Brief Facts:
1. The assessee is an individual, who earned rental income from certain properties and claimed deduction for interest on loan paid by the assessee as interest u/s 24(b)of the Income Tax Act, 1961.
2. The A.O., on perusal of interest certificate given by the bank, noticed that out the total interest of Rs. 29,89,223/-, an amount of Rs. 4,30,008/- was paid by the assessee as foreclosure charges on prepayment of loan to the Bank.
3. The AO did not allow deduction for this sum in the computation of income under the head ‘Income from house property.’
4. The ld. CIT(A) affirmed the view taken by the AO.
Revenue Contention
Foreclosure charges are ineligible for deduction as interest u/s 24(b), while computing income under the head “Income from House Property”.
Assessee Contention
Foreclosure charges or prepayment charges are an allowable deduction and the same duly comes under the purview of the definition of interest as given under section 2(28A) of the Income Tax Act, 1961.
Court Order
1. The issue raised in this appeal is directly covered by an order passed by the Mumbai Bench of the Tribunal in Windermere Properties (P) Ltd. Vs. DCIT (2013) 155 TTJ (Mum) 1,wherein the Tribunal held that prepayment charges made for early disposal of loan are deductible as interest u/s 24(b) in the computation of income under the head ‘Income from house property.’
2. The facts and circumstances of the instant case are, mutatis mutandis, similar to those considered and decided by the Mumbai Bench of the Tribunal.
3. Following the aforementioned decision of Mumbai Bench of the Income Tax Appellate Tribunal, the deduction of foreclosure charges is allowed u/s 24(b) in computing income under the head ‘Income from House Property’.
Comment
Section 2(28A) of the Income Tax Act, 1961 defines the word ‘interest’ as under:-
“interest” means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.
It can be inferred from the perusal of the aforementioned definition that interest includes the amount paid by whatever name called in respect of the money borrowed or debt incurred, which may also encompass any charge paid for not utilizing the credit facility. Thus, the deduction of foreclosure or prepayment charges also falls under the purview of section 2(28A) read with section 24(b) of the Income Tax Act, 1961.
Analysed by CA Amit Handa
