2005 (8) TMI 570 - AT - Income Tax

Income from house property - Society charges paid from the annual letting value - Depreciation - claim regarding utilization of Nariman Bhavan property for business purpose - HELD THAT - The said property was let out in the earlier years and income was being assessed likely under the head Income from house property . Merely the said property was not let out during the year does not mean that it was kept ready for the use for the purpose of business of the assessee. Thus The finding of ld. CIT(A) is upheld. The second ground of the assessee s appeal is dismissed. It is an admitted fact that the gross rent receipt by the assessee also include the society charges which are to be paid by the assessee. In our view while computing the annual value the amount of rent which actually goes to the hands of the owner in respect of leased property should be taken into consideration. As per the provisions of section 23 the annual value of any property is to be determined on the basis of actual rent received by the owner. It is held that the society charges paid by the assessee in respect of its let out properties are allowable while computing the annual value. One of the objections of the Assessing Officer with regard to the claim of society charges of Janki Cooperative Society is that the receipt of society charges is issued in the name of Shri Prakash Jain and not in the case of the assessee-company. The Assessing Officer is directed to verify if the payment has been made by the assessee-company or not. If it is found that the payment is made by the society then same should be allowed as deduction irrespective of the fact that the receipt is issued in the name of the Director of the assessee-company. We direct accordingly. In the result appeal is partly allowed.

Summary

Issues:
1. Claim of depreciation on property not let out during the year.
2. Allowance of society charges as deduction from annual letting value.

Claim of Depreciation on Property Not Let Out During the Year:
The appeal was against the order of CIT(A)-XXXII, Mumbai for the assessment year 1999-2000 under section 143(3) of the Income-tax Act, 1961. The issue revolved around the claim of depreciation of Rs. 1,60,000 on a property, Nariman Bhavan, which was not let out during the relevant year. The assessee contended that even though the property was not used during the year, depreciation should be allowed as the property was ready for use. However, the Assessing Officer and CIT(A) disallowed the claim, stating that the property being unlet did not automatically entitle the assessee to change the head of income and claim depreciation. The Tribunal upheld this decision, emphasizing that the property's prior rental income under "Income from house property" indicated no intention by the assessee to use it for business purposes. The Tribunal differentiated this case from a Kerala High Court precedent, where passive user sufficed for depreciation claim, as in this case, the property's past use for rental income precluded the depreciation claim.

Allowance of Society Charges as Deduction from Annual Letting Value:
Another issue in the appeal concerned the deduction of society charges from the annual letting value. The Assessing Officer disallowed these charges, contending they were not permissible deductions under section 24 of the Income-tax Act. The assessee argued that the society charges should be allowed as a deduction from the annual letting value, citing cases where similar expenses were permitted. The Tribunal agreed with the assessee, stating that charges paid to the society should be considered while computing the annual value, as they form part of the rent received by the owner. The Tribunal distinguished a Calcutta High Court case referenced by the Revenue, reiterating that such charges should be deductible when computing the annual value. It directed the Assessing Officer to verify the payment of society charges and allow them as a deduction if paid by the assessee, even if the receipt was issued in the name of the director of the assessee-company.

In conclusion, the Tribunal partially allowed the appeal, upholding the disallowance of depreciation on the property not let out during the year but permitting the deduction of society charges from the annual letting value. The decision was based on the specific circumstances of each issue and relevant legal provisions, ensuring a fair and reasoned judgment in line with the Income-tax Act.