Municipal tax paid by society on behalf of  flat owners is eligible for deduction u/s 24 of Income Tax Act: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai bench held that municipal tax paid by the society on behalf of flat owners is eligible for deduction under Section 24 of the Income Tax Act, 1961.

The assessee, K Lalchand Private Ltd, is engaged in the business of dealing in shares & securities and renting of immovable properties. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had claimed municipal tax of ₹10,77,100/- before claiming the deduction under Section 24 of the Income Tax Act. The AO observed that the above property taxes had not been paid by the assessee. 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, and it was disallowed.

Aggrieved by the order, the assessee filed an appeal before the CIT(A), who dismissed the appeal of the assessee. Thereafter, the assessee filed an appeal against the CIT(A) order before the tribunal.

During the appeal proceedings before the bench, Satish Mody, counsel for the assessee, submitted that municipal tax was charged on the society. The society will levy the proportionate municipal tax to the assessee, and accordingly, the assessee has paid it through the bank via one of the sister concerns. Therefore, the counsel argued that the municipal tax is quantified by the society, and proportionate tax is collected from the assessee, which was paid through the bank. Therefore, the municipal tax is an allowable expenditure u/s. 24 of the Act.

Brajendra Kumar, Counsel for Revenue, supported the decision of the lower authorities. It was observed by the tribunal that the taxes are borne by the society and the society collects the proportionate taxes from the flat owners. Accordingly, the assessee has paid the proportionate tax to the society.

Furthermore, the bench determined that this system of collection of municipal taxes is common in housing societies where the ownership of the building is with the society and the land belongs to 3rd parties as landowners. Therefore, the assessee has borne and paid the same through banking channels to the society. Therefore, the municipal register or receipt will not have the name of.

After considering the facts submitted and the circumstances, the two-member bench of S. Rifaur Rahman (Accountant Member) and Amit Shukla (Judicial Member) held that municipal tax paid by the society on behalf of flat owners is eligible for deduction under Section 24 of the Income Tax Act. Therefore, the bench allowed the ground raised by the assessee.

To Read the full text of the Order CLICK HERE

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