Ita/369/2015 Of Sunil Kumar Gupta v. Asst Commissioner Of Income Tax

Income Tax Appeal No. 369 of 2015Date of Decision: 27.09.2016. Sunil Kumar Gupta ..Appellant VeTSUS &Assistant Commissioner of Income Tax, CircleIl, Amritsar. ..Respondent CORAM:HON'BLE MR. JUSTICE S.J.VAZIFDAR, CHIEF JUSTICE.HON'BLE MR. JUSTICE DEEPAK SIBAL, JUDGE.HON'BLE MR. JUSTICE DEEPAK SIBAL, JUDGE. Present:Mr. Avneesh Jhingan, Advocate, for the appellant.Mr. Denesh Goyal, Advocate, for the respondent.Mr. Denesh Goyal, Advocate, for the respondent. AIS F S.J.VAZIFDAR, CHIEF JUSTICE This is an appeal against the order of the Income Tax Appellate Tribunal confirming the order of the Commissioner of Income Tax(Appeals) in respect of the issue that falls for consideration. The appeal pertains to the assessment year 2002-03. 2.|The appeal is admitted on these following substantial questions of law which really raise only one point. i)Whether in the facts and circumstances of the case the maintenance charges could be included as part of| rent? 11)Whether in the tacts and circumstances of the case.interpretation given to Section 23 of Income Tax Act,|interpretation given to Section 23 of Income Tax Act,| 1961 1s correct? 111)Whether in the facts and circumstances of the case the.maintenance charges given by the sub sub licensees tobuilder can be included as part of rent?maintenance charges given by the sub sub licensees tobuilder can be included as part of rent? iv)Whether in the tacts and circumstances of the case.orders Annexures A-1 to A-3 are sustainable in law?orders Annexures A-1 to A-3 are sustainable in law? 3.The appellant is a sub-licencee of an apartment admeasuring 367 sq. feet In a Commercial building. The assessee entered into a sub-sub- licence agreement dated 03.05.2000 with one M/s RSM & Company.Clause-1 of the sub-sub-licence agreement reads as under:- oe1. That the Sub-Licencee hereby demises unto the Sub-oub-Licencee all that the Demised Premises comprised of the|area known and identified as Flat No. 412, measuring about|367 sq. ft. (Super area), situated on the fourth floor of the|commercialbuildingknown|asWorldTradeCentreBarakhamba Lance, Connaught Circus, New Delhi-110001|and more specifically described in schedule I hereinbelow for|the term of 2 (two) years commencing from the 1.5.2000|together with the right in the Sub-Sub-Licence and their|employees and authorized agent/agents/visitors and staff touse in common with the other Sub-Sub-Licencee/occupants|of the Building at all times during the terms of Sub-Sub-LicenceAgreementherebycreatedforOfficePUTPOSCconnected with the Demised Premises, but not for any other|PUrpOosc, (1)The main gate, doors, entrance hall, passages|and the staircase and landings of and in the building|leading to the Demised Premises for unrestricted|ingress to and egress from the Building and the)Demised Premises; andand the staircase and landings of and in the building|leading to the Demised Premises for unrestricted|ingress to and egress from the Building and the)Demised Premises; and (11)The passenger lifts, provided that nothing|ereater in weights and bulk other than handbags, briefcase and attached cases shall be taken into passenger|lifts;ereater in weights and bulk other than handbags, briefcase and attached cases shall be taken into passenger|lifts; and|theSub-Sub-Licenceepayingand|yieldingtherefore unto the Sub-Licencee during the said periodof terms:-therefore unto the Sub-Licencee during the said periodof terms:- (a) Rent in respect of the Demised Premises calculated|@ Rs.40/- (Rupees Forty only) per sq. it. (Super Area)total monthly rent is Rs.14,680/- (Rupees Fourteen|thousand six hundred eighty only) of the area|comprised in the Demised Premises, the said rent be|paid quarterly in advance. The first payment, however,will be for two months (May & June, 2000). | (11)The passenger lifts, provided that nothing|ereater in weights and bulk other than handbags, briefcase and attached cases shall be taken into passenger|lifts;ereater in weights and bulk other than handbags, briefcase and attached cases shall be taken into passenger|lifts; and|theSub-Sub-Licenceepayingand|yieldingtherefore unto the Sub-Licencee during the said periodof terms:-therefore unto the Sub-Licencee during the said periodof terms:- (a) Rent in respect of the Demised Premises calculated|@ Rs.40/- (Rupees Forty only) per sq. it. (Super Area)total monthly rent is Rs.14,680/- (Rupees Fourteen|thousand six hundred eighty only) of the area|comprised in the Demised Premises, the said rent be|paid quarterly in advance. The first payment, however,will be for two months (May & June, 2000). | (b) In addition to the monthly rent, monthly and|proportionately for any part of the month, all|maintenance charges payable to the Builders, M/s Bharat|Hotels Limited, as per their current bills in respect of the|Demised Premises. Presently the maintenance charges|fixed by the Builders are Rs.14.22 (Rupees fourteen and|paisa twenty two only) per sq. ft. per month. All|reasonable and future enhancements, If any, will also be|to the Sub-Sub-Licencee account. Any abnormal! increasewill be to the Sub-Licencee account. However, any|increases in maintenance charges due to increase in|electricity tariff by N.D.M.C. would be to Sub-Sub-Licencee account.” 4The question is whether the maintenance charges payable undersub-clause (Db) of Clause-1 of the Sub-Sub-Licence Agreement can beincluded as a part of the rent. Mr. Jhingan, learned counsel appearing on behalf of theappellant firstly contended that the maintenance charges are payable by thesub-sub-licencee directly to the builder and not to the sub-licencee i.e. theasSseSsee, 5.|This is contrary to the plain language of Clause-1. After sub-clause (il) are the words “and the Sub-Sub-Licencee paying and yielding|thereto unto the Sub-Licencee during the said period of terms”.|This 1s)followed by sub-clause (a) which specified the rent and sub-clause (b) whichspecified the maintenance charges. Sub-clauses (a) and (b), however, mustbe read with these words. So read it is clear that the sub-sub-licencee is topay to the sub-licencee the maintenance charges. Sub-clause (Db) cannot beread in isolation. If the words that immediately precede, sub clauses (a) and(b) are to be read as limited to clause (a), there would have been no need toidentify sub-clauses (a) and (b). Sub-clause (a) would have been mergedwith these words and sub-clause (D) would have been an independent clause.The words in sub-clause (Db) “all maintenance charges payable to thebuilders” identify the maintenance charges and not the payee. In other words |sub-clause (D) requires the sub-sub-licencee to pay the assessee all themaintenance charges payable to the builder. It does not require the sub-sub-licencee to pay the same to the builder. | 6.Mr. Jhingan submitted that as a matter of fact, the sub-sub- licencee has been paying the maintenance charges to the builder. © 7.If that is so, it 1s pursuant to an understanding between theassessee and the sub-sub-licencee and not as per the terms of the agreement. The sum of the rent and the maintenance charges are, therefore, payable bythe sub-sub-licencee to the assessee. [hat then is the annual value of theproperty being the actual rent received or receivable by the assessee. | 8.|In any event the maintenance charges ought to be included as a. part of the rent. Sections 22 and 23 of the Income Tax Act, 1961 as they stood at the relevant time read as under:- “Income from house property. 22.The annual value of property consisting of any|buildings or lands appurtenant thereto of which the|assessee is the owner, other than such portions of such|property as he may occupy for the purposes of any|business or profession carried on by him the profits of|which are chargeable to income-tax, shall be chargeable|to income-tax under the head "Income from house|property. | 8.|In any event the maintenance charges ought to be included as a. part of the rent. Sections 22 and 23 of the Income Tax Act, 1961 as they stood at the relevant time read as under:- “Income from house property. 22.The annual value of property consisting of any|buildings or lands appurtenant thereto of which the|assessee is the owner, other than such portions of such|property as he may occupy for the purposes of any|business or profession carried on by him the profits of|which are chargeable to income-tax, shall be chargeable|to income-tax under the head "Income from house|property. | Annual value how determinecd 23. (1) For the purposesof |section 22, the annual value otany property shall be deemed to be— 0a) the sum for which the property might reasonably beexpected to let from year to year; or 0b) where the property or any part of the property is letand the actual rent received or receivable by the owner inrespect thereof is in excess of the sum referred to in|clause (a), the amount so received or receivable; or 0[) where the property or any part of the property is let'and was vacant during the whole or any part of the|previous year and owing to such vacancy the actual rent.received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so|received or receivable :. Providedthat the taxes levied by any localauthority in respect of the property shall be deducted.(irrespective of the previous year in which the liability to)pay such taxes was incurred by the owner according to|the method of accounting regularly employed by him) in)determining the annual value of the property of that.previous year in which such taxes are actually paid by|him. Explanation.—For the purposes of clause (b) or clause ([)of this sub-section, the amount of actual rent received or)receivable by the owner shall not include, subject to such)rulesas may be made in this behalf, the amount of rent|which the owner cannot realise. (2) Where the property consists of a house or part of a.house which— 0a) is in the occupation of the owner for the purposes ofhis own residence; or 0b) cannot actually be occupied by the owner by reason ofthe fact that owing to his employment, business or profession carried on at any other place, he has to reside|at that other place in a building not belonging to him,the annual value of such house or part of the house shallbe taken to benilat that other place in a building not belonging to him,the annual value of such house or part of the house shallbe taken to benil (3) The provisions of sub-section (2) shall not apply 1i—| 0a) the house or part of the house is actually let duringthe whole or any part of the previous year; orthe whole or any part of the previous year; or 0b) any other benefit therefrom is derived by the owner.(4) Where the property referred to in sub-section (2)|consists of more than one house—(4) Where the property referred to in sub-section (2)|consists of more than one house— 0a) the provisions of that sub-section shall apply only inrespect of one of such houses, which the assessee may, athis option, specify in this behalf; 0b) the annual value of the house or houses, other thanthe house in respect of which the assessee has exercised|an option under clause ([), shall be determined under|sub-section (1) as if such house or houses had been let.”the house in respect of which the assessee has exercised|an option under clause ([), shall be determined under|sub-section (1) as if such house or houses had been let.” The amendment is not relevant for the purpose of this appeal. 0a) the provisions of that sub-section shall apply only inrespect of one of such houses, which the assessee may, athis option, specify in this behalf; 0b) the annual value of the house or houses, other thanthe house in respect of which the assessee has exercised|an option under clause ([), shall be determined under|sub-section (1) as if such house or houses had been let.”the house in respect of which the assessee has exercised|an option under clause ([), shall be determined under|sub-section (1) as if such house or houses had been let.” The amendment is not relevant for the purpose of this appeal. 9 |The ambit of the term “rent” in these sections is wide. It!includes any amount which is paid in consideration of the property being let.The maintenance charges must form a part of the rent. The proviso to sub-section (2) of section 23 suggests that where the legislature intendeddeducting any amount in determining the annual value of the property it didso specifically. More important, it indicates that rent includes even taxeslevied by local authorities. The same are however to be deducted indetermining the annual value of the property of that previous year in whichsuch taxes are actually paid by the assessee. Thus if the taxes are not paidthey cannot be deducted. In that event they remain included in the annualvalue of the property. The proviso does not include the maintenance chargespaid by the assessee. | 10.If the maintenance charges are not included in the rent, it wouldenable an assessee to avoid paying tax on the true annual value of theproperty. Under section 23(1) for the purpose of section 22 the annual valueof the property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. The amount of rent wouldalso be dependent upon the common facilities of a building. The better thefacilities, qualitatively and or quantitatively, the higher the rent. It can hardlybe suggested that the annual value of a property which provides severalcommon amenities such aS a Swimming pool, gymnasium, security car,parking and elevators would be the same as the annual value of a property inthe same area Dut without these facilities. The actual rent received would bemuch higher where the facilities are better. Section 23 provides that theannual value of the property shall be deemed to be the sum for which theproperty might reasonably be expected to let from year to year or where theproperty is let, the actual rent received or receivable by the owner whicheveris higher. In either case the rent that is received in respect of the premises ina building where the common amenities are better is bound to be higher thanthe rent that is expected to be received or is received in a building where theamenities are not aS good. | 12.Where the agreement provides that the owner shall pay theamounts for the common facilities, maintenance charges, outgoings etc. it isobvious and reasonable to presume that the same is factored into the rent, feeor compensation payable by the lessee or the licencee. In that event the sameCannot be added to the rent agreed to be paid. However, if the maintenancecharges etc. are stipulated to be payable by the licencee or the lessor it mustform a part of the rent for the purpose of computing the annual value of theproperty. | 13.A view to the contrary would enable a party to undervalue theannual value of the property for the purpose of section 23 by the simpleexpedient of providing for the payment of the maintenance charges etc. and the rent separately. 12.Where the agreement provides that the owner shall pay theamounts for the common facilities, maintenance charges, outgoings etc. it isobvious and reasonable to presume that the same is factored into the rent, feeor compensation payable by the lessee or the licencee. In that event the sameCannot be added to the rent agreed to be paid. However, if the maintenancecharges etc. are stipulated to be payable by the licencee or the lessor it mustform a part of the rent for the purpose of computing the annual value of theproperty. | 13.A view to the contrary would enable a party to undervalue theannual value of the property for the purpose of section 23 by the simpleexpedient of providing for the payment of the maintenance charges etc. and the rent separately. 14.The maintenance charges must be included as part of the rentfor the purpose of computing the annual value of the property. The assesseeis not prejudiced thereby in any event. We are informed that the amountsreceived under the sub-sub-licencee had been brought under the head“Income from house property”. Section 24 provides that the incomechargeable under the head “Income from house property” shall be computedafter making the deductions specified therein. Under clause (a) of Section24, a sum equal to thirty percent of the annual value is liable to be deducted.The assessee has, therefore, the benefit of deductions under section 24 aswell as under the proviso to section 23 of the Acct.15.In the circumstances, the questions of law are answered infavour of the revenue and against the assessee. ©16.The appeal is accordingly dismissed. | (S.JI.VAZIFDAR)CHIEF JUSTICE(DEEPAK SIBAL)270927016 |JUDGE‘ravinder’Whether speaking/reasoned √Yes/No Whether reportable √Yes/No