ITAT Disallows 'Mixed Used Charges' For Regularising Usage Of Residential Premises For Commercial Purposes Against House Property Income

The two-member bench of N.K.Billaiya (Accountant Member) and Yogesh Kumar US (Judicial Member) held 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 Income Tax Act, 1961.

The assessee/appellant is the joint owner of the property having 50% share. The assessee had claimed credit towards taxes paid to Municipal Corporation of Delhi including mixed use charges. The Assessee was asked to explain the basis on which mixed use charges had been treated as property tax and also to explain why 50% of the amount of Rs. 5,82,540/- paid as mixed use charges was not to be disallowed.

Before the Assessing Officer (AO), the assessee contended that assessee is the joint owner of the property having 50% share and ownership. Further contended that 'the taxes comprised a sum of Rs. 5,82,540/- which has to be paid annually as Annual Mix Use charge. This tax is payable for making commercial use of the property and the payment of tax is an allowable expense from rental income as per the proviso under section 23(1) of the Income Tax Act, 1961'.

The AO after considering the reply filed by the assessee, disallowed Rs.2,91,270/- (50% of Rs. 5,82,540/-), by assessing income at Rs.89,84,510/- as against the returned income of Rs.86,93,240/-.passed assessment order.

Counsel for the assessee contended that the annual mixed used charge paid by the assessee to the Municipal Corporation, Delhi has to be treated as 'tax' levied by the local authority and the same is allowable expense from out of rental income as per proviso under section 23 (1) of the Act. Further contended that the CIT(A) has erred in upholding the disallowance of Rs.2,91,270/- made by the AO

The issue raised was whether the annual mixed use charges paid by the assessee to Municipal Corporation of Delhi amounts to 'tax' and allowable under section 23 of Income Tax Act, 1961.The collection of 'mixed used charges' is for the purpose of regularising the usage of residential premises for certain commercial purposes as prescribed under the Delhi Development Authority (Fixation Of Charges For Mixed Use And Commercial Use Of Premises) Regulations, 2006. The charges are in the nature of regularisation of the usage of the property, which cannot be construed as tax levied by the local authority/Municipal Corporation of Delhi.

"We are of the view that, the CIT (A) has rightly upheld the disallowance of Rs. 2,91,270/- made by the A.O. in respect of the claim made by the assessee for deduction of annual of mixed use charges paid by the assessee to Municipal Corporation of Delhi, in respect of the property of the Assessee," the ITAT said.

Case Title: Amar Chand Garg Versus ACIT

Citation: I.T.A. No. 7417/DEL/2017

Counsel For Appellant: Senior Advocate Salil Agarwal

Counsel For Respondent: Senior Departmental Representative Kanav Bali

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