Income Tax Appellate Tribunal - Mumbai
Realty Finance & Leasing (P) Ltd. vs Ito on 31 August, 2005
Equivalent citations: [2006]5SOT348(MUM)
ORDER
Salil Kapoor, J.M. This appeal filed by the assessee is directed against the order of Commissioner (Appeals)-XXXII, Mumbai dated 3-3-2004 for assessment year 1999-2000. The proceedings are initiated under section 143(3) of the Income Tax Act, 1961.
2. Ground Nos. 1 and 4 are not pressed.
3. Ground No. 2 is with regard to the claim of depreciation of Rs. 1,60,000 in respect of Nariman Bhavan property.
4. The assessee has claimed depreciation of Rs. 1,60,000 on the Nariman Bhavan property which was let out upto assessment year 1998-99 and the rental income was being assessed under the head "Income from other sources". The case of the assessee is that, during the year the said property was not let out and it has been occupied by the assessee for its own use. The assessing officer did not allow the claim on the basis that merely because the property did not let out during the year the assessee cannot change the head of income and claim the depreciation in respect of said property. The learned Commissioner (Appeals) upheld the order of the assessing officer and held that the assessee was not engaged in the business during the relevant previous year and its claim regarding utilization of Nariman Bhavan property for business purpose is without any basis and consequently the claim of depreciation is not admissible merely because property was lying vacant and there was no income derived therefrom.
5. The learned counsel for the assessee Miss Ritika Garg stated that even if the property is not used by the assessee during the year, the depreciation has to be allowed as property was ready for use and the word 'used' includes being passive user and she relied on the decision of Kerala High Court in the case of CIT v. Geo Tech Construction Corpn. (2000) 244 ITR 452. The learned DR Shri Ravindra Kumar supported order of the Commissioner (Appeals) and stated that the said asset was not used for the business by the assessee and as such the claim of depreciation is not allowable.
6. After hearing the rival submissions we are of the view that the claim of depreciation on the property has been correctly disallowed by the Assessing officer and upheld by the learned Commissioner (Appeals).
7. The said property was let out in the earlier years and income was being assessed likely under the head "Income from house property". Merely the said property was not let out during the year does not mean that it was kept ready for the use for the purpose of business of the assessee. In the case of Geo Tech Construction Corpn. (supra), the claim of the assessee was rejected on the ground that he has not produced any evidence to show that the tippers purchased by him on 29-3-1986 were used before 31-3-1996. The Tribunal in the said case has held that there was positive material to show the existence of asset at the work site and held that even if there was no actual use, the fact that they were kept ready to use was enough to claim the depreciation on the principle of passive user of the asset. The Hon'ble Kerala High Court upheld the decision of the Tribunal.
8. We are of the view that the said decision is not of any help to the assessee, as the claim of depreciation has been made merely because the said property was not let out during the year. The said property was let out in the earlier years and said rental income has been assessed as "Income from house property", which means that there was no intention of the assessee to use the said property for the purpose of his own business. The finding of learned Commissioner (Appeals) is upheld. The second ground of the assessee's appeal is dismissed.
9. The third ground and the fifth ground of the assessee is regarding the claim of society charges from the annual letting value.
10. The assessing officer had disallowed the expenses on the ground that the said expenses are not allowable under section 24 out of rent received by the assessee. The Commissioner (Appeals) upheld the view of the assessing officer.
11. The learned counsel of the assessee Miss Ritika Garg stated that the society charges are to be allowed as deduction from annual letting value on the basis that the large component of these charges of the society are municipal taxes paid as a whole by the society of the building and as per the terms of the agreement, the owner shall be responsible for the society charges and in that sense the rent received is not purely for the use of premises. She also relied on the decision of Praveenkumar v. ITO (IT Appeal No. 6159 (Mum) of 2001) and on the case of Sharmila Tagore v. Joint CIT (2005) 93 TTJ (Mum) 483. The learned DR Shri Ravindra Kumar argued that the deduction of society charges is not allowable deduction under section 24 of the Income Tax Act. He relied on the decision of Hon'ble Calcutta High Court in the case of CIT v. Sreelekha Baneriee (1989) 179 ITR 461.
12. We have heard the rival submissions. We find that there is no dispute that the charges paid to the society are not covered in the allowable deductions as enumerated under section 24 of the Income Tax Act. The claim of the assessee is that the said society charges are to be allowed as deduction from annual letting value (ALV) as in the case of Municipal taxes. In the case of Praveenkumar (supra), the expenditure incurred towards service charges and legal expenses were allowed as deduction while computing the annual letting value under section 23 of the Income Tax Act. It is an admitted fact that the gross rent receipt by the assessee also include the society charges which are to be paid by the assessee. In our view while computing the annual value the amount of rent which actually goes to the hands of the owner in respect of leased property should be taken into consideration. As per the provisions of section 23 the annual value of any property is to be determined on the basis of actual rent received by the owner.
13. The case law referred by the revenue is not of any help to them as in the case of Sreelekha Banerjee (supra) it was held that after annual value is determined, the deduction as enumerated as income-tax under section 24 will be allowed. Salary paid to the caretaker is not allowed in that case on the ground that there was no specific item of deduction from annual value of property which is let out.
14. In view of the above discussion, it is held that the society charges paid by the assessee in respect of its let out properties are allowable while computing the annual value. one of the objections of the assessing officer with regard to the claim of society charges of Janki Cooperative Society is that the receipt of society charges is issued in the name of Shri Prakash Jain and not in the case of the assessee-company. The assessing officer is directed to verify, if the payment has been made by the assessee-company or not. If it is found that the payment is made by the society then same should be allowed as deduction, irrespective of the fact that the receipt is issued in the name of the Director of the assessee-company. We direct accordingly.
15. In the result appeal is partly allowed. This order is pronounced at Mumbai in the open court on this day of 31-8-2005.