Brokerage for Property Letting Deductible under Income-tax Act: High Court Decision

The High Court held that commission paid to a broker for letting out a property is an admissible deduction as collection charges under section 24(1)(viii) of the Income-tax Act, 1961. The court emphasized that as long as the expenditure is within the statutory limit of six per cent of the annual value of the property, it should be allowed, regardless of the nature of the expense. The deduction of the brokerage amount was permitted in this case, and the court ruled in favor of the assessee, affirming that such expenses are eligible for deduction under the specified provision.

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Issues:
1. Whether commission paid to a broker for letting out a house is an admissible deduction as collection charges under section 24(1)(viii) of the Income-tax Act, 1961 for the assessment year 1967-68.

Comprehensive Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the deductibility of commission paid to a broker for letting out a house as collection charges. The assessee claimed a deduction of Rs. 15,000 paid as brokerage for letting out a property, which was disallowed by the income-tax authorities. The Tribunal, on second appeal, allowed the claim, stating that such expenditure falls within the statutory limit of six per cent and is an admissible deduction under section 24(1)(viii) of the Act.

During the hearing, the counsel for the Revenue argued against allowing brokerage as a deduction under the head "Income from house property." However, the counsel for the assessee relied on a Delhi High Court decision, contending that as long as the expenditure is within the statutory limit, it should be allowed, irrespective of its nature. The High Court considered these arguments and analyzed the provisions of section 24(1)(viii) which allow deductions for sums spent to collect rents, not exceeding six per cent of the annual value of the property.

The court emphasized that expenditure for collecting rents may include various expenses, such as paying commission to a broker to secure fair rent for the property. It was noted that the nature and character of the expenditure should determine its eligibility as a collection charge. As long as the expenditure is within the prescribed ceiling, whether incurred by appointing an employee or paying a broker, it should not be disallowed. In this case, since the expenditure was within the permissible limit, the court held in favor of the assessee, allowing the deduction of the brokerage amount.

In conclusion, the High Court answered the reference question affirmatively, stating that as long as the expenditure is within the statutory limit of section 24(1)(viii), it should be allowed as a deduction for collection charges. The judgment was agreed upon by both judges, and no costs were awarded in the matter.

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