The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the service charges are part of rental income and are includable while allowing standard deduction.
The assessee, Saurashtra Trust is a Charitable Organization claimed to be engaged in activities of education of the people of India by conducting or providing booklets, pamphlets, newspaper, magazines, or in any other manner.
After examining the details filed by the assessee, the AO noted that the assessee was engaged in the publication which included publication of newspaper and magazine as well as carried out various commercial activities, so was not able to enjoy the exemption under Section 11 of the Income Tax Act.
On revision it was found fault with the action of the AO accepting the service charges received by it as rental income which was erroneous and that the assessment order has been passed without basic verification about the allowability of claim under section 24(a) of the Income Tax Act, 1961.
According to Nishit Gandhi, who appeared on behalf of the assessee the service charges were part and parcel of the leave &licence fees/rental income, it need not be segregated and that was the reason for offering service charges to assessee along with leave and license fees which is emanating from house property.
Samruddhi Hande,on behalf of the revenue submitted that AO had not carried out the required verification and examined the character of the “service charges” and if he has done so, the assessee’s claim of deduction of 30% for service charges would not have been allowed.
The Division Bench of ABY T. VARKEY, (Judicial Member) and AMARJIT SINGH, (Accountant Member) allowed the appeal, observing that, “Since the AO view after enquiring is plausible view, it could not have been interfered with unless the Ld CIT(E) has conducted during revisional proceedings enquiry or verified the facts in order to come to a conclusion that AO’s view was erroneous/un-sustainable in law. once AO has conducted enquiry (on an issue) then the Ld Pr. CIT before holding the order of AO to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the AO on that issue is erroneous/unsustainable in law”
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