2013 (5) TMI 399 - AT - Income Tax

Payment of maintenance charges - whether allowable u/s 24 - income from house property - deduction was not allowed by the AO stating that deduction of such charges was not permissible because 30 per cent deduction was allowed under s. 24 which will take care of expenses on account of maintenance - Held that - The claim of the assessee that those charges were not on account of maintenance but for the facilities provided by the society in respect of use of generator, lift, lighting and common area sweeping etc. has not been rebutted at any stage, therefore, it appears that the assessee was paying the charges to the society for the common area amenities which was deductible from the gross rent received by the assessee. It is also noticed that the assessee had not claimed any separate deduction on account of municipal taxes because the same was included in the impugned charges 4.40 per sq. ft. per month, therefore, the AO was not justified in holding that the impugned charges paid by the assessee, were on account of maintenance, which were included in the statutory deduction a 30 per cent under s. 24 of the Act. See Sharmila Tagore vs. It. CIT (2004 (6) TMI 591 - ITAT MUMBAI) wherein held that maintenance charges paid to the housing society have to be deducted even while computing annual letting value - In favour of assessee. Interest paid on housing loan - CIT(A) deleted the addition - Held that - The assessee purchased the house property for a sum of Rs. 1,19,55,353 and the payment was made after raising a loan from HDFC Bank. The assessee raised the loans from HDFC against RBI Bonds maturing in November, 2002 and to get those bonds realized from HDFC Bank, the assessee raised loan from the relatives and IDBI Bank, thus, the subsequent loans were raised by the assessee to repay the original loan raised to purchase the house property, as such, those loans partake the character of original loan as there was direct nexus between the loan and the purchase of the house property, therefore, the interest paid on the loan was deductible u/s 24 from the rental income realized from the house property. CBDT through Circular No. 28, dt.20th Aug.,1969 (F.No. 8/8/69-IT(A-I) stated that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the ITO, the interest paid on the second loan would also be allowed as a deduction under s. 24(1)(vi). In favour of assessee.

Summary

Issues Involved:
1. Deduction of maintenance charges under Section 24 of the IT Act, 1961.
2. Deduction of interest paid on housing loan.

Detailed Analysis:

1. Deduction of Maintenance Charges under Section 24 of the IT Act, 1961:

The first issue concerns the deduction of Rs. 2,35,200 on account of maintenance charges under Section 24 of the IT Act, 1961. The Department argued that maintenance charges paid to any society are not allowable expenditure under this section, as expenses towards maintenance/collection charges are covered under the statutory claim of 30% of total rental income.

The assessee had shown income under the head house property at Rs. 9,14,417, which included deductions for maintenance charges paid to the society. The AO disallowed the deduction, stating that the 30% deduction under Section 24 already covers such expenses. The assessee contended that the property was a commercial space managed by a separate agency, which charged property tax and maintenance charges. The assessee argued that these charges should be deducted from the gross rent to arrive at the net rent for taxation.

The CIT(A) observed that the deductions for common area amenities and property tax were rightly claimed by the assessee, as these were recovered from the tenant in the form of gross rent. The CIT(A) deleted the addition made by the AO, stating that the charges paid to the society for common area amenities were deductible from the gross rent.

The Tribunal upheld the CIT(A)'s decision, noting that the charges paid to the society were for common area amenities and were not covered under the statutory deduction of 30% under Section 24. The Tribunal referenced the case of Sharmila Tagore vs. IT CIT, which held that maintenance charges paid to the housing society should be deducted while computing the annual letting value.

2. Deduction of Interest Paid on Housing Loan:

The second issue pertains to the deletion of the addition of Rs. 7,78,183 made by the AO on account of interest paid by the assessee on housing loans. The AO disallowed the deduction, arguing that the housing loan from HDFC Bank had already been repaid in the previous financial year, and there was no outstanding loan relevant to the assessment year under consideration. The AO also pointed out that the assessee had invested substantial amounts in tax-free RBI Bonds and claimed that the interest on housing loans was not admissible.

The assessee argued that the loans taken subsequently for repayment of the original housing loan should be considered as housing loans, and the interest paid on these loans should be deductible under Section 24. The CIT(A) accepted this argument, stating that the subsequent loans partook the character of the original loan, and the interest paid on these loans was eligible for deduction.

The Tribunal upheld the CIT(A)'s decision, noting that the subsequent loans were raised to repay the original loan taken for the purchase of the house property. The Tribunal referenced the CBDT's Circular No. 28, which clarified that if the second borrowing is used to repay the original loan, the interest paid on the second loan would also be allowed as a deduction under Section 24(1)(vi) of the Act.

Conclusion:

The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found that the maintenance charges were rightly deducted from the gross rent and that the interest paid on subsequent loans used to repay the original housing loan was deductible under Section 24 of the IT Act.