the IT Act also. The Hon'ble Calcutta High Court had an occasion to consider the definition of the word 'building' in the case of Oil India Ltd. vs. CIT (1978) 114 ITR 323 (Cal) wherein their Lordships have referred to the decision of the Hon'ble Supreme Court in the case of Ghanshiam Das vs. Debi Prasad AIR 1966 SC 1988. Their Lordships of the Supreme Court observed that an open air swimming pool and roofless large stadium constructed at a considerable expense would be "buildings". Further, their Lordships of the Calcutta High Court have observed at page 325 as under :
"Whether drains, culverts, roads, etc. are "buildings" or not, must necessarily depend on the facts and circumstances of each case. The nature of their construction, the expenditure incurred or laid out for the purposes of their construction and the object and purpose for which they were constructed are some of the factors which should be taken into account in determining the question as to whether they are "buildings" or not. Similarly, whether the bungalows, in the instant case before us, can be usefully used for the purposes for which they were built without the drains, roads, culverts, etc., is also an important consideration."
16. Whether in a given case the roads, lawn, childrens' playground, lift, etc. is part of the building or not, depends on the facts and circumstances of that particular case. To consider an area covered by roads, lawn, etc. as part of the building, it has to be seen as to whether the said building can be effectively used without those amenities. In the present case, the building consists of 12 flats. For the effective use of the building, the common passage ways for the purpose of ingress to and egress out of the said flats, lawn, roads, childrens' playground, compound, lift and staircase are, to our mind, necessary and the said flats cannot be usefully used for the purposes for which they were built without such basic amenities. We are, therefore, of the opinion that the common passage ways, roads, etc. should be treated as part of the building. If once the said area covered by the road, etc. are treated as part of the building, the unbuilt area would further be reduced. We direct the AO to recalculate the same by applying Sch. III in the light of the above observations.
17. However, the main contention of the assessee that only the rent relatable to the main building has to be taken into consideration, cannot be accepted, inasmuch as the land covered by the roads, etc., in our opinion, is part of the building and as per Sch. III, the net maintainable rent for the entire property has to be taken into consideration and to be multiplied by 12.5. We may observe further that if the unbuilt area exceeds the specified area as per r. 6 of Part B of Sch. III of the WT Act, addition can be made on certain percentage prescribed therein. At any rate, in view of the aforementioned directions given to the AO, we would not feel it necessary to elaborate this matter further, inasmuch as on a recomputation, the unbuilt area, in all likelihood, would be less than the specified area, in the event of which no further addition may be required.
18. In the result, the appeals filed by the assessee are allowed for statistical purpose.