2017 (11) TMI 110 - AT - Income Tax

Computation of income from property - disallowing the maintenance charges paid in respect of let out properties - Held that - We find that the issue raised in this ground is covered by the decision of the Tribunal in the case of Ms.Allo Bejan Daver (2011 (4) TMI 1277 - ITAT MUMBAI) wherein it has been held that the maintenance charges paid to the society are to be reduced the rent received while calculating the ALV u/s 23(1) of the Act. Also in case of Barodawala Properties Ltd. (2001 (12) TMI 875 - ITAT MUMBAI ) is concerned, we find that the Tribunal in subsequent judgments have held that while calculating annual value of the let out property, maintenance charges paid to the society by the assessee is admissible deduction from the annual let out value u/s 23(1)(b). - Decided in favour of assessee Damages received by the assessee from the licensee for the period falling beyond the period of the leave and license agreement - Held that - The undisputed facts of the case that the licensee did not vacate the flats as per the terms of leave and license agreement and as a result the assessee received ₹ 10,40,000/- as damages pertaining to that period when the licensee occupied the premises without any valid authority as per the licensee deed dated 31.5.2006 and the said damages related to the period after 31.5.2006. We find merit in the argument of AR that the said receipt is a capital receipt and not liable to tax. Thus direct the AO to exclude the amount of ₹ 10,40,000/- from the ALV. Addition made on account of notional interest @ 10% on interest free security deposits received by the assessee while computing the annual value of the residential properties u/s 23 - Held that - As decided in assessee s own case actual rent received by the assessee far exceed the Municipal ratable value and, therefore, the annual value of the property need to be computed under section 23(1)(b) of the Income Tax Act, 1961. This Court in the case of Commissioner of Income Tax Vs. J.K. Investors (Bombay) Ltd. 2000 (6) TMI 9 - BOMBAY High Court has held that while computing the annual value under Section 23(1)(b) of the Income Tax Act, 1961 the notional interest on the security deposit / advance rent cannot be included in the income from house property under section 23( 1 )(b) of the Income Tax Act.

Summary

Issues Involved:
1. Allowability of maintenance charges paid in respect of let-out properties while computing the income from house property.
2. Taxability of damages received by the assessee for non-vacation of the property by the licensee.
3. Inclusion of notional interest on interest-free security deposits in the annual letting value (ALV) of the property.

Issue-wise Detailed Analysis:

1. Allowability of Maintenance Charges:
The assessee claimed maintenance charges for two flats as a deduction while computing the Annual Letting Value (ALV) of the property. The Assessing Officer (AO) rejected this claim, stating it was not made at the time of filing the original return. The First Appellate Authority upheld the AO's action, considering the amount as rent. However, the Tribunal found that the issue was covered by the decision in the case of Ms. Aloo Bejan Daver, where it was held that maintenance charges paid to the society should be reduced from the rent received while calculating the ALV under Section 23(1) of the Income Tax Act. The Tribunal, following this precedent, directed the AO to allow the maintenance charges, thereby allowing the assessee's appeal on this ground.

2. Taxability of Damages Received:
The assessee received ?10,40,000 as damages from the licensee for not vacating the property on time. The assessee argued that this amount was a capital receipt and not taxable, while the AO and the First Appellate Authority treated it as rental income. The Tribunal referred to the decision in Narang Overseas (P) Ltd. and Goodwill Theatres (P.) Ltd., which held that mesne profits received for deprivation of use and occupation of property are capital receipts and not chargeable to tax. The Tribunal found the facts of the present case materially similar and directed the AO to exclude the amount of ?10,40,000 from the ALV, thereby allowing the assessee's appeal on this ground as well.

3. Inclusion of Notional Interest on Security Deposits:
The AO added notional interest at the rate of 10% on the security deposits received by the assessee while calculating the ALV. The First Appellate Authority deleted this addition based on the decision in the assessee's own case for earlier years, which was confirmed by the jurisdictional High Court. The Tribunal reiterated that the issue was covered by the decision in the case of J.K. Investors (Bombay) Ltd., where it was held that notional interest on security deposits cannot be included in the income from house property under Section 23(1)(b). The Tribunal, following these precedents, upheld the deletion of notional interest and dismissed the revenue's appeal on this ground.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the deduction of maintenance charges and the exclusion of damages from the ALV. It dismissed the revenue's appeal concerning the inclusion of notional interest on security deposits. The order was pronounced in the open court on 3rd July 2017.