COMMISSIONER OF INCOME TAX Vs. DLF OFFICE DEVELOPERS

JUDGEMENT

(1.) This is an appeal filed by the Commissioner of Income Tax against the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as "Tribunal") in ITA No.3355/Del./09 dated 27.11.2009.

(2.) We are concerned with the assessment year 2004-05. The assessee is a partnership firm formed in the previous year relevant to the assessment year 1999-00 to carry on the business of developing and dealing in real estate, construction of commercial buildings and letting them out or selling them. In accordance with this object, the assessee constructed a multi-storied building known as the Gateway Tower in DLF City, Gurgaon. The building was let out to various tenants and in the relevant assessment year the assessee earned rental income of Rs. 5,23,77,351/-. The rental income, after claiming the allowable deductions as per Section 24 of the Income Tax Act, 1961 was declared under the head "income from house property". In the course of the assessment proceedings, the Assessing Officer examined the lease documents and other relevant details and noted that the tenants were paying maintenance charges at Rs. 11/- per sq.ft. to a company by name DLF Service Ltd. (hereinafter referred to as "DSL"). The charges were paid for services rendered by DSL in respect of the maintenance of the common areas in the property such as the lounge area, car park, corridors and passages, lift maintenance and maintenance of the common facilities. The Assessing Officer took the view that as owner of the building it was the responsibility of the assessee to maintain the same and any service charges paid by the tenants for such services ought to be justly taxed in the hands of the assessee. He also opined that the amount paid by the tenants to DSL was nothing but a part of the rent and the same should be added to the rental income received by the assessee. The maintenance charges paid to DSL by the tenants were Rs. 1,84,08,764/-. After allowing standard deduction of 30% of the amount as provided in Section 24(a) of the Act, the net amount of Rs. 1,28,86,135/- was added to the income declared under the head "income from house property".

(3.) The addition made as above having been sustained by the CIT(Appeals), the assessee filed a further appeal before the Tribunal. The Tribunal noted that the assessee derived rent from the tenants as owner, but the service charges in respect of the common facilities were directly paid to DSL, which was the service provider, and those charges were included in the business income of DSL and offered and assessed to income tax in its assessments. The Tribunal further held that under Section 23(1) of the Act, only the rent received or receivable was taxable and nothing more. The Tribunal noted that the assessee was not charging any maintenance charges from the tenants nor was it providing any services by way of maintenance of the common areas and facilities and therefore nothing was assessable in its hands as maintenance charges forming part of the rent. The Tribunal also examined the clauses in the lease agreement and noted that the following clause was relevant :