Income from disregarded capital

I have a client who has a former home up for sale since Jan ‘12, and has applied for HB on their current tenancy. The previous home is correctly being diregarded currently.
However, they also have a tenant in this former home and receive rental income from this.

The Rental income is £475pm paid to letting agents. My client receives £393pm after their charges have been deducted.
There is an outstanding mortgage being paid which is £399pm.

In the HB assessment, the mortgage has been allowed as per HB Regs (Sums to be disregarded in the calculation of income other than earnings) Schedule 5 para 17 (2)(a):
‘Income derived from capital disregarded etc..

My problem is that the LA have taken the income as the rent figure of £475pm, and I was wondering if this could be challenged as the income actually received is £393, and therefore the mortgage payment of £399 would cancel this out totally, rather than £76pm being taken into account on current assessment?
I suppose what I’m trying to establish is what is the definition of the ‘income derived from capital’ is it the actual rent figure? or is it the actual income received after letting agents fee?
Any help appreciated.

I’ve just spotted this post…

The rental figure for the purposes of income is the gross rent (before the agent’s fees are taken out).  Furthermore, the agent’s fees are not classed as expenses to be disregarded from rental income under Schedule 5, HB regulations.  However, in addition to the disregard for mortgage payments, only if your client is liable for council tax or water charges on the property during the period in which the rental income is accrued, will he or she be entitled to a further disregard from the rental income under para. 17 of Schedule 5.