1983 (7) TMI 71 - AT - Income Tax

Summary

Issues:
- Appeal against the Commissioner's order under section 263 for asst. yrs. 1977-78 and 1978-79.
- Treatment of service charges as business receipts and allowance of corresponding expenditure.
- Dispute regarding the nature of income from service charges and its treatment in assessment.

Analysis:
1. The appeals were filed by the assessee against the Commissioner's order under section 263 for the assessment years 1977-78 and 1978-79. The Commissioner found that the Income Tax Officer (ITO) had allowed deductions for excess expenses over service charge receipts, which the Commissioner deemed erroneous and prejudicial to the revenue's interest. The Commissioner directed the ITO to revise the assessments based on his findings.

2. The assessee contended that the ITO's treatment of service charges as business receipts and corresponding expenditure was correct, citing Supreme Court decisions. The Commissioner disagreed, stating that service charges were part of rental income and should be assessed accordingly under specific sections of the Income Tax Act. The Commissioner set aside the assessments and instructed the ITO to conduct fresh assessments.

3. The assessee argued that the property was utilized for its business activities, necessitating certain expenses that would have been incurred regardless of renting out the property. The assessee claimed that the service charges were reduced by amounts recovered from other tenants for common facilities, and the ITO's decision was appropriate given the circumstances.

4. The departmental representative supported the Commissioner's orders, emphasizing that the income from property should be assessed under the relevant sections of the Act, and the ITO's allowance of deductions against business income was incorrect.

5. The Tribunal observed that the case involved a building owned by the assessee where business activities were conducted, and service charges were collected from tenants. The Tribunal noted that the expenses incurred, including watchman's salary and maintenance costs, were in the nature of standing charges necessary for the business, irrespective of property rental. The recovery of service charges from tenants reduced the allowable expenditure for the assessee. The Tribunal concluded that the ITO's decision was appropriate, and the Commissioner's orders were unsustainable. The Tribunal allowed the appeals and restored the ITO's orders for the relevant assessment years.