The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the reimbursement of the amount of property tax by the licensee to the landlord under the contract would be eligible for deduction as the same would amount to an allowable expenditure under section 44B of the Income Tax Act, 1961.
In the instant case, the assessee-Company, as per the leave and license agreement, paid an amount of Rs. 19,37,936, to the landlord towards reimbursement of property tax to be paid by the landlord/licensor on the property taken on lease by them and claimed the said amount as eligible deduction while filing the income tax return for the relevant year.
The Assessing officer, while rejecting the claim, observed that the property tax payable to the Municipal Authority through the landlord as per the terms of the agreement. He further observed that as per the provisions of section 43B(a) of the Act, the Assessing Officer observed that tax, duty, cess or fee, if any, claimed by the assessee can be allowed as a deduction only on actual payment.
Before the Tribunal, the assessee contended that the amount reimbursed by the assessee to the landlord is nothing but part of the rent paid by the assessee to the landlord, hence, it is allowable as an expenditure.
Allowing the contentions of the assessee, the Tribunal observed that as per the mutual agreement between the parties, the licensee agreed to reimburse the property tax to the licensor save and except any late fee/charge for any statutory dues.
“Thus, as could be seen from the aforesaid terms of the agreement, the reimbursement of property tax by the assessee to the licensor is purely contractual and not a statutory liability. Even otherwise also, property tax levied by the Municipal Authority is a charge on the property. Undisputedly, the licensor is the owner of the property, hence, liable to pay the property tax. That being the case, the amount equivalent to the property tax reimbursed to the licensor cannot be treated as rate, tax, fee, cess, etc., as provided under section 43B(a) of the Act.”Subscribe Taxscan AdFree to view the Judgment