In ITA no.2196/Mum./2023 -ITAT- ITAT (Mumbai) rules in favour of Neelyog Builders, says maintenance charges not part of taxable income
Members Prashant Maharishi (Accountant) & Sandeep Singh Karhail (Judicial) [28-09-2023]

Read Order: Neelyog Builders Pvt. Ltd v. Asstt. Commissioner of Income Tax

Chahat Varma

New Delhi, October 5, 2023: The Mumbai bench of the Income Tax Appellate Tribunal has ruled in favour of Neelyog Builders Pvt. Ltd. (assessee), determining that maintenance charges received by the assessee from its tenants should not be subject to taxation in the hands of the assessee.

The factual background of the case was that the assessee was engaged in construction and land development, particularly in implementing Slum Rehabilitation Projects, and generated income from property rentals. During the relevant tax year, the assessee filed its income tax return. The return was selected for limited scrutiny, and statutory notices under sections 143(2) and 142(1) of the Income Tax Act were issued for assessment. During the assessment process, it was observed that the assessee had rented out multiplex and office spaces at Neelyog Square to Fame India Ltd, Future Generali India LIC Ltd, and Future Generali India Insurance Co Ltd. Discrepancies were identified between the income declared in the profit and loss account and the information available from AIR and ITS. Specifically, there was a discrepancy of Rs. 13,00,659.

In response to queries about the Rs. 13,00,659 discrepancy, the assessee contended that this amount represented maintenance charges and was not part of their income. However, the Assessing Officer (AO) added the sum of Rs. 13,00,659 to the assessee's total income under the ‘income from house property’ category, stating that the assessee had not provided adequate documentary evidence to prove that this amount was received as maintenance charges. Subsequently, the CIT(A) dismissed the appeal filed by the assessee on this issue. The CIT(A) stated that the tenants had deducted TDS on the gross amount, which included the maintenance charge. The assessee had claimed the entire TDS amount. The CIT(A) further stated that when calculating the gross rent received by the house owner, it should include the maintenance charge since the payment of maintenance charges is the responsibility of the house owner.

The two-member bench of Prashant Maharishi (Accountant) and Sandeep Singh Karhail (Judicial) observed that the amount of Rs. 13,00,659 was directly deposited into the maintenance account by Fame India Ltd, Future Generali India LIC Ltd, and Future Generali India Insurance Co Ltd, and not in the name of the assessee.

The bench also took note of the fact that the maintenance charges, whenever received, were deposited into a separate bank account. This bank account did not belong to the assessee; instead, it was maintained by the Kapole Co-operative Bank Ltd. Society. The account was specifically designated for the collection of maintenance charges and for making payments related to the purposes for which the collected sum was intended.

The bench pointed out that the taxability of maintenance charges in the hands of the assessee had been previously addressed by a Co-ordinate Bench of the Tribunal in a case involving the same assessee. In that case, a similar issue had arisen, and the Co-ordinate Bench had ruled in favour of the assessee. The Co-ordinate Bench's decision concluded that common maintenance charges could not be considered as the income of the assessee. Furthermore, the Co-ordinate Bench had directed that the TDS credit against the said receipts, which had been granted to the assessee, should be withdrawn.

Consequently, the Tribunal issued a directive to delete the addition made by the AO concerning the maintenance charges. Additionally, the bench instructed that any TDS, if previously granted to the assessee with regard to the maintenance charges, should be withdrawn.