The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the service charges collected from the tenant which is incidental to rental income would constitute ‘house property income’ for the purpose of income tax.
The assessee owns two buildings which are given on lease to various tenants. While filing returns, the assessee declared the rental income under the head “income from house property” and the service and maintenance charges collected from tenants under the head “Profits and Gains from Business.” However, the Assessing Officer treated both the income under the head house property income and allowed deductions under the head.
On the second appeal, the Tribunal noted that out of Rs.90,38,482/- received by the assessee towards service and maintenance charges, a sum of Rs.71,25,442/- was received on account of recovery of electric charges.
“This amount, which constitutes about 80% of the total service and maintenance charges, appears to be recovery made by the assessee from the tenants towards common electric charges and we are unable to understand what exactly are the services that are required to be rendered to collect the common electricity charges from the tenants that can be termed as an independent business activity of the assessee. Even the exact nature of the balance amount received by the assessee on account of service and maintenance charges is not very clear from the details furnished by the assessee and if quantum of such amount is compared, vis-a-vis the substantial rental income received by the assessee, it does not appear that the service and maintenance charges were generated by the assessee from any business activity carried on independently. We, therefore, find merit in the contention of the ld. D.R. that the service and maintenance charges received by the assessee were only incidental to rental income and since the said activity was ancillary to the main activity of letting out the properties, the service and maintenance charges were chargeable to tax as income from house property as rightly held by the Assessing Officer,” the Tribunal said.
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