2004 (1) TMI 48 - HC - Income Tax

Deduction of brokerage paid for arranging for lease of property - it appears that the amount of brokerage is paid at the rate of 1 1/3 times the monthly rent. As against this, the benefits secured are also required to be taken into consideration as also the loss, which would be suffered by the brokers on the lower rate of monthly rent on account of higher security amount deposit and advance amount paid by the persons/tenants - Tribunal was justified in allowing deduction

Summary

Issues:
- Allegation of finding not considered by lower authorities
- Reasonableness of brokerage claimed as business expenditure

Allegation of Finding Not Considered:
The appellant contested the lower authorities' decisions, arguing that a finding by the Assessing Officer had not been considered by the Commissioner of Income-tax (Appeals) or the Income-tax Appellate Tribunal. Citing the decision in CIT v. Indian Woollen Textiles Mills [1964] 51 ITR 291, the appellant claimed that this constituted a question of law as relevant facts were allegedly overlooked. The Assessing Officer examined the brokerage claimed by the assessee, amounting to Rs. 1,45,25,708, and highlighted market trends where brokers demanded higher commissions due to factors such as interest-free security leading to lower monthly rents. Examples were provided where commissions were paid based on varying percentages of monthly rent. The court noted the necessity of brokers in facilitating quick property transactions and emphasized market-driven brokerage rates dependent on demand and supply dynamics.

Reasonableness of Brokerage Claimed:
The appellant explained that brokers were essential for swift property transactions to prevent vacancies, with brokerage rates influenced by market conditions. The Assessing Officer identified alleged excess brokerage paid to certain parties, leading to a yearly sum exceeding the monthly rent. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both upheld that the brokerage expenditure was not unjustified, emphasizing the appellant's discretion in determining commission rates based on real estate trends. The Tribunal rejected disallowance based on conjecture and upheld the Commissioner's decision. Ultimately, the court dismissed the appeal, concluding that no interference was warranted in the matter, thus affirming the lower authorities' decisions.