1990-VIL-530-CAL-DT
Equivalent Citation: [1993] 203 ITR 559, 71 TAXMANN 66
CALCUTTA HIGH COURT
Date: 12.09.1990
COMMISSIONER OF INCOME-TAX
Vs
ORIENT BEVERAGES LIMITED
BENCH
Judge(s) : BHAGABATI PRASAD BANERJEE., AJIT KUMAR SENGUPTA
JUDGMENT
AJIT K. SENGUPTA J.-In this reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1967-68, the following question of law has been referred to this court :
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the commission paid to the broker in order to let out a house or any portion of it at a fair rent was an admissible deduction as collection charges within the meaning of section 24(1)(viii) of the Income-tax Act, 1961, and in this view directing the Income-tax Officer to allow brokerage of Rs. 15,000 paid by the assessee as collection charges ?"
Shortly stated, the facts are that the assessee-company derived income from letting out its own house property. While computing the said income, the assessee claimed deduction of Rs. 15,000 paid by it as brokerage to one Mr. Kamlesh Gulati for letting out the second floor of the premises No. 225, Lower Circular Road, Calcutta. The income-tax authorities disallowed this claim as they were of the opinion that such deduction was not permissible while computing the taxable income from house property.
On second appeal, at the instance of the assessee, the Tribunal directed that disallowance of Rs. 15,000 be deleted by observing as under:
"The expenditure to collect rents would include salary of an employee engaged for the purpose and/or commission paid to a broker in order to let out a house or any portion of it at a fair rent. Moreover, there is no dispute about the fact that even after inclusion of this amount, the collection charges remained within the statutory limit of six per cent.
Accordingly, the Tribunal allowed the claim of the assessee as an admissible expenditure. "
At the hearing, Mr. Sunil Mukherjee, learned counsel for the Revenue, has contended that any amount spent on brokerage cannot be allowed as a deduction in computing the income chargeable under the head "Income from house property". He has not, however, disputed that, if any collecting agent is appointed to collect the rent and if the amount spent is within the ceiling, such expenditure can be allowed.
Mr. Murarka, learned counsel appearing on behalf of the assessee, has relied on a decision of the Delhi High Court in the case of CIT v. Hindustan Times Ltd. [1988] 169 ITR 145, where it was held that the commission paid in respect of property assessed under section 22 is allowable under section 24(1)(viii). There also the amount incurred was within the ceiling. His contention is that so long as the expenditure is within the limit, irrespective of the nature of the expenditure, such expenditure should be allowed.
We have considered the rival contentions. Section 24(1)(viii) provides that the income chargeable under the head "Income from house property" shall be computed after making, inter alia, the deductions from the annual value determined of any sum spent to collect the rents from the property, not exceeding six per cent. of the annual value of the property. It is true that usually the expenditure to collect the rents would include the salary of an employee engaged for the purpose of collecting rents, but the assessee may have to incur the expenditure in connection with the property by paying commission to a broker so that he can get a fair rent from the house which may be let out. If a restrictive view is taken in that event, the assessee who may have to incur "Various expenditure in connection with collection of rents may not get the benefit provided in section 24(1)(viii).
It is true that allowance for collection charges is on the basis of actual expenditure incurred but clause (viii) fixes a ceiling of six per cent. of the annual value of the property. Usually, collection charges are allowed in computing the income from the house property so long as such expenditure is intimately connected with the collection. The nature and character of the expenditure will determine whether such expenditure would come within the purview of collection, charges. In our view, so long as the expenditure is within the ceiling prescribed by section 24(1)(viii), there is no reason to disallow any part of such expenditure, whether such expenditure is made by appointing any employee to collect the rent, or by paying commission to a broker in the induction of a tenant or for securing fair and reasonable rent or normal rent in respect of the house which is assessable to tax under section 22 of the Income-tax Act, 1961. It is not in dispute in this case that the expenditure incurred by the assessee was within the permissible limit.
For the reasons aforesaid, the question in this reference is answered in the affirmative and in favour of the assessee.
There will be no order as to costs.
BHAGABATI PRASAD BANERJEE J.-I agree.
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