1973 (4) TMI 14 - HC - Income Tax

Assessee, filed her returns for both these years declaring incomes from property and interest at Rs. 71,919 and Rs. 89,420, respectively. In her return the assessee claimed collection charges of Rs. 4,529 and Rs. 4,404 against income from property known as Bangalore House Ranbir Mahal and Bombay flat - assessee is not entitled to claim any deduction in respect of these expenditures under section 24(1)(viii) of Income-tax Act, 1961

Summary

Issues:
Assessment of income for Maharajkumar Vikramaditya Singh and Maharani Yashorajya Lakshmi, Allowance of collection charges as deductions, Interpretation of section 24(1)(viii) of the Income-tax Act.

Analysis:
The High Court of Jammu and Kashmir addressed two references made by the Income-tax Appellate Tribunal regarding the assessment of Maharajkumar Vikramaditya Singh and Maharani Yashorajya Lakshmi, individuals with separate incomes from properties and other sources. The Tribunal allowed the deduction of collection charges claimed by the assessees, which were initially disallowed by the Income-tax Officer and the Appellant Assistant Commissioner. The Tribunal based its decision on the grounds that the expenditure was actually incurred for rent collection purposes. The specific issue referred to the High Court was whether the Tribunal was correct in allowing the collection charges as deductions for the assessment years in question.

The High Court analyzed the interpretation of section 24(1)(viii) of the Income-tax Act, which allows deductions for sums spent to collect rent from a property. The Court emphasized that the deductions claimed must be incurred or spent by the assessee who is the owner of the property. The Court clarified that even if the expenses are not physically incurred by the assessee but are spent on their behalf, the source of the money for incurring expenses must ultimately come from the assessee. In this case, it was found that the expenses were not borne by the assessees but were incurred by Dr. Karan Singh, a separate assessee. Therefore, the Court concluded that the assessees were not entitled to claim the deductions under section 24(1)(viii) as the expenses were not directly incurred by them.

The Court also compared the provisions of sections 16 and 19 of the Income-tax Act, which deal with different categories of income and deductions. It highlighted that section 24 encompasses cases where deductions are allowed based on notional valuation or actual amounts spent. The Court emphasized that in cases like clauses (vii) and (viii) of section 24(1), deductions are based on the actual amount spent by the assessees, which must be proven to have been spent by them for collection charges. Since the expenses in this case were not borne by the assessees themselves, the Court ruled that the interpretation by the Tribunal was legally erroneous.

In conclusion, the High Court held that the Tribunal's decision to allow the collection charges as deductions was incorrect. The assessees were deemed ineligible to claim the deductions under section 24(1)(viii) as the expenses were not incurred by them directly. The references were answered in the negative, and the Tribunal was directed to proceed accordingly. No costs were awarded in these cases.

Judge D. D. Thakur concurred with the decision of the Court.