Delhi High Court
Cit vs Dlf Office Developers on 18 July, 2012
Author: R.V. Easwar
$~10
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 18th July, 2012.
+ ITA 205/2011
CIT ..... Appellant
Through: Mr. Sanjeev Rajpal, Sr. Standing Counsel.
versus
DLF OFFICE DEVELOPERS ..... Respondent
Through:Mr. Ajay Vohra with Ms. Kavita Jha, Advocates.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J: (OPEN COURT)
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 `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
ITA 205/2011 Page 1 of 4
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 `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 `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 `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 :
ITA 205/2011 Page 2 of 4
"It is clarified that at present various services, facilities and civic
amenities in DLF City where Demised premises/said plot/said building
are located are being maintained by DLF Service Limited (herein after
referred to as DSL). The Maintenance Services to be provided by DSL
are more appropriately detailed in Annexure-IV thereof and charges
for such Maintenance Services are payable at 1.2 times of the actual
expenses which is presently estimated at Rs.11/- per sq.ft. of super area
per month of DSL or any other nominee(s)/assignee(s) of DLF
Universal Limited with effect from the Rent Commencement date in
accordance with the terms of this Lease Deed."
According to the Tribunal the aforesaid clause clarified the factual position that the
assessee was neither providing any maintenance of the common areas and facilities
nor was it in receipt of any maintenance charges from the tenants for the same. The
Tribunal further clarified that it did not appear to be a collusive transaction to avoid
taxation of any income in the hands of the assessee. The services were found to have
been actually rendered by DSL. A further finding of the Tribunal was that the
assessee did not have any domain over the recovery of maintenance charges nor did it
have any role to play in the business activities of DSL. It was found that in the past
assessments no such view was taken as was taken by the Assessing Officer for the
year under appeal. In this view of the matter and having regard to the rule of
consistency, the Tribunal deleted the addition and allowed the assessee's appeal.
4. This seems to us to be a clear case presenting no difficulty. The facts found by
the Tribunal are not under challenge. No case has been made out to prove that the
entire transaction was the result of a collusive arrangement to divert the income which
was in truth and fact earned by the assessee. The arrangement between the tenants and
DLS has not been impeached and in our opinion also there are no materials to question
the same on the ground of collusion. The legal principle involved admits of no doubt.
The assessee being the owner of the property, is assessable under Section 22 only in
respect of the annual letting value of the same. The services for maintenance of the
common areas and facilities were found to have been actually rendered by DLS and
ITA 205/2011 Page 3 of 4
not by the assessee. DLS may be part of the same group, but it is a separate corporate
entity carrying on business as service provider for maintenance of properties. The
arrangement between the tenants and DLS is a part of the business transaction entered
into in the regular course of the business of DLS. The assessee firm has not been
found to have actually enjoyed the service charges paid to DLS and the Tribunal has
found that the assessee had no domain over the recovery of the maintenance charges
nor had any role to play in the business activities of DLS. The view taken by the
Tribunal both on facts and in law seems to us to be unexceptionable. We are,
therefore, of the opinion that no substantial question of law arises for consideration.
We accordingly, dismiss the appeal with no order as to costs.
R.V.EASWAR, J.
S. RAVINDRA BHAT, J.
JULY 18, 2012
vld
