It’s a common practice for people letting out their homes to divide the total rental as rent for the use of the house property in one part and rent for the use of furniture and other amenities (if provided) in another part from the tenant. In such cases, the rental income for use of the property is offered under the head ‘house property’ while the rent for amenities has to be charged under the head ‘other sources’.
The deductions that can be claimed from income under the head ‘house property’ as prescribed under the Income Tax Act (the Act) are property taxes paid, standard deduction (calculated at 30% of the rental income) and interest paid on home loans. On the other hand, for income offered under the head ‘other sources’, the Act provides that any expenditure incurred wholly and exclusively for the purpose of earning such income shall be permitted to be deducted while computing the income chargeable to tax.
This week’s case is about a non-resident taxpayer who had a property in India given out on rent. The rent was divided into two parts – for the property and for the amenities. In his return of income, he showed income from house property, short-term capital gains and income from other sources. During the course of assessment, on verification of details filed by the taxpayer, the taxman observed that the taxpayer had claimed deduction (under the relevant provisions of the Act) on travelling expense of Rs 2 lakh against compensation for amenities shown under other sources. The taxpayer submitted that these expenses are related to the management of his property in India. The tax officer, however, disallowed the claim.
Before the first appellate authority, the taxpayer argued that to manage the property, he has to travel to India and hence the expenses should be allowed against the amount received for the use of amenities of the property. The taxpayer had visited India many times and the actual travelling and lodging expenses incurred by him were much more than the amount claimed as deduction in the return of income.
The first appellate authority was of the opinion that the expenses claimed by the taxpayer do not qualify as expenditure incurred wholly and exclusively for the purpose of earning the income from amenities, as prescribed under the Act. In view of the same, the authority agreed with the tax officer and disallowed the claim.
When the matter came up for hearing before the second appellate authority, the Mumbai Tax Tribunal was of the view that no travelling expenses can be allowed for the taxpayer’s international travel for income received from house property in India. Further, the taxpayer had claimed the amount in a lump sum without any supporting documents. The tribunal accordingly did not interfere with the orders passed by the lower authorities and confirmed the disallowing of deduction.
Though the above decision is in the context of a non-resident taxpayer, the interpretation will hold good even in case of resident taxpayers who may be owning properties in different parts of the country and incur travel expenditure to maintain the same.