2014 (1) TMI 1726 - HC - Income Tax

Determination of the annual letting value - Commission of brokerage paid to the Property Dealers - whether not allowable as a deduction against the rental income and the assessee is to be taxed on the total rental income received without any such deduction? - Held that - there is no express provision allowing any expenditure, brokerage or commission to be deducted in determining the annual letting value. A formula has been enshrined in Section 23 and a combined reading of clauses (a) and (b) would lead to an inference about the words used i.e. actual rent received or receivable . Thereafter deduction is allowed under Section 24 of the Act. The statute does not empower the assessing authority or the assessee to add anything to the provisions where the words used in the statute are plain, precise and unambiguous. Neither Section 23 nor Section 24, which are exhaustive, provides for the deduction of the commission paid to the broker or the agent while letting out the property. Furthermore, the learned counsel for the appellant was unable to demonstrate as to how any aid could be derived from Explanation 1(a) to Section 23(1) of the Act. Any expense by way of brokerage or commission paid by owner to the broker in such circumstances cannot be reduced to determine annual rent received or receivable by the landlord. Once this is so, equally the plea of amount of brokerage paid to have overriding title over rent cannot be accepted. We are, not inclined to concur with the analogy on which the assessee has set up its case, especially when a particular type of expenditure is not specifically provided to be deductible, deduction cannot be claimed from it. We find no ground to differ with the view taken by the Tribunal while upholding the order of Assessing Authority. We, therefore, answer the question against the assessee and in favour of the revenue.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was justified in disallowing the deduction of commission paid to property dealers from the rental income under the Income Tax Act, 1961.

Detailed Analysis:

1. Factual Matrix:
The appellant-assessee, engaged in the business of running a hotel, cinema hall, and owning a commercial building, rented out the property and reported the income under "income from house property." The assessee claimed a deduction of Rs. 16,54,000 as commission paid to property agents for securing the rental agreement, arguing it as a normal expenditure in this trade.

2. Assessing Authority's Decision:
The Assessing Authority disallowed the commission deduction, relying on Section 24(1) of the Income Tax Act, which does not expressly allow such a deduction for determining the annual letting value of the property.

3. Commissioner of Income Tax (Appeals) [CIT(A)] Decision:
The CIT(A) accepted the assessee's argument, holding the commission as a charge on the rent, and allowed the deduction of Rs. 16,54,000.

4. Income Tax Appellate Tribunal's Decision:
The Tribunal reversed the CIT(A)'s decision, reinstating the Assessing Authority's order. It concluded that the commission paid to property agents cannot be deducted from the rental income, as there is no express provision in Sections 23 or 24 of the Act allowing such a deduction.

5. Appellant's Argument:
The appellant argued that the rent received should be considered after deducting the commission paid to brokers. They referenced Explanation 1(a) to Section 23(1) and claimed that the commission paid had an overriding title over the rent, necessitating its deduction to determine the actual rent received.

6. Revenue's Argument:
The revenue supported the Tribunal's order, emphasizing that the statute does not provide for the deduction of commission paid to brokers when determining the annual rent.

7. Legal Provisions and Interpretation:
Sections 22, 23, and 24 of the Act were examined. Section 22 charges income from house property to tax, while Section 23 prescribes the method for determining the annual value, which is the actual rent received or receivable. Section 24 enumerates allowable deductions, but does not include brokerage or commission.

8. Court's Analysis:
The court found no express provision in the Act allowing the deduction of brokerage or commission in determining the annual letting value. The statutory language is plain and unambiguous, and neither Section 23 nor Section 24 allows such deductions. The court also noted that the brokerage paid is a one-time expenditure and does not have an overriding title over the rent.

9. Tribunal's Conclusion:
The Tribunal concluded that the annual value should not be reduced by brokerage paid, as the statute does not provide for such a deduction. The court agreed with this interpretation, noting that the computation of income from house property is based on a set formula in Sections 23 and 24, which does not include brokerage as a deductible expense.

10. Precedents:
The court referenced CIT v. H.G. Gupta & Sons and Aravali Engineers (P) Ltd. v. CIT, where similar deductions were disallowed. These cases reinforced that only specified deductions under Sections 23 and 24 are permissible, and brokerage is not one of them.

11. Conclusion:
The court dismissed the appeal, upholding the Tribunal's decision. It ruled that since the statute does not specifically provide for the deduction of brokerage, such a deduction cannot be claimed. The question was answered against the assessee and in favor of the revenue.