The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the payment of municipal taxes cannot be deducted under section 57(iii) of the Income Tax Act since the same is directly related to the letting out of the property.
The assessee, in its return, had shown gross rental income of Rs.12,98,00,004/- as regards the lease and amenities charges received from letting out its property situated at Vile Parle (East), Mumbai to HSBC during the year. The assessee firm had entered into two different agreements with HSBC bank for the lease rentals and amenities charges for letting out its aforesaid property. The assessee, under the said agreement, paid municipal taxes and claimed the deduction of the same from the Other Sources.
While completing assessment proceedings, the Assessing Officer assessed the rental receipts under the head “income from house property” and the amenities charges received for giving services to the lessee were brought to tax by him under the head “income from other sources”. He further held that the municipal taxes paid cannot be deducted from the head Other sources. He was of the view that the amenities agreement could not be given the color and character as that of a lease agreement, as the same only provided for the terms of sharing of expenditure between the lessor and the lessee.
On appeal by the Revenue, the Tribunal noted that a similar issue was already resolved in the case of ACIT-21(1), Mumbai Vs. Camoron Finance and Investment wherein it was held that as payment of municipal taxes is directly related to letting out of the property, therefore, the same could not be allowed as a deduction under Sec. 57(iii) for the purpose of earning of amenities charges by the assessee.
“We thus find ourselves as being in agreement with the view taken by the Tribunal in the assesses own case for the aforementioned years viz. A.Y. 2009-10 and A.Y. 2010-11, respectfully follow the same. The Grounds of appeal No. 1 and 2 raised by the revenue are allowed in terms of our aforesaid observations,” the Tribunal said.
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