- (1.) THE Tribunal, Delhi, has referred the following two questions of law under s. 256(2) of the IT Act, 1961 (hereinafter referred to as 'the Act'), for opinion to this Court : "Whether, on the facts and circumstances of the case, the Tribunal was correct in law in confirming the action of the lower authorities in allowing deduction for Rs. 30,000 only as against the claim for collection charges to the tune of Rs. 71,701 ? Whether, on the facts and in the circumstance of the case, the Tribunal misdirected itself in law in being (basing) its conclusions on irrelevant material and in ignoring other essential material on record -
(2.) THE reference relates to year 1986 -87. Briefly stated the facts giving rise to the present reference are as follows : The applicant is a firm deriving income from property representing godowns at Maliyana as well as from houses in Chipi Tank and Kaiserganj. The other income of the applicant, firm is from interest. The applicant disclosed an annual letting value of the property at Maliyana at Rs. 11,95,053. Deduction from this annual letting value was claimed on account of collection charges of Rs. 71,703. This sum comprised of rent collection account of Rs. 49,286 and another amount of Rs. 22,417 on account of car, legal expenses and depreciation of Rs. 49,286 represented salary of Rs. 38,605 and Rs. 10,680 on account of conveyance expenses. The salary represented payments to 12 employees who were employed for the purposes of collection of rent. The number of godowns that were not let out by the applicant were 20 in numbers. On the above godowns, two godowns each were let to two different parties and there were godowns which were let out only for a period of 7 to 15 days which remained vacant for the rest of the period. The AO concluded that for collection of the rent, the services of 12 employees was unnecessary and similarly expenses on conveyance was not justified. The other amount of Rs. 22,417 representing expenses on car, legal expenses and depreciation were found to be estimated out of the total expenses of Rs. 74,672. The AO, accordingly, restricted the deduction of collection charges to Rs. 30,000 only. In appeal, the applicant submitted that all the 12 employees were not employed simultaneously and the applicant had made efforts to keep the expenditure to the minimum which the Dy. CIT(A) observed was not supported by any documentary evidence. He, accordingly, confirmed the order of the AO. The Tribunal after considering the rival "I have given my careful consideration to the rival submissions, I do not think there was necessity of 12 employees for collection work. To my mind these employees were engaged by the applicant for overall work connected with the godowns, such as, repairs, maintenance, taxes, banking work, etc. The total claim made towards collection charges is Rs. 71,703. The AO has already allowed 1/6th towards repairs at Rs. 1,99,175. These employees will be supervising repairs of the godowns also. Supervision charges of repairs are separately considered then the entire claim of Rs. 71,000 and odd can be said to have been allowed by the AO partly against collection charges and partly towards repairs. The allowance of Rs. 30,000 by the AO towards collection charges and confirmed by the CIT(A), therefore, appears to be reasonable. No interference with his order on this account is called for."
(3.) WE have heard Shri Suyash Agrawal, learned counsel appearing for the applicant and Shri A.N. Mahajan, learned standing counsel appearing for the Revenue. The learned counsel for the applicant submitted that as the applicant was having income from letting out of godown and other commercial establishments, he was entitled for deduction of collection charges to the extent of 6 per cent of the gross rent received. According to him, the applicant had employed 12 persons for collecting the rent as the godowns and other commercial establishments were situated in different cities. A sum of Rs. 49,286 was spent towards expenditure incurred on such employees and Rs. 22,417 was spent towards legal expenses, depreciation and car allowance. The exact amount which was claimed by the applicant was within the extent of 6 per cent which ought to have been allowed. The assessing authority had not considered the various documents filed in support of his claim for allowing the collection charges as claimed by the applicant. The same mistake was done by the first appellate authority as also by the Tribunal. In support of his various pleas, he has relied upon the decisions of (i) Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC), (ii) Ashok Kumar Rastogi vs. CIT (1991) 100 CTR (All) 204 : (1991) 59 Taxman 82 (All) and (iii) CIT vs. Mahesh Chand (1992) 104 CTR (All) 327 : (1993) 199 ITR 247 (All).;