P.M. Jagtap, Accountant Member - (1.) THIS appeal by the assessee company is directed against the order of learned CIT(A)-XVII, New Delhi dated 11/11/2002 and the only issue arising from the grounds raised therein relates to its claim for deduction on account of commission paid to property agent in computation of income from house property which has been disallowed by the authorities below.
(2.) The assessee in the present case is a company deriving income from its hotel business as well as income from house property. A return of income was filed by it for the year under consideration declaring a total income at Rs. 9,44,390/- which was inclusive of income declared under the head "income from house property" amounting to Rs. 3,90,409/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee company has claimed deduction of Rs. 16,54,000/- on account of commission paid in computation of its income under the head "income from house property". He, therefore, required the assessee to explain the deduction so claimed and in reply, it was submitted on behalf of the assessee company that the deduction on account of commission has been claimed under the charging Section of "income from house property" and since the rent actually received or receivable by the assessee was only the net amount after payment of commission, such net income was chargeable to tax under the head "income from house property". The Assessing Officer, however, did not find merits in the submission made on behalf of the assessee company and disallowed the claim of the assessee for deduction of Rs. 16,54,000/- on account of commission. The matter was carried before the learned CIT(A) in an appeal preferred by the assessee company and it was submitted on its behalf before him that it could manage to let out its property only with the help of property agents and since the actual rent received by it was after the payment of commission to the said agents, such net amount only was chargeable to tax under the head "income from house property". It was also submitted that while computing income from house property, the commission paid should be reduced from the rent received because this amount had never been received by the assessee company. These submissions made on behalf of the assessee company, however, did not find favour with the learned CIT(A) and rejecting the same, he proceeded to confirm the disallowance made by the Assessing Officer on this issue observing that the commission paid to property agent amounting to Rs. 16,54,000/- was not deductible for the purpose of computation of income of the assessee chargeable to tax under the head "income from house property" either under Section 23 or under Section 24. Aggrieved by the order of learned CIT(A), the assessee is in appeal before us. The learned counsel for the assessee submitted before us that the commission amount in question was paid by the assessee company to property agent for the services rendered in connection with letting out of its property on good terms and since the said property could fetch good amount of rent only because of the services rendered by the property agents, commission paid to them was directly related to the rental income received by the assessee company. He submitted that the commission payment thus was directly connected with the rental income and the property agents having overriding title on such rental income to the extent of commission payment, the net amount of rental income after deduction of commission payment actually received by the assessee company only was chargeable to tax under the head "income from house property". Referring to the provisions of Section 2(24), he submitted that tax is chargeable on income and since such income means net profit after deduction of all expenses, what is chargeable to tax is only the net income after deduction of all the expenses. He also referred to the provisions of Section 4 to contend that income tax is charged in respect of the income which clearly means net income after deduction of all the expenses incurred for the purpose of earning such income.
(3.) THE learned counsel for the assessee contended that classification of income under the different heads has been done merely for the purpose of computation of total income and since such classification is a matter of convenience, the same cannot override the basic charging provisions contained in Section 4. He also contended that since the property agent was having overriding title on the rental income to the extent of his commission, income from rent to the extent of such commission payment did not accrue to the assessee at all. In support of this contention, he relied on the decisions of Hon'ble Supreme Court in the case of CIT v. Imperial Chemical Industries (India) Pvt. Ltd. - 74 ITR 17, CIT v. Travancore Sugars and Chemicals Ltd.- 88 ITR 1, CIT, Bombay City II v. Sitaldas Tirathdas - 41 ITR 367 and on the decision of Hon'ble Calcutta High Court, in the case of CIT v. Jhanzie Tea Association - 179 ITR 295. He further contended that there is no dispute about the fact that expenditure amounting to Rs. 16.54 lakhs was actually incurred by the assessee company on payment of commission and the same could alternatively be allowed under the head "income from other sources" and resultant loss could be allowed to be set off against income from other heads.;