ORDER
1. The Income Tax Appellate Tribunal, Delhi, has referred the following two questions of law under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act), for opinion to this Court:
'Whether, on the facts and circumstances of the case, the Tribunal was correct in law in confirming the action of the lower authorities in allowing deduction for Rs. 30,000 only as against the claim for collection charges to the tune of Rs. 71,701 ?
Whether, on the facts and in the circumstance of the case, the Tribunal misdirected itself in law in being its conclusions on irrelevant material and in ignoring other essential material on record
2. The reference relates to year 1986-87.
3. Briefly stated the facts giving rise to the present reference are as follows The applicant is a firm deriving income from property representing godowns at Maliyana as well as from houses in Chipi Tank and Kaiserganj. The other income of the applicant, firm is from interest.
The applicant disclosed an annual letting value of the property at Maliyana at Rs. 11,95,053. Deduction from this annual letting value was claimed on account of collection charges of Rs. 71,703. This sum comprised of rent collection account of Rs. 49,286 and another amount of Rs. 22,417 on account of car, legal expenses and depreciation Rs. 49,286 represented salary of Rs. 38,605 and Rs. 10,680 on account of conveyance expenses.
The salary represented payments to 12 employees who were employed for the purposes of collection or rent. The number of godowns that were not lot out by the applicant were 20 in numbers. On the above godowns, two godowns each were let to two different parties and there were godowns which were let out only for a period of 7 to 15 days which remained vacant for the rest of the period. The assessing officer concluded that for collection of the rent, the services of 12 employees was unnecessary and the similarly expenses on conveyance was not justified. The other amount of Rs. 22,417 representing expenses on car, legal expenses and depreciation were found to be estimated. out of the total expenses of Rs. 74,672. The assessing officer, accordingly, restricted the deduction of collection charges to Rs. 30,000 only.
4. In appeal, the applicant submitted that all the 12 employees were not employed simultaneously and the applicant had made efforts to keep the expenditure to the minimum which the Deputy Commissioner (Appeals) observed was not supported by any documentary evidence. fie, accordingly, confirmed the order of the assessing officer. The Tribunal after considering the rival submissions on the above facts, in para 5 of its order dated 6-5-1991 observed as under:
have given my careful consideration to the rival submissions, I do not think there was necessity of 12 employees for collection work. To my mind these employees were engaged by the applicant for overall work connected with the godowns, such as, repairs, maintenance, taxes, banking work, etc. The total claim made towards collection charges is Rs. 71,703. The assessing officer has already allowed 1/6th towards repairs at Rs. 1,99,175. These employees will be supervising repairs of the godowns also. Supervision charges of repairs are separately considered then the entire claim of Rs. 71,000 and odd can be said to have been allowed by the assessing officer partly against collection charges and partly towards repairs. The allowance of Rs. 30,000 by the assessing officer towards collection charges and confirmed by the Commissioner (Appeals), therefore, appears to be reasonable. No interference with his order on Chis account is called for.
5. We have heard Shri Suyash Agrawal, learned Counsel appearing for the applicant and Shri AN. Mahajan, learned standing counsel appearing for the revenue.
6. The learned Counsel for the applicant submitted that as the applicant was having income from letting out of godown and other commercial establishments, he was entitled for deduction of collection charges tothe extent of 6 per cent of the gross rent received. According to him, the applicant had employed -12 persons for collecting the rent as the godowns and other commercial establishments were situated in different cities. A sum of Rs. 49,286 was spent towards expenditure incurred on such employees and Rs. 22,417 was spent towards legal expenses depreciation and car allowance. The exact amount which was claimed by the applicant was within the extent of 6 per cent which ought to have been allowed. The assessing authority had not considered the various documents filed in support of his claim for allowing the collection charges as claimed by the applicant. The same mistake was done by the first appellate authority as also by the Tribunal. In support of his various pleas, he has relied upon the decisions of (i) Lalchand Bhagat Ambica Ramv. CIT , (ii) Ashok Kumar Rastogi v. CIT (1991) 55 Taxman 433 (All.) and (iii) CIT v. Mahesh Chand (1993) 199 ITR 2741 (All.).
7. Shri A.N. Mahajan, learned standing counsel, on the other hand, submitted that the tax on rental statement, salary chart and the details of the collection expenditure were filed by the applicant before the assessing authority. No supporting documents were filed and that is why the assessing authority after discussing the entire issue had disallowed the expenditure towards collection charges on the ground that the sum of the expenditure amounting to Rs. 22,417 had been debited in the profit and loss account and did not actually pertain to the collection work. Further he had urged that the employees engaged by the applicant were not only collecting the rent but were also supervising the repair works for which statutory deduction of 1/6th of the total rent received had already been allowed. Even in the first appeal, Deputy Commissioner (Appeals) has held that the submissions made on behalf of the applicant regarding. collection charges are not supported by any documentary evidence. The Tribunal having upheld the order passed by the authorities below was perfectly justified in doing so. There is no question of ignoring the evidence or documents which were placed on record. He further submitted that the applicant having failed to prove that the employees were exclusively engaged for the purposes of collecting the rent, the authorities were perfectly justified in apportioning the expenditure towards collection charges and towards repairs. Thus, the order of the Tribunal is liable to be upheld.
8. We have given our anxious consideration to the various pleas raised by the learned Counsel for the parties. From the record, we find that with regard to the details of the expenditure incurred by the applicant, no supporting documents were filed to show that the entire expenditure has been incurred only on collecting the rent and finding of the Tribunal, that the employees were not only collecting the rent but were also doing the work of supervision of repair work does not suffer from any legal infirmity. The decisions relied upon by the learned Counsel for the applicant is of no assistance to the applicant inasmuch as in those cases, the employees were not employed for making the collection. The assessing authority is not entitled to make a pure guess but is supposed to make an assessment with reference to the evidence and material on record. It would not be applicable to a case where the only source of income of the applicant is in respect of income from house property. Further in view of the findings recorded by the authorities including the Tribunal that the employees engaged by the applicant were not exclusively doing the work of collection of rent, the Tribunal, in our opinion, was justified in apportioning the expenditure incurred towards collection charges and towards repairs.
9. Thus, the first question of law referred to us is answered in the affirmative, that is, in favour of the revenue and against the applicant and the second question is answered in the negative, that is, in favour of the revenue and against the applicant.
10. There shall be no order at to costs.