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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B. R. BASKARAN
Date of hearing : 17.11.2021 Date of Pronouncement : 22.11.2021 O R D E R
Per N.V. Vasudevan, Vice President
This is an appeal by the assessee against the order dated 24.12.2017 of CIT(A)-4, relating to Assessment Year 2013-14.
The assessee is a company. The assessee owns certain portions/floors in a multistoried commercial building and is joint owner of certain floors. The assessee let out the building that it owns on rent. Besides the rent, the assessee collected maintenance fees from its tenants for providing services. The maintenance service was provided by Prestige Property Management and Services Ltd. Amounts collected by the assessee in the form of maintenance charges from the tenants was offered Page 2 of 5 to tax under the head ‘Income from Other Sources’ and the payments made to Prestige Property Management and Services Ltd. for providing service to the tenants was claimed as a deduction.
The AO noticed that two tenants occupying the 7th and 8th floor 3. of the commercial complex owned by the Assessee viz., Real-Den Commerce and Rockwell Automation paid maintenance charges to the Assessee and the Assessee in turn paid maintenance charges to M/s Prestige Property Maintenance and Services Limited (PPMSL) for maintenance of the property. The other tenants paid maintenance charges directly to PPMSL. The building maintenance expenses (included services in respect of sanitary items, removing of blockage and for refrigeration) salaries and supervision charges paid to employees. According to the AO, the above three expenses/charges paid to M/s Prestige Management and Services Ltd., are not only attributable to the maintenance fee collected by the Assessee .from two of its tenants but also to the rent derived from the properties from other tenants. According to the AO, in respect of other tenants the Assessee does not collect maintenance charges and the same are paid directly by the tenants to PPMSL. The Assessee has been availing the benefit of deduction u/s.24(a) of the Act against rental income offered to tax. The maintenance charges collected from the tenant of 7th and 8th floor was for the whole building and therefore out of the total maintenance charges paid to M/s Prestige Management and Services Ltd., a proportion of such maintenance charges in the same proportion as the rent to the total rent and maintenance charges collected. from Real- Den Commerce and Rockwell Automation was disallowed by the AO. The computation of such disallowance was as follows:
Rent Maintenance Particulars 2,69,98,695 11,56,104 Rent from Real-den Commerce 11,88 464 Rent from Rockwell Automation 1,56,51,300 Total 4,26,49,995 23,44.568 The total rent and maintenance amounts to Rs. 4,49,94,563/- (4,26,49,995+23.44,568) Therefore, Rs.4,26,49,995 / 4,49,94,563 x Rs.17,86,136 = Rs.16,93.064/- was disallowed and charged to income under Other Sources.
Before CIT(A), the Assessee submitted that the Assessee had collected Maintenance Fee from the Tenants situated in the Seventh and Eighth Floor apart from Rent. The Maintenance Fee Collected from the said tenants was paid to M/S Prestige Properly Management and Services Ltd.. The Maintenance Charges incurred on behalf of the Assessee was towards Maintenance of the, Building and for rendering various services to the tenant. There was no reason or basis to disallow a portion of the maintenance fee. It was pointed out that the Assessee’s case was selected for scrutiny for Assessment year 2012-13 and 2014-15 but no such disallowance was made on identical facts and circumstances.
The CIT(A) however confirmed the order of the AO by observing that the AO’s primary reason for the impugned disallowance was that, the said maintenance services are not exclusively for two floors (7th & 8th) but, other floors, where no maintenance charges are collected and against which standard deduction u/s 24 has been claimed under the head 'House Page 4 of 5 Property' income. The AO has therefore made the disallowance of maintenance charges on a 'proportionate basis, in the same proportion as the rent to the total rent and maintenance charges collected from 2 parties i.e. M/s Rearden Commerce and M/s Rockwell Automation. According to the CIT(A), the AO's methodology cannot be summarily rejected as one without any valid basis. He also found that similar disallowances on a proportionate basis, has been made in respect of other items of expenditures like salary and other items. The CIT(A) accordingly confirmed the order of the AO. Hence this appeal by the Assessee before the Tribunal.
We have heard the rival submissions. From the facts as it emanates from the orders of the revenue authorities it is clear that the maintenance charges collected by the Assessee from the tenants is shown as income from other sources and the payment made to PPMSL is reduced and the difference offered to tax under the head income from other sources. U/s.57(iii), deduction of expenditure incurred in earning income under the head other sources has to be allowed as a deduction. There is no basis to conclude that the amounts paid by the tenant of 7th and 8th floor is attributable to the entire property and therefore part of the same which is not attributable to 7th and 8th floor maintenance should be disallowed proportionately. The amounts collected from the two tenants was paid over by the Assessee to PPMSL and in such circumstances, was to be allowed as expenditure, when admittedly services were rendered by PPMSL. We find no legal or factual basis to support the disallowance made by the revenue authorities. We therefore direct that the addition made in this regard be deleted. Page 5 of 5 7. The appeal of the Assessee is accordingly allowed.