High Court Of Delhi
CIT vs. Gopal Das Estate Housing (P)Ltd.
Sections 37(1)
B.C. Patel, C.J. & Badar Durrez Ahmed, J.
IT Appeal No. 69 of 2003
8th January, 2004
Counsel Appeared
R.D. Jolly with Ajay Jha, for the Appellant : None, for the Respondent
JUDGMENT
B.C. Patel, C.J. :
The appellant, who failed before the CIT(A) as well as Tribunal, has approached this Court, inter alia alleging that the finding recorded by the AO on p. 21 has not been considered either by the CIT (A) or by the Tribunal and, therefore, in the opinion of the counsel, in view of the decision of the apex Court in the case of CIT vs. Indian Woollen Textiles Mills (1964) 51 ITR 291 (SC), this would be a question of law as the relevant facts have not been taken into consideration by the authorities below. It was also submitted by learned counsel that it is open for the AO to consider the reasonableness of the amount of brokerage claimed by the assessee as businessexpenditure.
2. The assessee was called upon to explain about the brokerage, which he claimed to the tune of Rs. 1,45,25,708 in his P&L a/c. The assessee pointed out that the following aspects were required to be taken into consideration at the time of giving brokerage : The brokers were required to arrange the sale of space; The brokers were required to arrange for tenants and for the space in the building; The brokers were required to negotiate the higher amount of advance rent and security deposit, etc.; The brokers were required to persuade various space owners who agreed earlier to purchase the space from the assessee, to buy the leased space; and The brokers were required to negotiate the claims of the persons who have surrendered the space agreed to be purchased earlier.
3. The assessee also pointed out that normally there is a trend in the market that the brokers should be paid equivalent to 15 days to one month’s rent as brokerage/commission. However, he also pointed out that there is a trend in the market that the owners of the property insist on interest-free security and advance rent, which results in monthly rent at a lower rate. It is in view of these factors that the brokers demand higher brokerage. The AO has examined the matter and has pointed out in his order that the assessee did explain that there is a trend in the market to ask for interest-free security from the tenants, therefore, the monthly rent substantially reduces. It is in view of this the brokers are demanding more commission to compensate their loss due to fixation of low monthly rent. It is also noted that the assessee’s case cannot be accepted because in the case of brokers Trilok Chand, Rajender Prakash, Dayarani the commission has been paid amounting to Rs. 8,00,000 each in respect of space given on lease to M/s Oracle Software on the rent of Rs. 17,50,000 while advance rent of Rs. 10,50,000 and interest-free security has been received to the extent of Rs. 42,00,000. Here commission has been paid equivalent to 1-1/3 of the monthly rent. A similar example is quoted about another estate agent where commission was paid at the rate of Rs. 2,67,650 amounting only 1/3rd where monthly rent fixed was Rs. 10,50,000 and interest-free security has also been received amounting to Rs. 2,61,000. Thus, the commission paid is equivalent to about 1/3rd of the monthly rent. These are some examples only while the payment has been made on similar lines excepting 5 parties.
4. In a market, it is well known that faster the transactions, the higher the profits. It is well known that the value of a currency note in general depends on the velocity. If a thousand rupees are saved and put in a locker, will have the value of Rs. 1,000 and if the same amount is transacted 20 times a day by different people, the same will have the value of Rs. 20,000 and so on. It goes without saying that in such a scenario it would be in the best interests of builders that buildings are erected in as short a period of time as possible and that the same are quickly given to the prospective occupiers either by sale or on lease. To ensure that the buildings are not kept vacant for long, the assistance of brokers is necessary. The brokers, in turn, charge for the services rendered by them in bringing about the transaction of sale or lease, as the case may be. The speculation of brokerage in each case is market driven and dependent on the demand and supply situation. These salient features cannot be overlooked while deciding the matter of brokerage. This depends on individual cases and broker to broker. The AO in his assessment order has pointed out with regard to five parties the alleged excess amount by way of brokerage, that has been paid to the tune of Rs. 41,84,947. Total monthly rent from these five parties would be in the vicinity of Rs. 85,00,000. Thus, yearly rent would be in the vicinity of Rs. 10,20,00,000. For this fixed income of Rs. 10,20,00,000 per annum, the excess brokerage allegedly paid is in the sum of Rs. 41,89,947. Considering the figures, it appears that the amount of brokerage is paid at the rate of 1-1/3 times the monthly rent. As against this, the benefits secured are also required to be taken into consideration as also the loss, which would be suffered by the brokers on the lower rate of monthly rent on account of higher security amount deposit and advance amount paid by the persons/tenants.
5. In this backdrop, the CIT(A) was required to examine the matter and in para 12 of the judgment, the CIT(A) has considered this submission and in para 14 has arrived at a conclusion that the brokers were not related to the appellant or its directors and the expenditure is neither of personal nor capital nature and accordingly held that the disallowance was not justified. The order made by the appellate authority on these aspects was examined by the Tribunal, which approved the order made by CIT(A). The relevant part of para 42 of the order made by the Tribunal makes it clear, which reads as under : “As rightly opined by the CIT(A), it is for the assessee to decide as to what is the rate of commission, which it should pay taking into account the trends in the real estate business and varying these as and when eventualities require so. In our opinion, disallowance cannot be made on surmises, conjectures and suspicion and on the basis of the aforesaid observations, we uphold the order of the CIT(A).”
6. In view of the totality of the situation, we are of the opinion that no interference is called for in this matter. The appeal is dismissed.
[Citation : 267 ITR 149]
