Maintenance charges received from tenants taxable under income from other sources not house property – ITAT
In a recent judgment, ITAT Bangalore has held that maintenance charges received from tenants are to be assessed under the head Income from other sources and not under income from House Property
ABCAUS Case Law Citation:
ABCAUS 4137 (2024) (07) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in changing the head of income from “Income from other Sources” to “income from House Property” with respect to maintenance charges received by the assessee from tenants.
The appellant assessee was a partnership firm, earning income from ‘house property and other sources with regard to maintenance charges received from tenants (for maintaining the lift, air conditioning, power back-up etc. ) and expenditure incurred for such maintenance.
The assessee filed its return of income which included income under ‘’income from house property’’, “income from capital gains’’ and income under ‘’income from other sources’’ including interest received on bank deposits.
The notice u/s 143(2) & 142(1) of the Act were issued to the assessee calling for certain details. In response to the said notice, the assessee submitted all the required details and statements.
Further, the AO issued show notice cause notice proposing to make an addition by disallowing the expenditure claimed against income from other sources. The asessee filed objection against proposed disallowance with clarifications with regard to expenditure incurred and claimed u/s 57 of the Act against income from other sources.
However, the AO without considering the explanations and clarifications furnished on the basis of audited financial statements and the computation of total income, concluded the assessment by making the addition to the admitted income by disallowing portion of expenditure claimed in relation to income from other sources (Maintenance Charges).
On first appeal, the CIT(A) while finalizing the appellate order, after referring to some of the clauses of the lease agreement held that the maintenance charges are to be taxed under the head “income from house property” and assessee deserved only 30% of deduction of the expenditure claimed.
Before the Tribunal, the assessee contended that maintenance charges are assessable under the “Income from other sources” (IOS) or “Income from House Property (IHP). The assessee
mainly contended that, considering the past history and the subsequent history of the assessee’s case this amount is to be taxed under the head IOS and accordingly, expenses attributable to this amount be allowed in terms of the provision of section 57 of the Income-tax Act. The assessee also relied on the several judgments for the proposition that Maintence charges to be taxed under the head IOS and not IHP.
The Tribunal perused the relevant clauses of the lease agreement and observed that these charges were for maintaining lift, air conditioning, power back-up etc. Which means they were not derived from any house rather the same were linked to some amenities, in respect of leased premises.
The Tribunal observed that it is settled position of the law that whether an income to be taxed under the head of IHP or IOS or Business income it depends upon the facts of each case. There are so many aspects which would decide the head of taxability of an income under particular head. Here in this case, providing amenities to the lessee was not the main business of the assessee firm rather it was ancillary to its main business of assessee. It was also pertinent that assessee was not only providing services to his tenants rather providing services to those persons who were tenants of some other land lords.
In view of the above, the Tribunal held that the said maintenance charges were to be assessed under the head Income from other sources and not under house property.
Further, the Tribunal noted that in the past also the assessee had offered this amount for taxation under the head IOS and the AO, while framing the present assessment, had also assessed this amount under the head IOS. However, after taking average of expense incurred in last 2 years, the AO had estimated the quantum of expenses without any prudent basis and disallowed 10.44% of the total expenses claimed by the assessee
Accordingly, the Tribunal held that CIT(A) had erred in changing the head of the maintenance charges from IOS to IHP. However, for considering the quantum of expenses to be allowed to the assessee, the Tribunal restored the matter to the file of AO for examining afresh, in view of the fact that the AO had not granted enough time to the assessee for representing his case.
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