|Mr. X has let out his residential flat to a prestigious company. As per the requirement of the company and as is customary in the area, the flat, which was not in proper condition, was required to be repaired and refurbished with modern decor. Mr. X also has to install air conditioners in all the rooms. Mr. X also had to pay one month rent as commission / brokerage to a broker who arranged the deal. Mr. X also had to pay society charges and other maintenance / contribution charges to the society. Besides, Mr. X also has to incur various administrative costs. The rent is one single amount. What amounts are deductible from the rent income in the hands of Mr. X?
Will there be any difference if:
(i) Instead of Mr. X, a company was owner with one of its objects being dealing in immovable properties?
(ii) Instead of one, say, dozen properties are let out to different persons.
(iii) In case the company is owner, the company has also to incur expenses on audit fees, ROC filing fees, director fees, etc.
|In Tube Rose Estates (P) Ltd., v. ACIT [123 ITD 498] the Delhi Tribunal has held that the brokerage payable by an assessee for renting out the premises could neither be deducted from the rent under section. 23 nor it was allowable as a deduction under section 24 of the Income-tax Act, 1961.
As held by the Hyderabad Tribunal in DDIT v. G. Raghuram [39 SOT 406] that, in case of letting of building along with machinery, plant or furniture would be assessable under section 56(2)(iii) of the Act, but only letting of building with certain amenities such as lighting, air-conditioning, cafeteria, transformer, etc., does not attract the aforesaid provision and in that event, income from letting out of property would be chargeable under the head “Income from House Property”. However, in ACIT v. Sunil Kumar Agarwal [20 taxmann.com 330 (Luck)], the Tribunal has held that charges paid by the assessee-owner to housing society for availing of facilities of generator, lift, lighting, common area sweeping, etc is deductible from gross rent.
The Mumbai Tribunal in Roma Builders (P) Ltd., v. JCIT [131 ITD 91] has held that there is no material on record to show that the lease rent received by an assessee-company is from exploitation of property by way of complex commercial activities as prime object. This being so, the rental income derived by the assessee as an owner of the property is liable to be assessed under the head “Income from House Property”.
If assessee’s business is of building and developing properties i.e. carrying on complex commercial activities as prime object then property let out is considered as commercial activities and it would be assessed under the head “ Profit & Gains of Business or Profession” as held by the Bombay High Court in CIT v. Rumwal Developers (P) Ltd. [203 Taxman 3 (Mag)]
The Delhi Tribunal in M and M Estate Pvt. Ltd. v. ITO [2 ITR (Trib.) 755] has held in case of a company deriving income under the head “House Property” expenditure incurred by it on account of salary, conveyance, maintenance , repair, etc., for compliance its statutory obligation is allowable even if, it has no income under the head “Business”. Hence, audit fees, director fees, ROC filing fees, etc. is allowable, even if, income is assessed under the former head.
|CA. H. N. Motiwalla
|deductions, immovable properties, Income from House Property
Opinion Of Eminent Legal Luminaries On Controversial Issues
Whether Brokerage And Other Maintenance Charges Deductible From Rental Income Assessed Under The Head “Income From House Property”?
Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org