2022 (1) TMI 331 - AT - Income Tax

Income from other sources - payments made to Prestige Property Management and Services Ltd. for providing service to the tenants was claimed as a deduction - disallowance of maintenance charges on a 'proportionate basis, in the same proportion as the rent to the total rent and maintenance charges collected from 2 parties - HELD THAT - Maintenance charges collected by the Assessee from the tenants is shown as income from other sources and the payment made to PPMSL is reduced and the difference offered to tax under the head income from other sources. U/s.57(iii), deduction of expenditure incurred in earning income under the head other sources has to be allowed as a deduction. There is no basis to conclude that the amounts paid by the tenant of 7th and 8th floor is attributable to the entire property and therefore part of the same which is not attributable to 7th and 8th floor maintenance should be disallowed proportionately. The amounts collected from the two tenants was paid over by the Assessee to PPMSL and in such circumstances, was to be allowed as expenditure, when admittedly services were rendered by PPMSL. We find no legal or factual basis to support the disallowance made by the revenue authorities - Decided in favour of assessee.

Summary

Issues:
- Disallowance of maintenance charges on a proportionate basis.
- Allowance of deduction under section 57(iii) for expenditure incurred in earning income from other sources.

Analysis:
1. The appeal involved a dispute regarding the disallowance of maintenance charges on a proportionate basis by the Assessing Officer (AO). The appellant, a company owning a commercial building, collected maintenance fees from tenants and paid for maintenance services provided by a management company. The AO disallowed a portion of the maintenance charges, claiming they were not exclusively for specific floors but for the entire building. The AO proportionately disallowed a part of the maintenance charges collected from two tenants. The appellant contended that there was no basis for such disallowance, as similar disallowances were not made in previous assessments.

2. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the maintenance services were not exclusively for certain floors but for the entire building. The AO's methodology of proportionate disallowance based on rent and maintenance charges collected from specific tenants was considered valid. The CIT(A) confirmed the disallowance, noting similar disallowances made for other expenditures. The appellant challenged this decision before the Tribunal.

3. The Tribunal analyzed the case and found that the maintenance charges collected were shown as income from other sources, and payments made to the management company were deducted. Under section 57(iii), expenditure incurred in earning income from other sources should be allowed as a deduction. The Tribunal concluded that there was no basis to disallow a proportionate amount of maintenance charges, as the services were rendered by the management company for the entire building. The Tribunal held that the disallowance made by the revenue authorities lacked legal and factual support. Consequently, the Tribunal directed the deletion of the addition made by the AO.

4. Ultimately, the Tribunal allowed the appeal of the Assessee, ruling in favor of the appellant and ordering the deletion of the disallowed amount. The judgment was pronounced in open court on 22-11-2021.