INCOME TAX ACT, 1961

Section 23

Income from house property - Annual value - Treatment of municipal taxes - Part building leased out but tax paid for entire building

Assessee-company earned rental income. After deducting municipal taxes and after claiming statutory deduction of 30%, the rental income thus was offered to tax under the head 'Income from House Property'. AO alleged that as per leave and license agreement, it transpired that the municipal taxes were to be borne by licensee, therefore, the assessee could not undertake to pay the liability of a third party. Accordingly, the deduction of the same, while computing the Income from House Property was denied. Assessee contended that the municipal taxes were paid for full building having total area of approx. 1247 square meters and out of the same, only area to the extent of 232 square meters on ground floor was given on rent, thus, the deduction in respect of the municipal taxes paid on the remaining area should be allowed. Held: As per terms of lease and license agreement, the licensee alone was liable to pay all taxes/outgoings with respect of leased premises. However, the same could be paid by the assessee and the same were reimbursable by licensee. However, the liability to pay the taxes was with respect of licensed premises only which was approx. 19% of total area of the building. Therefore, only 19% of municipal taxes amounting could be attributed to the licensed premises. Consequently, the deduction of municipal taxes with respect to remaining area of building, which was not leased out, would be allowable to the assessee.

REFERRED :

FAVOUR : Partly in favour of assessee.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 37(1)

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