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Facts
The assessee, a Non-Resident Indian, appealed against the disallowance of condominium expenses, specifically security and administrative charges, claimed for computing income from house property for AY 2018-19. The Assessing Officer (AO) disallowed these expenses, treating them as non-allowable. The CIT(A) partly allowed the appeal, excluding some charges but disallowing others.
Held
The Tribunal, after considering various judicial pronouncements, found that society charges, including maintenance, security, and administrative expenses, paid by the assessee should be allowed as a deduction for determining the annual letting value (ALV) of the property. The Tribunal relied on decisions that held such outgoings are admissible deductions for earning rental income.
Key Issues
Whether condominium expenses, including security and administrative charges, paid by the assessee are deductible from rental income for computing income from house property.
Sections Cited
Section 23(1)(b) of the Income Tax Act, Section 24 of the Income Tax Act
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI AMARJIT SINGH
आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(A)-57, Mumbai, dated 31.07.2023 for A.Y. 2018- 19. The assessee has raised the following grounds before us: “Ground No. 1 Disallowance of Condominium expenses paid while computing “Income from House Property.” 1.1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) -57, Mumbai [learned CIT(A)'] erred in disallowing Security Charges and Administrative expenses forming part of condominium expenses, without any basis while computing the Income from House Property. 1.2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) -57, Mumbai ['learned CIT(A)'] ought to have appreciated that Security Charges and Administrative charges are incurred by the society towards security of the building and
P a g e | 2 ITA No.3077/Mum/2023 Laila Rustom Jehangir Vs. ITO, IT, Ward 3(1)(1)
other administrative work related to the society and are part of overall maintenance of the building. General Each one of the above grounds of appeal is without prejudice to the other. The appellant craves leave to add, amend, alter, vary, omit, or otherwise substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal.”
The assessee is a NRI and filed return of income on 25.07.2018 showing total income of Rs.1,93,98,800/- which was subsequently, revised on 15.11.2018 by declaring total income of Rs.1,86,93,330/-. The assessee derived income from house property capital gain and income from other sources. During the course of assessment the assessing officer noticed that assessee has offered income from house property amounting to Rs.95,68,656/- from following seven properties:
Sr. Address Share in Let out or Rent offer Less Condominium Net rent No. Property Self Exp claim offered occupied 1. G2 Windmere, 50% Let out 24,060/- 1,16,265/- Nil Colaba Mumbai – 400005 2. 101 ---do--- 50% Let out 1,30,645/- 1,58,807/- Nil 3. 102 ---do--- 50% Self Nil Nil Nil occupied 4. 201 ---do--- 50% Let out 3,25,625 1,40,275 1,26,865 5. 202 ---do--- 50% Let out 30,339 1,40,681 Nil 6. 401 ---do--- 100% Let out 6000000 2,99,075 39,84,507 7. 402 ---do--- 100% Let out 81,37,350 3,31,507 54,57,284 Total 11,86,610/- 95,68,656/-
The AO further notice that the assessee has claimed condominium expenses on the ground that without incurring such expenditure the property cannot be let out and rent would not have been received. On query the assessee claimed that these expenses were reimbursement of expenses incurred on behalf of the tenant and also referred the decision of ITAT in the case of Yogen D Sandhvi to support his claim. However, the AO had not agreed with the submission of the assessee after referring provisions of Section 24 of the Act at para 5.1 of the order and
P a g e | 3 ITA No.3077/Mum/2023 Laila Rustom Jehangir Vs. ITO, IT, Ward 3(1)(1) held that these expenses of Rs.11,86,610/- were not allowable, therefore, the same was added to the total income of the assessee. 3. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the claim of condominium expenses excluding security charges and administrative expenses amounting to Rs.3,73,278/-. 4. During the course of appellate proceedings before us the ld. Counsel submitted that condominium expenses comprising security and administrative expenses are required to be excluded while determining the annual letting out value of the property and further submitted that these expenditure was basically reimbursement of expenses incurred on behalf of the tenants. In support of its contentions the ld. Counsel has referred the following judicial pronouncements: “i. Decision of the Hon'ble Delhi High Court in the case of CIT v R. J. Wood P. Ltd. [334 ITR 358]. ii. Decision of the Hon'ble Mumbai Tribunal in the case of DCIT v. Yogen D. Sanghvi [ITA No. 4776/Mum/2014] iii. Decision of the Hon'ble Mumbai Tribunal in the case of Ms Aloo Bejan Daver v. ITO [ITA No. 2381, 2382/Mum/2010] iv. Decision of the Hon'ble Mumbai Tribunal in the case of Krishna N. Bhojwani v. ACIT [ITA No. 1463, 1772/Mum/2012]” On the other hand, the ld. D.R. submitted that such expenses were beyond the scope Section 23 and 24 of the Act and same were not allowable. He supported the decision of ld. CIT(A). 5. Heard both the sides and perused the material on record. During the year under consideration the assesse has deducted condominium expenses amounting to Rs.11,86,610/- from the rent receipt of such properties and offered income of Rs.95,68,656/- for taxation under the head income from house property. The assessee submitted that such expenditure claimed was reimbursement expenses incurred on behalf of the tenants. It is also submitted that such charges are to be borne by the owner of the property and the same is to be deducted from the Annual Letting Value (ALV) from the rent received or receivable by the
P a g e | 4 ITA No.3077/Mum/2023 Laila Rustom Jehangir Vs. ITO, IT, Ward 3(1)(1) assessee. The assessee has referred the various decision of the Hon’ble High Court including ITAT, Mumbai wherein such claim of expenses were allowed to be deducted from the rent received. With the assistance of ld. representative we have perused the various decision referred by the ld. Counsel. We have also perused the decision in the case of Ms. Aloo Bejan Daver v. ITO [ITA No. 2381, 2382/Mum/2010]. The relevant extract of the decision is reproduced as under: “7. We have considered the submissions made by both the parties, perused the orders of the A.O. and ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute in the impugned appeal is regarding the allowability of deduction of society charges from the rental income for the purpose of calculation of annual letting value u/s 23(1)(b). We find the Mumbai Bench of the ITAT in the case of Varma Family Trust (supra) has held that section 23(1)(b) proceeds on the basis of actual rent received or receivable and therefore all the outgoings for earning the said rental income would be admissible deduction. We find the Tribunal in the case of Bombay Oil Industries (supra) has held that maintenance charges and municipal taxes paid by the assessee are to be deducted from gross rent to arrive at the annual value. We find that in the case of Sharmila Tagore (supra), the Tribunal held that maintenance charges paid to housing society have to deducted even while computing annual letting value. Similar view has been taken in various other decisions relied on by the ld. counsel for the assessee. The decisions relied on by the ld. CIT(A), in our opinion, are distinguishable and not applicable to the facts of the present case. 8. We find the Mumbai Bench of the Tribunal in the case of Gopichand P. Godhwani (supra), after considering the decision of the Hon’ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (2001) 168 CTR (Bom) 189 has held that for the purpose of determining annual value of the property all taxes, cesses and outgoings being liabilities of the assessee, have to be excluded from assessable income in view of s. 23(1)(b). So far as the decision of the Tribunal in the case of Barodawala Properties Ltd. (supra) is concerned, we find that the Tribunal in subsequent judgments have held that while calculating annual value of the let out property, maintenance charges paid to the society by the assessee is admissible deduction from the annual let out value u/s 23(1)(b). In view of the series of decisions relied on by the ld. counsel for the assessee supporting the deductibility of society charges from the gross rent for the purpose of determining the annual let out value u/s 23(1)(b), we hold that the assessee is entitled to deduction of society charges amounting to ` 1,26,000/- from the rent so received for the purpose of determining ALV u/s 23(1)(b) of the I.T. Act. The ground raised by the assessee is accordingly allowed.”
After considering the other decisions on similar propositions as referred there is nothing before us on hand differs from the issue raised in the cases cited (supra) so as to take a different view on this issue.
P a g e | 5 ITA No.3077/Mum/2023 Laila Rustom Jehangir Vs. ITO, IT, Ward 3(1)(1) Therefore, following the decision of the ITAT as referred above, the ground of appeal of the assessee is allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 08.02.2024 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 08.02.2024 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.