2017 (5) TMI 1357 - AT - Income Tax

Income from a let out house property determination - whether brokerage expenses, legal and professional fees, bank charges and electricity charges were necessarily required to be incurred for the enjoyment / use of the relevant property by the tenant and therefore, the annual value of the property should be taken after reducing such expenses which are directly attributed to the earning of rental income? - Held that - We find that from the gross annual value, municipal taxes (including service taxes) levied by any local authority in respect of the house property are deducted. Municipal taxes are deductible only if (a) these taxes are borne by the owner, and (b) are actually paid by him during the previous year. The remaining amount left after deduction of municipal taxes is net annual value. As per provisions of section 24, the following two deductions are available - a) Standard deduction; and b) Interest on borrowed capital The list of allowance of section 24 is exhaustive. In other words, no deduction can be claimed in respect of expenses on insurance, ground rent, land revenue, repairs, collection charges, electricity, water supply, salary of liftman etc. In the instant appeal, no dispute arose about payment of rent nor the tenants have filed any suit in the Court for fixation of standard rent nor the Court has passed any order fixing the rent. Respectfully following the judgement of the Hon ble Delhi High Court in the case of H.G. Gupta and Sons (1983 (12) TMI 54 - DELHI High Court ), we dismiss ground no 1 to 4 of the assessee Clerical error in taking interest income - Held that - The actual interest income received by the assessee can be verified from the TDS certificates. Therefore, the order of the learned CIT(A) relating to this ground of appeal is set aside and the same issue is restored to the file of the AO. We direct the AO to verify the TDS certificates and bring to tax the actual interest income as per the provisions of the Act. Needless to say, the AO would give a reasonable opportunity to the assessee to represent before him this issue.

Summary

Issues Involved:
1. Disallowance of brokerage expenses.
2. Disallowance of electricity expenses.
3. Disallowance of legal and professional expenses.
4. Disallowance of bank charges.
5. Incorrect computation of interest income.

Detailed Analysis:

1. Disallowance of Brokerage Expenses:
The assessee claimed brokerage expenses of ?5,00,565/- for the let-out property at Maker Chamber, VI, Nariman Point. The Assessing Officer (AO) disallowed this expense, stating that the Income Tax Act, 1961, explicitly mentions allowable deductions under sections 23 and 24, which do not include brokerage expenses. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, disallowing the brokerage expenses. The Tribunal, referencing the Delhi High Court judgment in CIT vs. H.G. Gupta & Sons, upheld the disallowance, stating that the Act's provisions are exhaustive and do not permit such deductions.

2. Disallowance of Electricity Expenses:
The assessee claimed electricity expenses of ?27,228/- for the let-out property at Dada Manzil. The AO disallowed this expense on the same grounds as the brokerage expenses, which was upheld by the CIT(A). The Tribunal agreed with the AO and CIT(A), citing the specific provisions of the Act that do not allow for such deductions in computing income from house property.

3. Disallowance of Legal and Professional Expenses:
The assessee claimed legal and professional expenses of ?1,25,000/- for the let-out property at Dada Manzil. This claim was disallowed by the AO and upheld by the CIT(A) based on the provisions of sections 23 and 24 of the Act. The Tribunal confirmed the disallowance, reiterating that the Act does not permit deductions for legal and professional expenses in the computation of income from house property.

4. Disallowance of Bank Charges:
The assessee claimed bank charges of ?100/- for the let-out property at Dada Manzil, which were disallowed by the AO and upheld by the CIT(A). The Tribunal supported this disallowance, emphasizing that the allowable deductions under sections 23 and 24 are exhaustive and do not include bank charges.

5. Incorrect Computation of Interest Income:
The assessee contended that the interest income was incorrectly taken as ?7,89,198/- instead of ?2,71,591/-. The Tribunal directed the AO to verify the TDS certificates to ascertain the actual interest income and to correct the computation accordingly. The AO was instructed to provide a reasonable opportunity for the assessee to present the relevant details.

Conclusion:
The Tribunal dismissed the assessee's claims for brokerage, electricity, legal and professional expenses, and bank charges, citing the specific and exhaustive nature of allowable deductions under sections 23 and 24 of the Income Tax Act. However, the Tribunal allowed the appeal concerning the incorrect computation of interest income, directing the AO to verify and correct the figures based on the TDS certificates. The appeal was thus partly allowed.