By TIOL News Service:

NEW DELHI, JAN 19, 2016: THE issue is whether contractual receipts received by an assessee being the owner of a house property after deducting TDS pursuent to a maintenance agreement, can be treated as rental income in his hands. NO is the answer.

Facts of the case:

The assessee, an individual own premises at Soth of Ring road, New Delhi along with his wife Parul Govil. Each of them own 1/3rd undivided share in the house property. The said house property was leased to one M/s NE & MI Consultants & Engg. Pvt. Ltd. The three owners had executed the lease deed, leasing out the said premises at a monthly rent of Rs. 2,37,500/-. In addition, each of the lessors also entered into similar but separate agreements for providing maintenance services with respect to the house property. During assessment, the AO found that both the assessees had received a sum of Rs 9.5 lacs each as lease rental and Rs. 11.5 lacs as contractual receipts in terms of the maintenance agreement on account of maintenance charges from M/s Stem Infra Services Pvt. Limited whilst TDS on sum of Rs. 9.50 lacs was deducted at the rate of 16.6%, TDS on maintenance charges had been deducted at the rate of 2%. The Assessees claimed that both the receipts were liable to be taxed under the head of income from house property. The Assessees also claimed standard deduction u/s 24 on the income by way of rental as well as the receipts on account of maintenance charges. The AO however rejected the claim and taxed the same under the head of income from other sources.

After hearing the parties, the High Court held:

++ it is not open for the Assessees to claim that the express terms of agreements entered into by them should be ignored. The maintenance agreements expressly referred to the payments in question as "Maintenance and service charges". A plain reading of the agreements also indicates that the said charges were payable as consideration for providing services mentioned therein. Further, TDS was also deducted treating the said charges as payments to a contractor. The Assessees who are signatories to the said agreements cannot be permitted to claim the said agreements to be sham devices and contend that the substance of the maintenance agreements was different from what was expressly recorded therein. The CIT(A) as well as the Tribunal had taken note of the specific covenants of the maintenance agreements entered into by the Assessee and had concluded that the consideration received pursuant to the said agreements could not be treated as rental income.

(See 2016-TIOL-102-HC-DEL-IT)