Sharmila Tagore Vs. Joint Commissioner of Income Tax - Court Judgment

Excerpt:
1. the assessee owns a residential property in bombay which was let out. the total rent received was rs. 3,95,000. while computing the income under the (head) "property" the assessee claimed deduction of rs. 1,70,397 as follows :2. non-occupancy charges 1,17,832 levied by society 2. while completing the assessment, the ao disallowed the claim for non-occupancy charges and maintenance charges on the ground that these expenses were not mentioned as deductions in section 24. on appeal, the decision of the ao was confirmed.3. the assessee is in further appeal before the tribunal. as regards the maintenance charges we find that the issue is covered in favour of the assessee by the order of the tribunal, dt. 15th nov., 2000, in the case of bombay oil industries ltd. in ita 550/mum/2000. in this case, the decisions of the delhi bench of the tribunal in the cases of neelam cable mfg. co. v. asstt. cit (1997) 59 ttj (del) 474 : (1997) 63 itd 1 (del), lekraj channa v. ito (1990) 37 ttj (del) 297 and the decision of the bombay bench of the tribunal in the case of blue mellow investment & finance (p) ltd. (ita no. 1757/bom/1993 dt. 6th may, 1993) were followed and it was held that the maintenance charges have to be deducted even while arriving at the annual letting value of the property under section 23. following the said order, we hold that the maintenance charges have to be deducted even while determining the annual value of the property under section 23.4. as regards the non-occupancy charges, the claim is that the rent received cannot take the character of rental income till the obligation of the assessee on account of non-occupancy charges is discharged. a certified copy of the resolution passed at the agm of the members of the housing society, held on 8th aug., 1995, has been filed. the resolution says that the non-occupancy charges shall be charged to the members whose flats are not self-occupied or who have given their premises on leave and licence or similar other basis. the resolution came into effect from 1st april, 1986, which is first day of the accounting year ended 31st march, 1997, relevant to the assessment year under appeal. it is also contended that while determining the annual letting value of the property, that is, the sum for which the property might be reasonably expected to be let from year to year, the fact that the non-occupancy charges have to be paid to the society has to be taken into account and if it is taken into account, the annual letting value would be considerably reduced because the payment of non-occupancy charges is inextricably linked with the letting out of the property. we find force in the assessee's contention. though there is no provision in section 24 for deduction of the non-occupancy charges, we are of the opinion that the non-occupancy charges will have a depressing effect upon the annual letting value of the property. once we attempt to estimate the annual letting value of the property which is the sum for which the property might reasonably be expected to be let from year to year, there is no way we can ignore the non-occupancy charges because payment of non-occupancy charges arises only when the property is not self-occupied but is let out. in this view of the matter, we are of the opinion that the non-occupancy charges levied by the society will have to be considered under section 23 even while arriving at the estimate of the annual letting value of the property.we accept the assessee's contention and direct the ao to recompute the annual letting value.5. the other issue relates to the disallowance of l/3rd of the cosmetics and costume expenses of the assessee. the argument before us was that the ao has himself allowed 2/3rd of the expenses and there was no justification for disallowing l/3rd thereof. however, these are personal expenses and we do not see how they can be allowed as a deduction even though the ao has himself allowed 2/3rd thereof. in our opinion, the expenses cannot be allowed at all. however, since only 1/3rd has been disallowed, we confirm the disallowance to that extent.

Judgment:
1. The assessee owns a residential property in Bombay which was let out. The total rent received was Rs. 3,95,000. While computing the income under the (head) "property" the assessee claimed deduction of Rs. 1,70,397 as follows :2. Non-occupancy charges 1,17,832 levied by society 2. While completing the assessment, the AO disallowed the claim for non-occupancy charges and maintenance charges on the ground that these expenses were not mentioned as deductions in Section 24. On appeal, the decision of the AO was confirmed.

3. The assessee is in further appeal before the Tribunal. As regards the maintenance charges we find that the issue is covered in favour of the assessee by the order of the Tribunal, dt. 15th Nov., 2000, in the case of Bombay Oil Industries Ltd. in ITA 550/Mum/2000. In this case, the decisions of the Delhi Bench of the Tribunal in the cases of Neelam Cable Mfg. Co. v. Asstt. CIT (1997) 59 TTJ (Del) 474 : (1997) 63 ITD 1 (Del), Lekraj Channa v. ITO (1990) 37 TTJ (Del) 297 and the decision of the Bombay Bench of the Tribunal in the case of Blue Mellow Investment & Finance (P) Ltd. (ITA No. 1757/Bom/1993 dt. 6th May, 1993) were followed and it was held that the maintenance charges have to be deducted even while arriving at the annual letting value of the property under Section 23. Following the said order, we hold that the maintenance charges have to be deducted even while determining the annual value of the property under Section 23.

4. As regards the non-occupancy charges, the claim is that the rent received cannot take the character of rental income till the obligation of the assessee on account of non-occupancy charges is discharged. A certified copy of the resolution passed at the AGM of the members of the housing society, held on 8th Aug., 1995, has been filed. The resolution says that the non-occupancy charges shall be charged to the members whose flats are not self-occupied or who have given their premises on leave and licence or similar other basis. The resolution came into effect from 1st April, 1986, which is first day of the accounting year ended 31st March, 1997, relevant to the assessment year under appeal. It is also contended that while determining the annual letting value of the property, that is, the sum for which the property might be reasonably expected to be let from year to year, the fact that the non-occupancy charges have to be paid to the society has to be taken into account and if it is taken into account, the annual letting value would be considerably reduced because the payment of non-occupancy charges is inextricably linked with the letting out of the property. We find force in the assessee's contention. Though there is no provision in Section 24 for deduction of the non-occupancy charges, we are of the opinion that the non-occupancy charges will have a depressing effect upon the annual letting value of the property. Once we attempt to estimate the annual letting value of the property which is the sum for which the property might reasonably be expected to be let from year to year, there is no way we can ignore the non-occupancy charges because payment of non-occupancy charges arises only when the property is not self-occupied but is let out. In this view of the matter, we are of the opinion that the non-occupancy charges levied by the society will have to be considered under Section 23 even while arriving at the estimate of the annual letting value of the property.

We accept the assessee's contention and direct the AO to recompute the annual letting value.

5. The other issue relates to the disallowance of l/3rd of the cosmetics and costume expenses of the assessee. The argument before us was that the AO has himself allowed 2/3rd of the expenses and there was no justification for disallowing l/3rd thereof. However, these are personal expenses and we do not see how they can be allowed as a deduction even though the AO has himself allowed 2/3rd thereof. In our opinion, the expenses cannot be allowed at all. However, since only 1/3rd has been disallowed, we confirm the disallowance to that extent.