Composition fee for regularising building activity held deductible in house property income computation

A composition fee paid to a Cantonment Board for regularising building activity was treated as an admissible deduction in computing income from house property under section 24(1)(ii) of the Income-tax Act, 1961. The court noted that payment of a composition fee does not, by itself, mean the payer has accepted illegality, and on the facts the expenditure was connected with the property. The deduction was therefore upheld and the issue was answered in favour of the assessee.

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Issues: Whether the assessee's share of the composition fee paid to the Cantonment Board was an admissible deduction while computing income from house property under section 24(1)(ii) of the Income-tax Act, 1961.

Analysis: The payment was made to regularise the building activity and to avoid further controversy. A composition fee does not, by itself, establish that the payer has accepted illegality. On the facts, the amount was treated as a legitimate expenditure connected with the property and allowable in computation of property income.

Conclusion: The deduction was rightly allowed. The question was answered in favour of the assessee and against the Department.

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