2017 (6) TMI 916 - AT - Income Tax

Income from a let out house property - Disallowance of brokerage from the annual letting value of the let out property - Held that - As decided in Commissioner Of Income-Tax, Delhi I Versus HG. Gupta And Sons 1983 (12) TMI 54 - DELHI High Court the expenses incurred in providing the proper stamp paper in case of a lease or agreement to lease is by virtue of the provisions contained in section 23 of the Indian Stamp Act, 1899, and is on the lessee or intended lessee, in the absence of an agreement to the contrary. It may be for this reason, that the Legislature did not include such expenses in the permissible deductions under section 23 or section 24. If a particular type of expenditure is not specifically provided to be deductible, deduction, therefore, cannot be claimed from out of the annual value. Neither section 23 nor section 24 provides for the deduction of the expenses incurred towards the stamp duty or registration charges in respect of the lease. If the view of the Tribunal is accepted that the expenditure incurred has to be deducted from the gross rent in order to arrive at the reasonable annual letting value, then the annual letting value would be different in the first year as compared to the subsequent years, The expenditure incurred on a lease for a period of 5 years towards the stamp duty and registration charges is only in the first year. The annual value of any property is deemed to be the same for which the property might reasonably be expected to let from year to year. It is a notional income to be gathered from what a hypothetical tenant would pay which is to be objectively ascertained on a reasonable basis. The annual value cannot be left to fluctuate when the lease is for a period of 5 years. Answer the reference in the negative, i.e., in favour of the department and against the assessee.

Issues Involved:
1. Disallowance of brokerage expenses.
2. Disallowance of electricity expenses.
3. Disallowance of legal and professional expenses.
4. Disallowance of bank charges.

Issue-wise Detailed Analysis:

1. Disallowance of Brokerage Expenses:
The assessee claimed a deduction of ?5,00,565/- for brokerage paid concerning a property at Maker Chamber VI. The Assessing Officer (AO) disallowed this expense, stating that the Income Tax Act, 1961, explicitly allows only certain deductions under sections 23 and 24 when computing income from house property. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that brokerage expenses are not among the deductions specified in the Act. The Tribunal, referencing the legal framework, concluded that such expenses are not deductible from the annual letting value as per sections 23 and 24. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in CIT vs H.G. Gupta & Sons, which clarified that only deductions explicitly mentioned in the Act are permissible. Consequently, the Tribunal dismissed the assessee's ground on brokerage expenses.

2. Disallowance of Electricity Expenses:
The assessee claimed a deduction of ?27,228/- for electricity expenses related to the property at Dada Manzil. The AO disallowed this expense, and the CIT(A) upheld the disallowance, citing the specific provisions of sections 23 and 24, which do not permit deductions for electricity expenses. The Tribunal reviewed various case laws, including J.B. Patel & Co. and Gopichand P. Godhwani, which dealt with similar issues but ultimately adhered to the statutory provisions that exclude such expenses from allowable deductions. The Tribunal affirmed the CIT(A)'s decision, disallowing the electricity expenses.

3. Disallowance of Legal and Professional Expenses:
The assessee claimed a deduction of ?1,25,000/- for legal and professional expenses related to the property at Dada Manzil. The AO disallowed this expense, and the CIT(A) upheld the disallowance based on the provisions of sections 23 and 24. The Tribunal examined precedents like Sharmila Tagore and Sir Sobha Singh & Sons (P) Ltd., where similar expenses were discussed. However, the Tribunal noted that the legal framework under sections 23 and 24 does not permit deductions for legal and professional expenses. The Tribunal, following the judgment in H.G. Gupta & Sons, dismissed the assessee's claim for these expenses.

4. Disallowance of Bank Charges:
The assessee claimed a deduction of ?100/- for bank charges related to the property at Dada Manzil. The AO disallowed this expense, and the CIT(A) upheld the disallowance, stating that bank charges are not among the allowable deductions under sections 23 and 24. The Tribunal, referencing the statutory provisions and relevant case laws, concluded that bank charges are not deductible from the annual letting value. The Tribunal dismissed the assessee's ground on bank charges.

Conclusion:
The Tribunal dismissed the appeal, affirming the disallowance of brokerage, electricity, legal and professional expenses, and bank charges based on the specific provisions of sections 23 and 24 of the Income Tax Act, 1961. The judgment emphasized that only deductions explicitly mentioned in the Act are permissible when computing income from house property. The Tribunal's decision was pronounced in the open court on 19/04/2017.

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