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Tax Insights

from India Tax & Regulatory Services

Maintenance charges received in


relation to the property should be
regarded as “rent” for computing
income taxable under the head
“income from house property”

October 6, 2016

In brief
The Punjab & Haryana High Court (HC) in the case of the appellant2, has held that maintenance
charges received in relation to the property should have been included within the ambit of “rent” and
be taxed under the head “income from house property.”

In detail  Pursuant to an charges should have been


understanding between the regarded as “rent” and be
Facts
appellant and the sub-sub- taxed under the head
 The appellant1 had taken on licensee, the maintenance “income from house
sub-licence, an apartment charges were paid by the property.”
in a commercial building sub-sub-licensee directly to
(Property) from a Builder. the builder. − for the purpose of
sections 22 and 23 of the
 The appellant2 entered into  The maintenance charges Income –tax Act, 1961
a sub-sub-licence were regarded as rent of the (Act), the ambit of the
agreement for sub-leasing property and was taxed in term “rent” is very wide.
of the Property. the hands of the appellant It includes any amount
under the head “income that was paid in
 As per the agreement, sub- from house property.” consideration of the
sub-licensee was liable to property being let.
pay the following sums in Issue before the High Court
relation to the property: Would maintenance charges − where the legislature
received in connection with the intended to provide
− agreed monthly rent to deduction for any
the appellant; and property be regarded as “rent”
and be taxed under the head amount, it has
− monthly maintenance “income from house property”. specifically provided for
charges as would be the deduction e.g.
payable directly to the High Court’s decision proviso to section 23(1)
builder. of the Act provides for
 The HC observed the
deduction for property
following while deciding
that the maintenance
1
PwC Note – It is presumed that the 2
ITA No. 369 of 2015
appellant is a “deemed owner” as per
section 27 of the Act.

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tax. The proviso does not taxpayer to avoid paying “income from house property.”
provide for deduction of tax on the true annual value One would have to examine
maintenance charges. of the property as the whether the said principle can be
annual value would be extended to property owners
− the rent of a property was lower. earning rental income and
dependent on the facilities maintenance charges, wherein the
of the building. The better The takeaways rental income in certain
the facilities, qualitatively circumstances should be taxed as
and/ or quantitatively, the One of the key requirements for
taxing income under the head business income, taking into
higher the rent. account the decision of the
“income from house property” is
− where the agreements that the income should be earned Supreme Court in the case of
provide that the owner by the taxpayer in its capacity as Chennai Properties and
shall pay the amounts for being the “owner” or “deemed Investments Limited3 (Please
common facilities, owner” of the property. In case refer to our news alert dated 6
maintenance charges, etc., the taxpayer is not the “owner” or May, 2015). The principles laid
it was presumed that the “deemed owner” of the property, down by the Punjab & Haryana
same had been factored in then the charging section of the High Court may not be applicable
the rent. In such event, the head “income from house to all the situations where
same could not be added to property” should not apply. In the maintenance is payable separately
the rent agreed to be paid. present case, we presume that the by the tenant. The applicability of
However, if the appellant qualified as “deemed the said principles would need to
maintenance charges were owner” of the property as per be examined based on the facts
payable separately, then it section 27 of the Act. Hence, the and circumstances of each case.
must form a part of the rent HC has not analysed the taxability
of the income under the head
Let’s talk
for the purpose of
computing the annual value “income from other sources”. For a deeper discussion of how
of the property. this issue might affect your
Further, the HC has interpreted business, please contact your
− if maintenance charges that the maintenance receipts are local PwC advisor
were not included in the to be regarded as “rent” and
rent, then it would enable a should be taxed under the head

3
Chennai Properties and Investments
Limited v. CIT [2015] 373 ITR 673 (SC)

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