DEPUTY COMMISSIONER OF INCOME TAX - 4(3)(1), MUMBAI vs. TAJ IRON AND STEEL WORKS PRIVATE LIMITED, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

I. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the AO to delete the addition made of Rs.3,38,00,000/- towards payment made to Mumbai Port Trust claimed by assessee u/s 23 of the I. T. Act as deduction from House Property Income.

2. The appellant craves leave to amend or alter any ground or add new ground which may be necessary." A.Y.2012-13

3. The brief facts of the case are that the assessee filed its return of income on 18.09.2012 declaring total loss to the tune at Rs.1,66,15,745 /-. The case was selected for scrutiny under CASS. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was earning the income from property and income from investment. The assessee has shown the „Income from House Property‟ and claimed deduction u/s 23 of the Act. The assessee claimed the deduction in sum of Rs.3,36,94,037/- under the head of „Municipal Taxes‟. The assessee also claimed the some expenses and rent paid to BPT(Bombay Port Trust).The notice was given regarding genuineness of the claim. After the reply, the claim of the assessee was declined and a sum of Rs.3,38,00,000/- was added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.1,21,94,830/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.

ISSUE NO.1

“5.3 have considered of the AO as well as submissions of the Appellant. At the set, there is no dispute to the fact that the appellant is the owner of the property at the BPT for the purposes of section 22 / 23 of the Act. The AO has in fact taxed the income (rain rent received by the Appellant as Income from House property of the Appellant. There is also no dispute to the fact that the Appellant has actually paid ground rent A.Y.2012-13 charges to the I3I1' during the relevant previous year as well as the earlier years. It is also undisputed that the same was paid in pursuance of the order passed by the Hon'ble Supreme Court. A copy of which has been perused by me at page No.58 to 83 of paper book of the Appellant. The only dispute whether the same is allowable as deduction against the Income from House Property earned by the Appellant. In this regard, the argument of the Appellant is four fold. Firstly, it is argued that tinder the Income Tax Act only the real income could be brought to tax. In the present case since Income from is taxed on the basis of rent actually received / receivable which of ground rent to BPT, it is argued that on the basis rent to BPT, it is argued that on the basis of real income theory the income is not liable to be read since there is no actual receipt of rent and on the contrary there is a loss. Secondly, it is argued that the deduction in respect of ground rent to BPT is allowable as the same is akin to certain expenses which have to be incurred in order to ensure that the rent income is regularly received. According to the Appellant such expenses are allowable even if not specifically provided under the Act. In this regard the Appellant has relied on various judgements wherein expenses like society maintenance charges, brokerage charges, security charges, etc. have been allowed as a deduction from the Income from House property though they have not been specifically provided under the Act. Thirdly and lastly, it is argued that the payment to BPT in respect of ground rent is nothing but akin to service taxes levied by a local authority. In this regard, the Appellant has stated that the AO erred in interpreting the term local authority as local government and thereby denying the deduction. The Appellant has also relied on the Judgement of the Hon’ble Supreme Court in its own case and also in the case of M/s Dwarkadas Marfatia And Sons v/s Board of Trustees of the Port of Bout bay (1989) 3 SCC 293 in order to contend that BPT is authority and hence ground rent paid to BPT is in the nature of service taxes levied by a local authority and I therefore eligible for deduction u/s 23 r.w.s. 27(vi) of the Act. Fourthly, it has been argued that the deduction in respect of ground rent against the rent income has been claimed by the Appellant since the last many years and has also been allowed by the AO. In fact in AY 2010-11 the said amount of ground rent was allowed as a deduction under scrutiny assessment framed u/s 143 (3) of the Act. As such the Appellant has argued that it should be allowed the claim of deduction in respect of ground rent. A.Y.2012-13 Before proceeding to decide the issue it is useful to extract the relevant property shall be deemed to provisions of section 23 of the Act as follows.:- "For the purposes of section 22, be (a) a 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; 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 liability to paw such taxes was incurred by the owner according to the method of accounting regulars employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by hint" It is clear from a plain reading of the said proviso that taxes paid to a local authority and allowable as deduction. Further as per section 27(vi), the amounts eligible for deduction also includes payments in the nature of service taxes levied by the Authority. As such the deduction is to be allowed to the assessee if the amounts paid are in the nature of services taxes and the same are actually paid during the year to a local authority. At this juncture, it is useful to refer the judgement of the Hon’ble Bombay High Court in the case of C1T vs. M.G. Chitnavis (1957)32 1TR 520 (Bombay). In that case, it was held that amounts paid in respect of water rates and conservancy tax to Nagpur Municipal Corporation was allowable as a deduction from the Income from House Property. In that case, the term "taxes in respect of the property" was broadly viewed so as to even include water rates and conservancy taxes. These items were treated as akin to taxes since the same were amounts collected in lieu of services rendered by the Corporation. Drawing an analogy from the said ruling, it has to be held that for the purpose of allowing the use of re of ground rent charged to be held as service taxes in respect of the A.Y.2012-13 property. As regards the second requirement that the payment should be made to a local authority, there is not much difficulty to ascertain whether the BPT is a local authority. In this regard it is useful to refer to the Judgement of the Hon’ble Apex Court in the case of M/s. Dwarkadas Marfatia and Sons Vs. Board of Trustees of the Port of Bombay (1989) 3 SCC 293 wherein the Hon'ble Supreme Court has itself held that Mumbai Port Trust is an authority. Further the judgement in the case UP jai Nigam (supra) also supports the case of the Appellant. Further the Hon'ble Madras High Court in the case of CIT vs. R. venugopal Reddiar (1968) 58 ITR 439 (Madras) has held that taxes paid to even a local authority outside India in a foreign country is eligible for deduction u/s 23 of the Act. The High Court categorically held that there can be no rigid restraint in interpreting the expression local authority as used in section 23. On the basis of the above I find force in the argument of the Appellant that the term local authority cannot be rigidly interpreted to mean only a local government as has been interpreted by the AO in this case. As such the Mumbai Port Trust has to be treated as a local authority u/s 23 of the Act. In view of the above it has to be held that the amount of ground rent Rs.3,36,94,037/- paid to BPT is allowable as a deduction u/s 23 of the Act. I find it fit to consider even the other argument raised by the Appellant in this regard. The same is with regard to the deduction of ground rent being akin to Society Maintenance Charges, Security Charges, Brokerage, etc. I find that in all the decisions relied above by the Appellant it has been held that when the receipt of rent is burdened with the discharging of certain outgoings the same have to be allowed as a deduction against the rent income. For example, in some of the above cases it has been held that society maintenance charges are allowable as a deduction against rent income received. In fact such cases strongly support the case of the Appellant since it is common knowledge that 'maintenance charges have to be paid by the owner irrespective of the fact that the Appellant non-payment of the gra the premises by the Appellant. As (Appellant has to be accepted. is let out or not while in the case of lead to eviction and vacation of argument the claim of the Lastly, it is also seen by the Appellant has been granted deduction in respect of ground rent and the same has been allowed year after year to Appellant even under scrutiny assessments by the AO himself. The Hon'ble Apex Court in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 (SC) observed as follows: "76. We are aware of the fact that strictly speaking res-judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but A.Y.2012-13 where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year" As such, even on the Principle of Consistency the deduction has to be allowed to the Appellant and is accordingly allowed. As regards the allowance of interest of Rs.430,751/- the AO has considered the same as having been paid to BPT as interest on arrears, etc. However, the Appellant has stated that the same was in respect of loans taken for payments made to 8FF. According to the Appellant the same is in the nature of interest paid on capital borrowed for the purpose of renewal of tenancy with DPI and as such is allowable as a deduction u/s 24. However, no specific arguments are raised in this regard. Therefore, the AO is directed to verify the said claim of interest and decide the allowability of the same u/s 24 of the Act in accordance with law. As such this ground no. 2.2(ii) is allowed for statistical purposes. Since the substantial grounds have been decided by me on merits, ground no. 2.3 which is a without prejudice ground pertaining to correct computation of income from house property is not adjudicated.”

Reasons for delay in pronouncement of order 6.1 Before parting, we would like to enumerate the circumstances which have led to delay in pronouncement of this order. The hearing of the matter was concluded on 07/02/2020 and in terms of Rule 34(5) of Income Tax (Appellate Tribunal) Rules, 1963, the matter was required to be pronounced within a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the bench could fix a future date of pronouncement of the order which shall not ordinarily be a day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and A.Y.2012-13 extraordinary circumstances. However, the extended period shall not ordinarily exceed a period of 30 days. 6.2 Although the order was well drafted as well as approved before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown was extended from time to time which crippled the functioning of most of the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices. 6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon‟ble President and Hon‟ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: -