2017 (12) TMI 295 - AT - Income Tax

Deduction of maintenance charges and non-occupancy charges paid to the society, from the rent received by the assessee - Held that - We find that Ld. CIT(A) while deciding these grounds have taken into consideration the facts of the present case as well as judgments passed by the Coordinate Bench of Hon ble ITAT in the case of Sharmila Tagore Vrs. JCIT 2004 (6) TMI 591 - ITAT MUMBAI wherein it has been held that the maintenance charges and non-occupancy charges paid to the society is to be deducted from the rent received by the assessee. Right to more enjoyment of the property - compensation for the impairment of the right of more enjoyment - Capital or revenue receipt - Held that - Hon ble Bombay High Court in the case of CIT vrs. Abhasbhoy A Dehagamwalla 1991 (4) TMI 38 - BOMBAY High Court supported the case of the assessee as by signing the agreement, the assessee has accepted an impairement or injury to its right of more beneficial enjoyment of his own property. Therefore, the Ld. CIT(A) has rightly concluded that the amount of ₹ 81,59,061/- received by the assessee in settlement of the dispute was rightly taken as compensation for the impairment of the right of more enjoyment. It was also rightly concluded that since the immovable property itself is capital in the hands of the assessee, therefore the right to more enjoyment of this property should also be capital in nature. - Decided against revenue

Summary

Issues Involved:

1. Deduction of Common Area Maintenance (CAM) Charges while computing the Annual Letting Value.
2. Treatment of compensation received as capital or revenue receipt.

Issue-wise Detailed Analysis:

1. Deduction of Common Area Maintenance (CAM) Charges while computing the Annual Letting Value:

The revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] directing the Assessing Officer (AO) to allow the deduction of CAM Charges of ?11,36,069 while computing the Annual Letting Value (ALV). The CIT(A) had allowed the deduction based on the argument that CAM charges are necessary expenses for letting out the property and thus should be deducted from the rent received to compute the ALV.

The CIT(A) relied on several judicial precedents, including the case of Sharmila Tagore vs. JCIT, where it was held that maintenance charges and non-occupancy charges paid to the society should be deducted from the rent received by the appellant. The CIT(A) also referenced other cases such as CIT Vrs. R.J. Woods P. Ltd and J.B. Patel & Co. Vrs DCIT, which supported the deduction of such expenses from the rent for computing the ALV.

The Tribunal found no new facts or contrary judgments presented by the revenue to rebut the findings of the CIT(A). The Tribunal upheld the CIT(A)'s decision, stating that the findings were judicious and well-reasoned. Consequently, the grounds raised by the revenue were dismissed.

2. Treatment of compensation received as capital or revenue receipt:

The revenue also contested the CIT(A)'s direction to treat the amount of ?81,59,061 received from K Raheja Universal Construction Pvt. Ltd. as a capital receipt. The AO had treated the compensation as a revenue receipt, arguing that it was paid for the probable loss of higher rental income by letting the unit to an IT/ITES firm.

The CIT(A) considered the facts that the compensation was received due to the breach of a Memorandum of Understanding (MOU) by K Raheja Universal Pvt. Ltd., which let out a unit for Financial Services instead of IT Services, thereby affecting the appellant's ability to let out his unit for Financial Services. The CIT(A) concluded that the compensation was for the impairment of the appellant's right to more beneficial enjoyment of his property, making it a capital receipt.

The CIT(A) relied on the Bombay High Court decision in CIT vrs. Abhasbhoy A Dehagamwalla, which supported the view that compensation for the impairment of the right to more beneficial enjoyment of property is capital in nature. The Tribunal found no new facts or contrary judgments to rebut the CIT(A)'s findings and upheld the decision, dismissing the grounds raised by the revenue.

General Ground:

The eighth ground raised by the revenue was general in nature and required no specific adjudication.

Conclusion:

The appeal filed by the revenue was dismissed, and the order pronounced in the open court on 1st Nov 2017 upheld the CIT(A)'s decisions on both the deduction of CAM charges and the treatment of the compensation received as a capital receipt.