Deduction of annual mixed used charge not allowable from house property income

Deduction of annual mixed used charge not allowable from house property income u/s 23(1) of the Income Tax Act 1961 – ITAT

ABCAUS Case Law Citation
ABCAUS 3586 (2022) (03) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the disallowance made by the Assessing Officer (AO) in respect of the claim made by the assessee for deduction of annual mixed use charges paid in respect of property rented out by the assessee.

The appellant assessee was the joint owner of a property having 50% share and ownership over the said property. During the year under consideration, the assessee from house property income claimed deduction towards taxes paid to Municipal Corporation including mixed use charges.

The assessee was show caused to explain the basis on which mixed use charges had been treated as property tax and also to explain why 50% of mixed use charges not to be disallowed.

The assessee explained that he has to pay Annual Mix Use charge for making commercial use of the property and as such the payment Annual Mix Use charge is an allowable expense from house property rental income as per the proviso under section 23(1) of the Income Tax Act, 1961 (the Act).

Not satisfied with the reply of the assessee the AO disallowed the mixed use charges.

The CIT(A) held that mixed use charges are in the nature of conversion charges and the same is not a ‘tax levied by the local authorities’ which is not deductable u/s 23 of the Act, but allowed the alternative plea of the Assessee and held that the said mixed use charges are deserves to be considered u/s 24(a) of the Act by giving 30% standard deduction.

The Tribunal noted that the definition of the ‘tax’ under the Municipal Corporation (Property Tax) bye Laws means and  includes only building tax or vacant land tax or both, which does not include the  “Annual Mixed Used Charge.”

The Tribunal opined that the collection of ‘mixed used charges’ is for the purpose of regularizing the usage of residential premises for certain commercial purposes as prescribed under the relevant regulations.

The Tribunal said that the said charges is in the nature of regularization of the usage of the property, which cannot be  construed as tax levied by the local authority/Municipal Corporation.

The Tribunal further stated that the collection of the annual mixed used charge will not make any difference in the annual let out value of the property, therefore the same is not allowable as per the proviso under section 23(1) of the Act.

Accordingly, the ITAT upheld the disallowance and dismissed the appeal of the assessee.

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