2020 (1) TMI 1723 - AT - Income Tax

Income from House Property - Denial of deduction of amount paid to Municipal Corporation of Delhi - AO made the disallowance because the receipt issued by South Delhi Municipal Corporation was not available not available and / or misplaced by the assessee and the duplicate receipt could not be received till the completion of assessment proceedings though the assessee furnished the proof of payment by way of bank statement and bank certificate - HELD THAT - As the duplicate receipt was received during the course of appellate proceedings before CIT(A) and the same was furnished before him. As in case of DCIT v Haldiram Products Private Limited 2013 (12) TMI 1151 - ITAT DELHI has held that conversion charges were in the nature of municipal taxes. As per provisions of section 23 of the Income Tax Act 1961 deduction of taxes levied by any local municipality in respect of the let out property is allowable deduction. In the scrutiny assessment made in the case of the assessee for the subsequent assessment year i.e. AY. 2015-16 the AO has himself allowed the deduction of similar expenses. Hence the addition in dispute is not sustainable in the eyes of law. Accordingly, direct the AO to allow the deduction in dispute by deleting the addition made in the hands of the assessee. Accordingly the ground raised by the assessee are allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the amount of Rs. 25,98,622/- paid to the Municipal Corporation of Delhi qualifies as a deductible expense under the head "Income from House Property" for the assessment year 2014-15;

(b) Whether the addition of Rs. 18,19,035/- made by the Assessing Officer (AO) on account of disallowance of the said payment under the head "Income from House Property" is justified;

(c) Whether the payment made to the Municipal Corporation of Delhi was in the nature of municipal taxes or conversion charges, and thus deductible under the proviso to section 23 of the Income Tax Act, 1961;

(d) Whether the assessee's failure to produce the original receipt at the time of assessment proceedings justified the disallowance of the deduction;

(e) Whether the precedent set by the Coordinate Bench in DCIT v Haldiram Products Pvt. Ltd. is applicable to the facts of the present case;

(f) Whether the AO's allowance of similar deduction in the subsequent assessment year (AY 2015-16) is relevant for the present assessment year.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Deductibility of Rs. 25,98,622/- paid to Municipal Corporation and justification of addition of Rs. 18,19,035/-

Relevant legal framework and precedents: Section 23 of the Income Tax Act, 1961, governs the computation of income from house property. The proviso to section 23 allows deduction of "taxes levied by any local authority in respect of the property." The nature of the payment-whether it qualifies as a municipal tax or a non-deductible charge-is crucial. The Coordinate Bench decision in DCIT v Haldiram Products Pvt. Ltd. (ITA No. 5158/Del/2012) held that conversion charges paid to municipal authorities are in the nature of municipal taxes and hence deductible under section 23.

Court's interpretation and reasoning: The Tribunal examined the nature of the payment of Rs. 25,98,622/- made to the South Delhi Municipal Corporation. The assessee contended that this payment was not for conversion from leasehold to freehold but was a municipal tax or charge levied for renting the property commercially. The Tribunal noted that the proviso to section 23 is not limited to property tax per se but extends to any tax, rates, charges, or fees levied by local authorities in respect of the property. The Tribunal relied on the precedent in Haldiram Products Pvt. Ltd. to affirm that conversion charges are municipal taxes and thus deductible.

Key evidence and findings: The assessee produced a cheque evidencing payment of Rs. 25,98,622/- to the Municipal Corporation. Initially, the original receipt was not available, leading to the AO's disallowance. However, during appellate proceedings before the Commissioner of Income Tax (Appeals), the duplicate receipt was furnished. The AO had also accepted similar payments in the subsequent assessment year (AY 2015-16), as per the assessment order dated 08.12.2017.

Application of law to facts: The Tribunal applied the legal principle that deduction under section 23 includes all taxes levied by local authorities, regardless of their nomenclature. Since the payment was made to the Municipal Corporation and related to the property let out, it fell within the ambit of deductible municipal taxes. The production of the duplicate receipt during appellate proceedings satisfied the requirement of proof of payment.

Treatment of competing arguments: The Revenue's argument was primarily based on the absence of the original receipt and the nature of the payment being conversion charges, which the AO initially disallowed. However, the Revenue did not produce any contrary legal precedent disputing the deduction. The Tribunal found the assessee's reliance on the Haldiram decision and the subsequent year's assessment order persuasive.

Conclusions: The Tribunal concluded that the disallowance of Rs. 18,19,035/- was not sustainable. The payment to the Municipal Corporation was a municipal tax deductible under section 23, and the duplicate receipt furnished during appellate proceedings was sufficient proof of payment. Consequently, the addition made by the AO was directed to be deleted.

Issue (c): Nature of payment as municipal tax or conversion charges

Relevant legal framework and precedents: The key precedent is the Coordinate Bench decision in DCIT v Haldiram Products Pvt. Ltd., which classified conversion charges as municipal taxes deductible under section 23.

Court's interpretation and reasoning: The Tribunal emphasized that the deduction under section 23 is not confined to property tax alone but extends to any taxes, rates, charges, or fees levied by local authorities in respect of the property. The Tribunal held that the payment in question, though termed as conversion charges by the AO, was in substance a municipal tax.

Application of law to facts: The Tribunal applied the Haldiram precedent directly, finding that the payment to the South Delhi Municipal Corporation was analogous and hence deductible.

Conclusions: The payment was held to be municipal tax in nature and deductible under the proviso to section 23.

Issue (d): Effect of non-production of original receipt during assessment proceedings

Relevant legal framework: Proof of payment is essential for claiming deduction; however, the law does not mandate production of original receipt if duplicate or other evidence is available.

Court's interpretation and reasoning: The Tribunal noted that the original receipt was not available during assessment, leading to AO's disallowance. However, the duplicate receipt was furnished during appellate proceedings, along with bank statements and certificates evidencing payment.

Application of law to facts: The Tribunal considered the duplicate receipt and bank evidence sufficient proof of payment, thereby negating the Revenue's objection based on non-production of original receipt.

Conclusions: The non-availability of the original receipt at assessment stage did not justify disallowance once sufficient alternate proof was furnished.

Issue (e): Applicability of Coordinate Bench decision in DCIT v Haldiram Products Pvt. Ltd.

Relevant legal framework: Decisions of Coordinate Benches of the same Tribunal are generally followed unless distinguished on facts.

Court's interpretation and reasoning: The Tribunal found the facts and legal principles in Haldiram closely analogous and applicable to the present case.

Application of law to facts: The Tribunal applied the Haldiram ruling to hold that conversion charges are municipal taxes deductible under section 23.

Conclusions: The precedent was held binding and applicable.

Issue (f): Relevance of AO's allowance of similar deduction in subsequent assessment year

Relevant legal framework: Consistency in assessment is a principle of natural justice, and acceptance of a claim in subsequent years can be relevant for earlier years unless facts differ materially.

Court's interpretation and reasoning: The Tribunal noted that the AO allowed similar deduction in AY 2015-16, which supported the assessee's claim for AY 2014-15.

Application of law to facts: The Tribunal relied on this to reinforce the assessee's entitlement to deduction.

Conclusions: The AO's subsequent allowance was relevant and favored the assessee's claim.

3. SIGNIFICANT HOLDINGS

"As per provisions of section 23 of the Income Tax Act, 1961, deduction of taxes levied by any local municipality in respect of the let out property is allowable deduction."

"The proviso to section 23 is not confined to property tax alone but extends to taxes levied by local authorities under whatever nomenclature, be it house tax, property tax, municipal tax, rates, charges or fees."

"Conversion charges were held to be in the nature of municipal taxes and hence deductible under section 23."

"Non-availability of the original receipt at the time of assessment does not disentitle the assessee to deduction once duplicate receipt and other evidence of payment are furnished during appellate proceedings."

"The addition of Rs. 18,19,035/- made by the AO on account of disallowance of municipal taxes paid is not sustainable in law and is accordingly deleted."

"The AO's allowance of similar deduction in the subsequent assessment year supports the assessee's claim for the year under consideration."