Interest paid on loan taken to repay previous loan of Property – deduction alllowed u/s 24(b)

By | March 8, 2017
(Last Updated On: March 8, 2017)

1.  DCIT Vs. M/s. Patton Developers Pvt. Ltd., I.T.A No. 1043/Kol/2014, Date of Order: 01.03.2017, ITAT- Kolkata

Issue:
Whether interest paid by assessee on loan taken for repaying the loan earlier borrowed for acquisition of the property is allowed as deduction u/s 24(b) of the Income Tax Act,1961?

Held: Yes

Brief Facts:
The assessee declared income under the head “income from house property” and claimed deduction of interest paid on loan borrowed for construction of the house property u/s 24(b) of the Act of a sum of Rs.2,28,31,800/-. The property in respect of which interest expenses was claimed as deduction was acquired by a company by name M/s. Centre Point Reality P.Ltd after taking an advance of Rs.29.22 crores from M/s. Patton International Ltd. Subsequently M/s. Centre Point Reality Pvt. Ltd got amalgamated with the assessee company. The assessee thus became the owner of the house property. The loan of Rs.29.22 crores availed by the assessee from M/s. Patton International Ltd and another loan of Rs.17,50,00,000/- was availed form State Bank of Mysore. This loan stood reduced to Rs.8.37 crores after repayment. During the previous year, the assessee borrowed a sum of Rs.20 crores and utilized the same to repay the outstanding loan of Rs.8.37 crores to State Bank of Mysore and the remaining Rs.11.63 crores for repaying loan to M/s. Patton International Ltd. On the borrowing of Rs.20 crores the assessee paid interest amounting to Rs.1,72,18,169/- and this was claimed against income from house property as deduction u/s 24(b) of the Act. 

The AO was of the view that it was only the sum of Rs.8.37 crores repaid to State Bank of Mysore that can said to be a loan borrowed for acquiring the property and therefore interest paid on such amount was eligible for deduction u/s 24(b) of the Act. Regarding the remaining loan of Rs.11.63 crores the AO was of the view that this cannot be considered as loan that was utilized for acquiring the property and therefore interest paid Rs.1,00,12,365/- on Rs.11.63 crores was not an eligible deduction u/s 24(b) of the Act and made the addition of same to the total income of the assessee. The borrowing to the extent of Rs.11.63 crores were only to repay the amount borrowed for acquiring the property and not for acquiring the property and therefore the requirement of Sec.24(b) of the Act was not satisfied. Being aggrieved by the decision of AO, the assesse appealed before the CIT(A) The CIT (A) held that the assessee was entitled to deduction u/s 24(b) of the Act on amounts borrowed and utilized to repay a loan that was borrowed for acquisition of the property and deleted the additions made by AO. Therefore, against the order of CIT(A), the revenue has preferred the appeal before the Hon’ble ITAT.

Held:
The Hon’ble ITAT had placed reliance on the case which was followed by CIT(A) in the impugned order was the subject matter of the appeal before the Hon’ble ITAT and in ITA No.90/Kol/2013 by order dated 24.11.2015 the Tribunal held that the dis-allowance of interest u/s 24(b) of the Act cannot be sustained. Also by placing the reliance on the provision for understanding of section 24(b) of the act and held that the facts available on record that the sum of Rs.11.63 crores was utilized for repayment of the original borrowing from M/s. Patton International Ltd is erroneous, which was admitted a loan borrowed for the purpose of acquisition of the property. In the light of the such admitted factual position, Tribunal are of the view that the deduction claimed by the Assessee has to be allowed as laid down in the proviso to Sec.24(b) of the Act. With all respect, following the decision of the Tribunal referred to above, Tribunal uphold the order of CIT(A) and dismiss the appeal by the revenue.
The appeal of the revenue was dismissed.

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