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2021 (1) TMI 38 - AT - Income TaxClaim of Deduction from Rental Income u/s 23(1)(b) - Addition towards BPT lease Bombay Port Trust rent while computing the income under the head Income from House Property - assessee firm has claimed the lease rent paid as deduction from the rental income/licence fee received from its tenants - whether CIT(A) erred in upholding the annual value of the property determined by the A.O without considering the lease rent paid by the Appellant firm to BPT? - HELD THAT - Assessee firm has to pay the lease rent of building to its owner Bombay Port Trust (BPT) and also the assessee has entered into the leave and license agreement with tenants and receiving the rent. Referring to the factual aspects and provisions of Section 23(1)(b) of the Act are of the view that the assessee is entitled for claim of deduction of lease rent paid to the Bombay Port Trust(BPT) against the Leave and License fee/rent received from the tenants in determining the annual value of the property. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete the addition and allow the grounds of appeal of the Assessee.
Issues Involved:
1. Addition of ?37,97,657/- towards BPT lease rent. 2. Determination of annual value of the property without considering lease rent paid. Issue-wise Detailed Analysis: 1. Addition of ?37,97,657/- towards BPT lease rent: The assessee, a partnership firm, filed an appeal against the order of the Commissioner of Income Tax (Appeals)-28, Mumbai, challenging the addition of ?37,97,657/- towards BPT lease rent made by the Assessing Officer (A.O) while computing income under the head "Income from House Property." The A.O disallowed the deduction of lease rent paid to Bombay Port Trust (BPT) on the grounds that the assessee had already claimed a statutory deduction of 30% of Net Annual Value (NAV) under Section 24(a) of the Income Tax Act, 1961, and hence no other deduction was permissible. The CIT(A) upheld the A.O's decision, leading the assessee to appeal to the Tribunal. 2. Determination of annual value of the property without considering lease rent paid: The assessee contended that the annual value of the property should be determined under Section 23(1)(b) of the Act, which considers the actual rent received or receivable. The assessee argued that the lease rent paid to BPT should be deducted from the rental income received from tenants. The Tribunal referred to Section 23(1)(b) of the Act, which states that the annual value of the property shall be deemed to be the actual rent received or receivable if it exceeds the reasonable expected rent. The Tribunal also considered various judicial decisions supporting the assessee's claim, including: - CIT Vs. RJ Woods P. Ltd (334 ITR 358): The Delhi High Court held that maintenance and other charges paid by the assessee should be deducted from rent while computing the annual letting value. - DCIT Vs. State Trading Corporation of India Ltd. (ITA No. 822/Del/2010): The Tribunal held that actual rent received in excess of fair rent should be considered under Section 23(1)(b). - M/s. Suman Didwania Vs. ACIT (ITA No. 5805/Mum/2010): The Tribunal held that maintenance charges paid by the assessee should be deducted while determining the annual value of the property. - Krishna Bhojwani Vs. ACIT (ITA No. 1463/Mum/2012): The Tribunal emphasized that actual rent received should be considered for determining the annual value. - Sharmila Tagore Vs. JCIT (150 Taxman 4): The Tribunal held that maintenance charges paid by the assessee should be deducted in determining the annual value. - ITO Vs. Gopichand P. Godhwani (1 SOT 374): The Tribunal held that outgoings from the rental income should be excluded from assessable income if they are the liability of the assessee. Based on these precedents, the Tribunal concluded that the assessee is entitled to deduct the lease rent paid to BPT from the rental income received from tenants while determining the annual value of the property under Section 23(1)(b) of the Act. Consequently, the Tribunal set aside the order of the CIT(A) and directed the A.O to delete the addition and allow the grounds of appeal of the assessee. Conclusion: The appeal filed by the assessee was allowed, and the Tribunal directed the A.O to delete the addition of ?37,97,657/- towards BPT lease rent and to re-compute the income under the head "Income from House Property" by considering the lease rent paid to BPT. The order was pronounced in the open court on 20.10.2020.
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