2015 (11) TMI 579 - AT - Income Tax

Treatment and taxability of maintenance charges received by the assessee from its tenants in the hands of the assessee - deductibility of maintenance charges paid by the assessee, in turn, to the developer by the assessee - Held that - Maintenance charges are different from the nature of rent. These charges are not paid for the users of the property as such. These charges have been paid for making some extra use of the property, the maintenance charges are not in the nature of the rent simplicitor. These have been called maintenance charges but these are for the extra facilities enjoyed by the tenants. These cannot be said to be necessarily integral part of the rental income. In our view, these are apparently, over and above, the rental income earned by the assessee company, therefore, in our considered view, this income cannot be clubbed with the rental income. There can be different types of arrangements by the land lords with different tenants. Therefore, presuming that this kind of charges, form part of the rental income, in the given facts of the case, would not be fair and justified, in our considered view. Accordingly, it is held that these maintenance charges are not part of the rental income and therefore amount of maintenance charges, received by the assessee, in these facts and circumstances of the case is not part of the rental income. Further examined with regard to taxability of the these charges in the hands of the assessee company, these charges should not be clubbed with the rental income, therefore, these charges cannot be brought to tax under the head income from house property , in the given fact and circumstances. In our view, these charges should be brought to tax under the head income from other sources . Accordingly, the assessee should be eligible to make claim of the expenses also, which have been incurred for earning this income. Therefore, we hold that the amount received by the assessee on account of maintenance charges would be taxable under the head income from other sources and assessee will be eligible to make claim of the payment made under this head to M/s Tamilnadu Real Estate Pvt. Ltd. - Decided partly in favour of assessee.

Summary

Issues:
1. Tax treatment of maintenance charges received by the assessee from tenants.
2. Deductibility of maintenance charges paid by the assessee to the developer.

Detailed Analysis:
Issue 1: The primary issue in this case revolved around the tax treatment of maintenance charges received by the assessee from its tenants. The Assessing Officer contended that these charges should be treated as part of the rental income and taxed accordingly under the head 'income from house property.' The assessee argued that the maintenance charges were separate from rent and should not be taxed as part of rental income. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, rejecting the assessee's plea to treat the charges as income from other sources. However, the Appellate Tribunal disagreed with the lower authorities, ruling that the maintenance charges were distinct from rent and should be taxed under the head 'income from other sources.' The Tribunal allowed the assessee to claim expenses incurred for earning this income, directing that the charges received would be taxable under the head income from other sources.

Issue 2: The second issue pertained to the deductibility of maintenance charges paid by the assessee to the developer. The assessee argued that the payment made for maintenance charges should have been allowed as a deduction against the rental income. The Tribunal agreed with the assessee, stating that since the maintenance charges were not to be clubbed with rental income but treated as income from other sources, the assessee should be eligible to claim the expenses incurred for earning this income. Therefore, the Tribunal directed that the amount received by the assessee on account of maintenance charges would be taxable under the head income from other sources, and the assessee could claim the payment made to the developer as a deduction.

In conclusion, the Appellate Tribunal allowed the appeal of the assessee partly, holding that the maintenance charges received should be taxed under the head 'income from other sources' and allowing the deduction of payment made for maintenance charges to the developer. The Tribunal's decision clarified the distinction between rental income and maintenance charges, ensuring a fair tax treatment for the assessee in this case.