2022 (3) TMI 295 - AT - Income Tax

Income from house property - Deduction u/s 23(1) - Annual mixed use charges paid by the assessee to Municipal Corporation of Delhi - whether the same is amounts to 'tax' - HELD THAT - The definition of the 'tax' under the Delhi Municipal Corporation (Property Tax) bye Laws 2004 means and includes only building tax or vacant land tax or both, which does not include the Annual Mixed Used Charge. In the present case, the collection of 'mixed used charges' is for the purpose of regularizing the usage of residential premises for certain commercial purposes as prescribed under the Delhi Development Authority (Fixation of Charges For Mixed Use And Commercial Use of Premises) Regulations, 2006. The said charges is in the nature of regularization of the usage of the property, which cannot be construed as tax levied by the local authority/Municipal Corporation of Delhi - collection of the annual mixed used charge will not make any difference in the annual let out value of the property, therefore the same is not allowable as per the proviso under section 23(1) of the Income Tax Act, 1961. We are of the view that, the CIT(A) has rightly upheld the disallowance made by the A.O. in respect of the claim made by the assessee for deduction of annual of mixed use charges paid by the assessee to Municipal Corporation of Delhi, in respect of the property of the Assessee.

Summary

Issues:
Disallowance of mixed use charges as deduction under the Income Tax Act, 1961.

Analysis:
The appeal was filed against the order passed by the CIT(A)-12, New Delhi for Assessment Year 2014-15 regarding the disallowance of mixed use charges claimed by the assessee. The assessee, a joint owner of a property in New Delhi, claimed credit for taxes paid to the Municipal Corporation, including mixed use charges. The Assessing Officer disallowed 50% of the amount paid as mixed use charges, leading to an increased assessment. The CIT(A) confirmed the disallowance, stating that mixed use charges are not considered taxes levied by local authorities but allowed a 30% deduction under a different section of the IT Act.

The main contention was whether the annual mixed use charges paid to the Municipal Corporation of Delhi should be considered as 'tax' and thus allowed as a deduction under section 23 of the Income Tax Act, 1961. The definition of 'tax' under the Delhi Municipal Corporation (Property Tax) bye Laws 2004 specifically includes building tax or vacant land tax, excluding annual mixed use charges. The charges in question were for regularizing the usage of residential premises for commercial purposes, not falling under the definition of tax levied by the local authority. As these charges did not impact the property's annual let-out value, they were not allowable as per the provisions of the Income Tax Act.

Therefore, the ITAT Delhi upheld the decision of the CIT(A) to disallow the deduction of annual mixed use charges paid by the assessee to the Municipal Corporation of Delhi. The appeal was dismissed based on these findings.