Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 20 & 19‑‑‑Deductions‑‑‑Income from house property‑‑‑Salary arid allowances‑‑‑Electricity expenses‑‑‑Tenant's burden borne by the landlord‑‑‑Salaries paid to office staff had nothing to do with the property income and was not a business expenditure‑‑‑Salary of electrician was covered by the allowance of repair allowed against the property income‑‑‑Salaries paid to watchman and sweepers were adjustable against the annual value and in the present case could not be adjusted because the annual value has to be equal to the rent received‑‑ No adjustment of salaries and allowances was permissible against the property income.

1985 PTD (Trib.) 240 ref.

A. H. Faridi for Appellant.

Muhammad Umar Farooq, D.R. for Respondent..

Date of hearing: 20th November, 2001.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).‑‑‑This appeal is directed by a company deriving income from property against order of the CIT(A), dated 16‑1‑2001. The order is agitated on the following grounds of appeals:‑‑‑

"(1) That the order of the learned Commissioner of Income Tax Appeals is bad in law and on facts

(2) That the learned CIT Appeals has erred in not directing that the claim 'of the expenses made by the appellant amounting to Rs.1,449,409 which were disallowed by the learned Assessing Officer on the ground that there is no business may be allowed to the appellant.

(3) That the learned CIT Appeals has erred in not directing to allow the claim of expenses when there was merely a temporary lull in the business.

(4) That without prejudice to above the learned CIT Appeals has erred in not directing to allow the expenses which were incurred by the appellant, as tenant burden borne by the own whole computing the property income of the appellant specially the following expenses.

1.Electricity expensesRs.355,145

2. 4 Salary and AllowancesRs.541,235

(5) That without prejudice above the learned CIT Appeals has erred in not directing to allow such expenses which the appellant is obliged to incur to maintain its status of the company.

1. Audit fee Rs.10,000

2. Chambers of Commerce & Industry fee Rs.1,000

3. Legal & Professional charges Rs.20,000

(6) That the appellant craves permission to add, alter or amend any ground of appeal at the time of hearing of appeal."

2. Both the learned representatives have been heard and the orders of the authorities below perused.

3. It has been candidly accepted by the learned A.R. that in similar circumstances the ITAT had refused to allow business expenses as were being contested in the Grounds Nos.2.3. and 5 while deciding appeals for the assessment years 1996‑97 and 1997‑98 through ITA No. 1794/KB of 1998‑99 (assessment year 1996‑97), dated 8‑7' 1999 and M.A. (Rect.) No. 186/KB of 1999‑2000 (assessment year 1997‑98), dated 29‑2‑2000 with reference to ITA No. 1795/KB of 1998‑99 (assessment year 1997‑98) under section 156. In this view of the matter these three grounds stand disposed of in similar fashion.

4. Ground No.4 relates to computation of property income. The Assessing Officer had calculated the income in the following manner:

5. It is argued y the learned A.R. that electricity expenses and salaries and allowance paid to staff were in fact tenants burden and should have been adjusted against the annual value of the property as decided by the Tribunal in a reported case 1985 PTD (Trib.) 240.

6. The learned D.R. on his turn has stated that no expense other than that permissible under section 20 of the Income Tax Ordinance was allowable against annual value of the property and, therefore, the order of the DCIT as confirmed by the CIT(A) may be maintained.

7. For the sake of convenience the provisions of sections 19 and 12(13) are reproduced below:

Section 19:

"19. Income from house property.‑‑‑(1) The annual value of property' shall be chargeable under the head `Income from house property'. '

(2) For the purposes of subsection (1),‑‑‑

(a) `house property' means any property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, but does not include any such property (or any portion thereof) which is occupied by the assessee for purposes of any business or profession carried on by him the profits whereof are chargeable to tax under this Ordinance; and

(b) `annual value' of any property shall be deemed to be the sum for which the property might reasonably expected to let from year to year:

Provided that where the property is let on rent, the annual value shall not‑'be less than the rent payable by the tenant.

(3) Nothing contained in this section shall apply in‑the case of any such property which is in the occupation of the owner for purposes of his own residence.

Explanation.‑‑‑For the purpose of this section, any property, the owner of which is in receipt of any rent, whether, in cash or otherwise, whether from employer or' otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence.

Section 12(13):

"12(13). Where an assessee, being the owner of a building, receives from any person to whom such building or any part thereof is let out on rent any amount which is not adjustable against the rent payable by such person, such amount shall be deemed to be the 'income of the, assessee and chargeable to tax under the head `Income from house property' in the income year' in which such amount is received and the nine income years next following the said income year in equal proportion; and the amount so allocated to each income year shall be deemed to be the rent received in respect of such building or a part thereof." ;

8. As is apparent from clause (b) of subsection (2) of section 19, annual value of the property is to be determined by the Assessing Officer keeping in view the prevailing market rates of rent and he is to arrive at a figure at which the property can reasonably be let out from year to year. No doubt while determining the annual value the Assessing Officer is to keep in mind the facilities and amenities available in the building terms and conditions of the lease agreements to see as to whether land lord's burden has bee taken over by the tenants or the tenants burden has been taken over by the landlord and other circumstances of the case which may include the mutual relationship between the landlord am' the tenant etc. Also while determining the annual value the Assessing Officer has to the amount of annual value has to be taken at least equal to the rent payable by the tenant.

9. We have had the benefit of going through the case cited as 1985 PTD (Trib.). 240 wherein it has been held that expenditure on electricity and wages paid to sweeper is to be allowed against the annual value of the property. In the instant case the annual value taken by the Assessing Officer is equal to the rent payable by the tenants. The adjustment of the tenants burden, therefore, becomes just an academic question because in any case under proviso to section 19(2), annual value has to be taken at least equal to the rent received by the tenant as has been done by the DCIT. In this view of the matter in the circumstances of this case no adjustment for tenants burden can be given against the annual value.

10. Coming to the claim of salary and allowances at Rs.541,235 we have noticed that the salary has been paid to Chief Accountant, Manager Accountant, Assistant Manager, Accounts, Assistant, Electrician, Driver, 3 Watchman and 3 Sweepers. Salaries paid to the office staff have nothing to do with the property income and have not been allows as business expenditure also by this Tribunal in the circumstances of this case when there is no business. Even if it is presumed that service of some members of the office staff were utilised for collection of rent, their salaries would be allowable only to the permissible extent of collection charges which in this case have already been allowed by the DCIT. Salary of Electrician is covered by the allowance of repair allowed against the property income. Salaries paid to Watchman anti, Sweepers are adjustable against the annual value and in .the circumstances of this case cannot be adjusted because the annual value has to be equal to the rent received. In this view of the matter no adjustment of salaries and allowance is permissible against the property income.

11. Consequently the appeal fails on all accounts arid is hereby dismissed.

C.M.A./M.A.K./193/Tax (Trib.) Appeal dismissed