2014 (6) TMI 1024 - AT - Income Tax

Income from house property - Claim of deduction of maintenance charges paid to society / builder in respect of the following flats let out by the appellant - HELD THAT - Only the change in clause (b) is that instead of the word properties let and annual rent received or receivable the same has been substituted with property or any part of the property is let and the actual rent received or receivable . Thus there is no material change except for annual rent received or receivable has been replaced by actual rent received or receivable and therefore on this basis to conclude that the earlier decisions will not be applicable is not correct. The Hon ble High Court in CIT v/s R.J. Wood Pvt. Ltd. 2011 (1) TMI 889 - DELHI HIGH COURT held that maintenance charges and other charges paid by the assessee is deductible from the rent while computing annual letting value. As per the lease agreement which has been placed in paper book it is seen that the assessee was liable to pay the municipal charges out of the rent received from the licensee. If the licensee had to make such payment then the actual rent received would have been less. The deduction under section 24 is to be calculated on the basis of income which is earned and chargeable to tax under section 22 and 23. If the gross rent also includes society charges which is to be paid by the assessee then while computing the annual value the amount of rent which is actually received in the hands of the owner in respect of the lease property should be taken into consideration while giving the deduction under section 24. Thus the actual rent received as envisaged in section 23 should be construed as net rental income received after deducting mandatory society charges. - Decided in favour of assessee.

Summary

Issues:
Challenge to disallowance of maintenance charges deduction for rented flats.

Analysis:
1. The assessee challenged the disallowance of deduction of maintenance charges paid to society/builder for two rented flats.
2. The Assessing Officer noted the rental income and maintenance charges claimed by the assessee.
3. The Assessing Officer rejected the deduction, stating only specific deductions under section 24 could be claimed.
4. The Commissioner (Appeals) upheld the disallowance, citing changes in law post-2002 and tribunal decisions.
5. The assessee argued that no prohibition exists for maintenance charges deduction from rental income.
6. The Departmental Representative supported the Commissioner's decision.
7. The Tribunal analyzed changes in section 23 post-2002 and held that maintenance charges are deductible from gross rent received.
8. The Tribunal referred to various decisions supporting deduction of society charges from rental income.
9. Citing precedents, the Tribunal allowed the appeal, holding maintenance charges deductible from gross rent.
10. The appeal was allowed, and the order was pronounced in June 2014.