TMI Blog2008 (5) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... of computation of income. (iii) That on the facts and circumstances of the case, the CIT(A) was not justified in confirming disallowance of Rs. 20,129 on account of interest paid to parties. That the genuineness and nexus of the payment being not in dispute, there is no case of disallowance of the part of the claim on the ground of same being excessive." 2. The ground No. 1 of the disputes raised is regarding disallowance of brokerage of Rs. 7,79,502 paid by the assessee while computing the income from house property. The assessee is in the business of real estate. During the relevant year the assessee had received rental income of Rs. 4,67,85,335 from renting out its premises to various corporate houses. The assessee had paid a total sum of Rs. 7,79,502 to different brokers for introducing parties for renting out the premises and the same was claimed as deduction while computing the income from 'house property'. The assessee claimed deduction under clause (iv) of sub-section (1) of section 24, which provided for deduction of annual charges where the property is subject to such annual charge provided the charge is not created by the assessee voluntarily and it is not a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are exhaustive, and therefore, only the items of expenditure specified under section 24 could be allowed as deduction. There was no provision in section 24 for allowing any deduction on account of brokerage paid in connection with renting out of the premises. The section 23, which relates to determination of annual value also does not contain any provision for allowing any deduction on account of brokerage paid, it was pointed out. Reliance was placed in this connection on the judgment of Hon'ble High Court of Delhi in case of CIT v. H.G. Gupta Sons [1984] 149 ITR 253. The Ld. Sr. DR also placed reliance on the decision of Mumbai Bench of the Tribunal in case of Excellent Associates v. Jt. CIT [2005] 95 ITD 57 and on the decision of Chandigarh Bench of the Tribunal in case of Asstt. CIT v. Piccadily Hotels (P) Ltd. [2005] 97 ITD 564 in which claim on account of brokerage had been disallowed. 2.4 We have perused the records and considered the rival contentions carefully. The dispute raised is regarding allowability of expenditure on brokerage paid to brokers in connection with renting out of the property. In the Income-tax Act, there is separate head of income prescribed for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate to the period during which such part is wholly unoccupied. Explanation.-The deduction under this clause shall be made irrespective of whether the period during which the property or, as the case may be, part of the property was vacant precedes or follows the period during which it is let; (x) subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realize." 2.5 Therefore, only the expenditure specified in section 24 can be allowed as deduction from the annual value while computing income from house property. This issue has been specifically considered by the Hon'ble jurisdictional High Court in case of H.G. Gupta Sons in which the Hon'ble High Court held that the Legislature had used the word 'namely' in section 24 of the Income-tax Act, 1961 and this showed that the heads of expenditure whereof deduction could be claimed in the computation of income from house property were exhaustive. Therefore, if a particular type of expenditure was not specifically provided to be deductible, deduction thereof, could not be claimed out of annual value. The assessee in that case, had claimed deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a charge has been created in the property, much less an involuntary charge. It is only an application of income. The claim for deduction under section 24(1)(iv) has, therefore, to be rejected. 2.7 It has also been argued by the Ld. A.R. for the assessee that the brokerage is the amount payable at the time of renting out of the property and this has the effect of reducing the rental income and, therefore, has to be deducted from rent while computing the annual value under section 23. The annual value is required to be determined under section 23 of the Act and the said provisions are reproduced below as a ready reference: "23. Annual value how determined-(1) For the purpose of section 22 the annual value of any property shall be deemed to be: (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable: Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oluntary charge enforceable by law, which can be claimed as a deduction. 2.9 Thus, the brokerage payable by the assessee for renting out the premises neither can be deducted from the rent under section 23 nor the same is allowable as a deduction under section 24 of the Income-tax Act. The ld. Sr. DR appearing for the revenue has also referred to the certain decisions of the Tribunal which support the case of the revenue. The Chandigarh Bench of the Tribunal in case of Piccadily Hotels (P.) Ltd. and the Mumbai Bench of the Tribunal in case of Excellent Associates have also taken the same view that brokerage paid in connection with renting out of the property cannot be allowed as deduction under section 23 or under section 24 of the Income-tax Act. We are therefore unable to accept the claim of the assessee and see no infirmity in the order of CIT(A) rejecting the claim. The order of CIT(A) is accordingly upheld on this point. 3. In the ground No. 2, an alternative plea has been raised that the brokerage paid in relation to maintenance and furnishing charges, should be allowed as deduction as income on these accounts has been assessed as income from business. Out of total brokera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges receivable in respect of maintenance and furnishing to the brokers, who had introduced the tenant. The income received from maintenance and furnishing has been assessed as business income of the assessee and there is no dispute about this fact. Once the income has been assessed under the head 'business', the scope of allowability of expenditure becomes quite wide. While computing the income from business, any expenditure incurred wholly and exclusively for business purpose is allowable as deduction under section 37(1) provided the same is not the personal expenditure of the assessee and is not a capital expenditure. In this case, the brokerage has been paid to a party, which has brought income to the assessee in the form of maintenance and furnishing charges. It is like commission paid to commission agents for procuring business orders for the assessee. The expenditure incurred has not resulted into creation of any capital asset nor generation of any new source of income. The expenditure is of revenue in nature and is directly linked to the business of the assessee relating to maintenance and furnishing of the property. This has already been accepted by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2002] 254 ITR 377 in which it was held that the jurisdiction of revenue was confined to the reality of business expenditure. Since it was established that the expenditure had been incurred for the purpose of business, the revenue cannot assume the role of the assessee to decide about the reasonableness of expenditure. CIT(A) was, however, not satisfied by the explanation given. It was observed by him that there was no evidence produced to show that the interest payable was at the rate of 21.5 per cent. It was observed by him that under the old agreement the liability of assessee was to pay interest was at the rate of 15 per cent. No further agreement had been produced to show that the interest was paid at the rate of 21.5 per cent. The Assessing Officer was, therefore, justified in restricting the payment at the rate of 18 per cent which was reasonable. Aggrieved by the said decision, the assessee is in appeal before the Tribunal. 4.1 Before us, the Ld. A.R. for the assessee argued that under the old agreement, interest payable was at the rate of 15 per cent which was subsequently revised to 21.5 per cent and the interest had been actually paid which was not in dispute and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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