2022 (10) TMI 679 - AT - Income Tax

Correct head of income - addition of maintenance charges received on let out property - assessable under the head income from house property or income from other sources - assessee is owner of two floors i.e., 8th 9th floors in the property of Menon Eternity, Alwarpet, Chennai - HELD THAT - The portion of clause 2.2 of lease deed entered into between the assessee and Fichtner Consulting Engineers (India) Ltd. clearly reveals that the services provided for the charge of maintenance charges is clearly distinguishable from the rental receipt for renting out the portion of the property and it is for only providing services. Once, these maintenance charges are attributable to the services provided, the same derived from providing services is to be considered under the head income from other sources as claimed by the assessee. Hence, we reverse the findings of the lower authorities on this issue and allow the appeal of the assessee.

Summary

Issues Involved:
1. Classification of maintenance charges received from let-out property under the head "income from house property" or "income from other sources."

Detailed Analysis:

1. Classification of Maintenance Charges:
The core issue in this appeal is whether the maintenance charges received by the assessee from let-out property should be classified under "income from house property" or "income from other sources."

Facts of the Case:
The assessee owns two floors of a commercial property and admitted the rent received under "income from house property." However, the maintenance charges were declared under "income from other sources." The A.O. and CIT(A) both classified the maintenance charges under "income from house property," relying on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Sunil Kumar Gupta Vs. ACIT, which held that maintenance charges must form part of the rent.

Arguments by the Assessee:
The assessee argued that the maintenance charges are for specific services provided to tenants, such as parking, power supply, pest control, security, AC plant, and other amenities. These services are distinct from the rental income and should be classified under "income from other sources." The assessee provided evidence, including lease deeds, showing that maintenance charges were separately agreed upon and not part of the rent.

Arguments by the Revenue:
The Revenue relied on the judgment of the Hon'ble Punjab & Haryana High Court and the Tamil Nadu Apartment Ownership Act, 1994, arguing that maintenance charges are part of the rent for computing the annual value of the property. They contended that maintenance charges should be assessed under "income from house property" as they are inseparable from the rent.

Tribunal's Analysis and Decision:
The Tribunal noted that the facts were undisputed, and the property required various maintenance services. It was observed that the maintenance charges were separately agreed upon in the lease deeds, distinct from the rental income. The Tribunal referenced the Hon'ble Supreme Court's decision in Karani Properties Ltd. Vs. CIT, where income from services rendered in an organized manner was classified as "income from business or profession."

Further, the Tribunal cited the Hon'ble Madras High Court's decision in A.R. Complex Vs. ITO, which held that charges for services should be classified under "income from other sources" or "income from business or profession." The Tribunal concluded that the maintenance charges, being attributable to specific services provided, should be classified under "income from other sources."

Conclusion:
The Tribunal reversed the findings of the lower authorities and allowed the appeal of the assessee, classifying the maintenance charges under "income from other sources."

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced on 21st September 2022.