Municipal Tax allowable as expenditure u/s 24 of Income Tax Act when Assessee paid proportionate Tax to Society: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the municipal tax shall be allowable as expenditure under Section 24 of the Income Tax Act, 1961 when the assessee paid the proportionate tax to the society.

The assessee is engaged in the business of dealing in shares and securities and renting immovable properties. During the year, the assessee has declared a rental income of ₹.76,01,000/-, dividend of ₹.1,61,600/-, and share of profit from M/s Lalco Services Apartments, LLP Mumbai of ₹.14,98,991/-.

The Assessing Officer observed that the assessee has claimed municipal tax of ₹.10,77,100/- before claiming the deduction under Section 24 of the Income Tax Act. Further, he observed that the above property taxes have not been paid by the assessee, however, the same has been paid by M/s.Lalco Pvt. Ltd. on behalf of the assessee.

It was observed that the municipal tax receipts ledger account, as per which the entries of property taxes have reflected the names of the sister concern M/s. Lalco Pvt. Ltd. and M/s. Tyabji Estate Pvt. Ltd. The Assessing Officer observed that municipal taxes are deductible only if the taxes are borne by the owner and are actually paid by it during the year. Therefore, the taxes not paid by the assessee during the previous year are not deductible.

The Authorized Representative submitted that the municipal tax was charged to the society. There is no specific name mentioned of the assessee on the face of the receipts, however, he submitted that in turn society will levy the proportionate municipal tax to the assessee, and accordingly, the assessee has paid through the bank through one of the sister concerns.

It was further submitted that the municipal tax is borne by the land owner [i.e., Tyabji Estate Pvt Ltd.,] and the building is owned by the society and the assessee is one of the shareholders. Therefore, he submitted that the municipal tax is quantified by the society proportionate tax is collected from the assessee, and the same was paid through the bank. Therefore, the municipal tax is an allowable expenditure under Section 24 of the Income Tax Act.

The Two-member bench comprising of Amit Shukla (Judicial member) and S. Rifaur Rahman (Accountant member) held that this system of collection of municipal taxes are common in the housing societies where the ownership of the building is with the society and the land belongs to 3rd parties as land owners.

The municipality register or receipt will not have the name of the flat owners, but the name of the land owners. Therefore, the claim of the assessee was proper in this case and the Assessing Officer was directed to allow the claim after verification. Thus, the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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