ORDER
N. Barathvaja Sankar, Accountant Member
1. This appeal preferred by M/s Excellent Associates, Mumbai against the appellate order dated 04.08.2000 of CIT(A), Mumbai for the assessment year 1996-97.
2. The grounds of appeal read as under:-
1. “On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the order of the assessing officer determining the total income at Rs. 33,17,780/ – and thereby in rejecting the appellant’s claim for deduction of a sum of Rs. 3,40,000/- being brokerage paid under the head income from property”.
2. “On the facts and circumstances of the case and in law, the learned CIT (A) erred in rejecting the appellants submission that the brokerage paid to lease out the property was required to be taken in determining the Annual Letting. Value of the let out property Under Section 23(1) of the Income tax Act, 1961”.
3. “On the facts and circumstances of the case and in law, the learned CIT (A) erred in rejecting the appellants submission that the brokerage paid to lease out the property was required to be taken in determining the annual value of the let out property Under Section 23(1) of the Income tax Act, 1961.”
4. “On the facts and circumstances of the case and in law, the learned CIT (A) ought to have held that the payment of brokerage for letting out the premises being an accepted practice of the market was deductible while determining the Annual Letting Value of the let out property”.
3. The brief facts of the case are that:- the assessee is a firm and enjoys income from house property and other sources. The assessing officer found that in the computation of income under the head “Income from house property”, the gross compensation receipts were reduced by payment of brokerage of Rs. 3,40,000/- paid to M/s Vinsons Corporation. The assessee firm was required to justify its admissibility. The assessee submitted that the brokerage was paid for introducing a party, who finally occupied the entire business center on monthly compensation of Rs. 3,40,000/- and such contracts are generally made available through estate broker. Without the assistance of such professionals, it is not altogether possible to get parties, who would take the entire office space and pay handsomely and that in such circumstances; it was customary to pay one month’s rent as brokerage. However, according to the assessing officer, list of deductions available from the income shown under the head ‘house property’ is exhaustive and no deduction other than specifically provided, irrespective of its genuineness in earning the income, can be claimed under the head ‘house property’. The assessee’s reliance on the decision of the ITAT, Delhi in the case of Shri Banwarlal Anand v. ITO in ITA No. 1587(Del) of 1992 for allowing the brokerage paid under collection charges Under Section 24(1)(viii) would not help the assessee, for the reason that relevant section viz. 24(1)(viii) had been scrapped with effect from 01.04.1993 and the assessment year in question was 1996-97. Thus, the assessee’s contention was not accepted by the assessing officer and Rs. 3,40,000/- claimed as expenditure while computing “Income from House Property” was disallowed by the assessing officer. Aggrieved by this order of the assessing officer, the assessee moved the matter in appeal before the First Appellate Authority, before whom also similar contentions as made before the assessing officer were made. Further, the counsel contended that according to Section 23(i) for determining the Annual Letting Value, the brokerage should be reduced and that if the brokerage was not paid, then the assessee would receive a lower rent and the Annual Letting Value would also be reduced. The decision of the Apex Court in the case of Dewan Daulat Rai Kapoor 123 ITR 700 was relied upon for the proposition that only rent payable by the tenant should be reasonable considering the market conditions. It was, further, contended that the payment of brokerage is a necessary payment and should be allowed. The learned CIT(A) after considering the contentions of the assessee in the light of the facts and material on record, found that the provisions of Section 23 relating to Annual Letting Value, which was rent actually received or receivable, whichever is higher and that there are specific deductions Under Section 23 and 24 regarding the payments made by the owner and that then 1/4th deduction was allowable for repairs and expenses whether the house owner made any expenses or otherwise and that there was no provision for deduction of brokerage in deciding the Annual Letting Value. Thus, for the above reasons, the CIT(A) confirmed the order of the assessing officer. The assessee is still aggrieved and is on second appeal before us with the grounds of appeal extracted elsewhere of this order.
4. At the time of hearing, the learned counsel for the assessee tendered as his submissions the same contentions made before the authorities below. He pleaded that the brokerage of Rs. 3,40,000/- was according to the agreement and the assessee had not received one month’s rent at all. According to him, the actual rent received by the assessee was only of 11 months rent and hence the same only should be taken for the purpose of computing ALV. Adverting to Section 23(1)(b), the counsel pleaded that the wordings mentioned therein are “actual rent received” and pleaded that according to the above phrase, the amount retained with assessee can only be treated as actual rent received. It was also pleaded that the brokerage was essential expenditure to earn this income, and as such the same should be allowed in computing Annual Letting Value. Alternatively, it was pleaded that at least it should be treated as collection charges Under Section 24(1)(i) and relied on the decision of ITAT, Delhi reported in 62 ITD 301.
5. On the other hand, the learned Departmental Representative reiterated the contents of the orders of revenue authorities as his submissions. In effect, he pleaded that the assessee’s counsel is trying to broaden the scope of the relevant section viz. Section 23(1)(b) and as such brokerage is not an allowable item under the said section. Regarding the alternative submission of the counsel, the learned Departmental Representative pleaded that the said Section 24(1)(viii), as rightly observed by the assessing officer at para 5.7 of the assessment order, has been scrapped with effect from 01.04.1993 and is not applicable to assessment year 96-97.
6. In his rejoinder, the learned counsel for the assessee cited the decision of ITAT, Delhi Bench reported in 63 ITD 1, wherein the amount spent security services were allowed Under Section 23.
7. We have heard the rival submissions and considered the facts and materials on record including the decisions relied by the parties. Section 23(1)(b), as rightly contended by the counsel for the assessee, speaks of “actual rent received” but in this case on hand, the assessee, according to us, had received 12 months rent and out of which he paid Rs. 3,40,000/- being one month’s rent as brokerage. At best this can only be application of income and hence cannot be claimed as expenditure Under Section 23(1)(b). As regards the decision reported in 63 ITD 1 (Del) the facts in that case are allowability of amount spent on security services, whereas in this case on hand the assessee had paid brokerage, which cannot be treated on par with the facts of that case. Turning to Section 24(1)(viii), as rightly pointed out by the learned Departmental Representative, the said section had been scrapped from the statute with effect from 01.04.1993 and hence cannot be applied for the relevant assessment year under consideration. The decision rendered by the Tribunal reported in 62 ITD 301 (Del) cannot be applied for the assessment year 96-97 as Section 24(1)(viii) had already been scrapped. While scrapping Section 24(1)(viii), the statute has amended Section 24(1)(i) to include collection charges also and a lump-sum deduction of 1/5th of Annual Letting Value is to be allowed for repairs and collection of rent from the property, irrespective of actual amounts spent on these items. Interestingly from the assessment order, it is noticed that the assessing officer himself, while computing income from House property, had given deduction of Rs. 7,23,200/- Under Section 24(1) being 1/5th for repairs and collection charges. Even if the assessee’s contention (brokerage is to be allowed as collection charges) is to be considered, the facts show that the assessing officer himself had already allowed 1/5th of Annual Letting Value for repairs and collection charges, which are to be allowed on adhoc basis without bothering for actual expenditure. In this view of the matter, we are inclined to dismiss the appeal of the assessee as devoid of merits.
8. In the result, the appeal of the assessee is dismissed.