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2015 (6) TMI 560 - ITAT MUMBAI

2015 (6) TMI 560 - ITAT MUMBAI - TMI - Reduction of Brokerage from Rent Received for Determination of Actual Rent - whether the payment of brokerage can be deducted from the rental income while computing the taxable income under the head “income from house property”? - Held that:- Nature of expenses like brokerage, professional fee, etc., is held to be allowable, then numerous other expenses like salary or commission to an employee/agent who collects the rent can also be held to be allowable. Th .....

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t which is given to a third party who has facilitated the landlord and the tenant on agreeable terms to rent the property. Therefore, these decisions will not apply in the assessee’s case. Further in the cases where payment of stamp duty has been held to be allowable will not apply also as the same is directly related in connection with the lease agreement for renting of the property. Hence, said cases and instances will not apply in the present case. Thus, in our opinion, the payment of brokera .....

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said appeal has been filed by the assessee against order dated 29.04.2013 passed by the CIT(A) 7, Mumbai, for the quantum of the assessment passed u/s. 143(3) for the A.Y. 2010-11 on the following grounds of appeal: The Learned Commissioner of Income Tax (Appeals) has erred in not allowing Brokerage paid amounting to ₹ 1,11,92,127 for arrangement of lease, to be reduced from Rent received for Determination of Actual Rent as per Provisions of section 23(1)(b) of the Income tax Act. The Appe .....

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Dow Jones consulting India Pvt. Ltd. While working out the House property income the assessee had shown the annual value of the property at ₹ 17,21,348/- after reducing an amount of ₹ 1,11,92,127 being brokerage paid for procuring tenant. Thereafter, the assessee has claimed standard deduction of 30% u/s. 24 of the Act of ₹ 5,16,404/- and, accordingly, the income from house property was shown at ₹ 12,04,944/-. In response to the show cause notice to justify the claim of .....

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n support, reliance was placed on the decision of the Tribunal, Mumbai bench in the case of Govind S Singhania vs. ITO (ITA No. 4581/Mum/2006), wherein the Tribunal has held that the annual letting value should be taken net of stamp duty and brokerage paid by the assessee. Apart from these, various other decisions of the Tribunal were also relied upon. However, the Assessing Officer did not agree with the contention of the assessee and held that as per the expressed provisions of section 23, the .....

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e ITAT Delhi Bench in the case of Tube Rose Estates Pvt. Ltd. Vs. ACIT (2010) [123 ITD 498] and Chandigarh Bench in the case of CIT vs. Piccadily Hotels Pvt. Ltd. [97 ITD 564]. Thus, the Assessing Officer computed the income from house property at ₹ 90,39,432/- after giving standard deduction @30% u/s. 24. 3. Before the CIT(A) same submissions were reiterated and further decisions of ITAT Mumbai Bench were relied, which has been incorporated by the CIT(A) at pages 3 and 4 of the appellate .....

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lies South Asia Pvt. Ltd. as profession fees/brokerage. Such a payment is directly related to the earning of rental income and, therefore, the same has to be deducted from the gross rent because section 23(1)(b) contemplates the actual rent received/receivable. She submitted that in various decisions, the Tribunal has held that stamp duty charges on license agreement, maintenance charges paid to the housing society etc., are allowable within section 23 itself, on the same analogy, brokerage paid .....

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Sharmila Tagore vs. JCIT (2005) 93 TTJ (Mum) 483 vi. Lekh Raj Channa vs. ITO (1990) 37 TTJ (Del) 297 5. On the other hand, the learned DR strongly relied upon the order of the Assessing Officer as well as the CIT(A) and submitted that while computing income from house property only those deductions/expenses are allowed as are specified in sections 23 and 24. Beyond that no expenditure can be allowed. He further submitted that most of the decisions are in respect of maintenance charges paid to s .....

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e has rented its office premises on leave and license basis to M/s. Dow Jones Consulting India Pvt. Ltd., vide leave and license agreement dated 22.11.2008 for a period of five years. For giving the property on rent, the assessee has used the services of M/s. C B Richard Ellis South Asia Pvt. Ltd. for sourcing and securing a suitable licensee for the said office premises. The assessee had paid two months license compensation and 2% of the security deposit as professional fees/brokerage. Section .....

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ental income. The phrase actual rent received or receivable means net of deductions and the actual rent received in the hands of the assessee. Such a plea of the assessee cannot be accepted, because what is contemplated u/s. 23 is that the annual value of the property which is let out should be the portion of rent received or receivable by the owner from the tenant/licensee. The first and foremost condition is that it should be in the nature of rent as mutually agreed upon between the two partie .....

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to the conditions laid down in the provisos thereto. The word rent connotes a return given by the tenant or occupant of the land or corporeal hereditaments to the owner for the possession and use thereof. It is a sum agreed between the tenant and the owner to be paid at fixed intervals for the usage of such property. The phrase rent received and receivable contemplates the amount received for the enjoyment of the property and certain rights in the said property by the tenant. If there is charge .....

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ge that has been created in the property for enjoying the rights and at best it is only an application of income received/receivable from rent.. ITAT Delhi Bench in the case of Tube Rose Estates Pvt. Ltd. (supra), as relied upon by the AO, clearly bring out this distinction between the brokerage and other charges payable in respect of services provided. This is evident from the following observations of the Tribunal : 2.8 It is thus clear that the annual value of the property, which has been let .....

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ation for such services. For instance, there may be situations where the land lord in addition to letting out the property has also provided some services such as lift facilities, services of sweeper and darwan, electricity etc., and the rent fixed includes consideration in respect of these services also. In that case, the charges payable in respect of the services provided by the landlord have to be excluded from the composite rent while computing the income from house property because under th .....

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s payable by the assessee and this is not included in the rent. There may also be cases where part of the rent may become payable to a third party before the same accrued to the assessee in terms of some overriding charge. In such cases, there may be diversion of rent at the source and the rent to that extent could be claimed as deduction while computing the income from house property. But in this case, as we have held earlier, there is no charge created on the property, much less an involuntary .....

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