Interest against House Rent from Children used Jointly allowable

Md. Hussain Habib Pathan Vs ACIT (ITAT Mumbai)

The issue under consideration is raised by the assessee in respect of house property income qua the assessee’s residential house property, i.e., A/1-5, Prithvi Apartments, at Mumbai. The assessee has claimed a loss of Rs.15,32,120 qua the said property on account of interest (on borrowed capital) at Rs. 21,62,120, adjusting it against the rental income of Rs. 9 lakhs. The said rent was, on the basis of a field enquiry by the Assessing Officer (AO), found to be from the assessee’s major son, Roman Pathan and major daughter, Neha Pathan, residing thereat along with the assessee’s other family members. Nobody would, in the view of the AO, charge rent (for residence) from his own son and daughter, particularly considering that both are unmarried and living together with their family at its’ self-owned abode. The arrangement was therefore regarded merely as a tax-reducing device adopted by the assessee, liable to be ignored. Treating the house property as a self-occupied property, the AO restricted the claim of interest u/s. 24(b) to Rs. 1,50,000, and which was confirmed by the ld. CIT(A) in appeal for the same reason/s.

The house property, A/1-5, Prithvi Apartments, the family residence of the Pathan family, is, in view of the rent agreements, both a self-occupied and a let out property. The interest claimed (Rs. 21.62 lakhs) is qua the entire property, which therefore cannot be allowed in full against the rental income, which is qua a part of the house property. The assessee’s interest claim therefore cannot be allowed in full and shall have to be suitable proportioned, even as agreed to by Sh. Mehta, restricting the interest claim relatable to the self occupied part thereof to, as allowed, Rs. 1.50 lakhs. The assessee shall provide a reasonable basis for such allocation as well as the working of the area let. We say so as it may well, in view of the joint residence, be that no area (portion) is specified in the rent agreements. The number of family members living jointly; their living requirements – which may not be uniform; fair rental value of the property, etc., are some of the parameters which could be considered for the purpose. The AO shall adjudicate thereon per a speaking order, giving definite reasons for being in disagreement, where so, in whole or in part, with the assessee’s working, within a reasonable time. We decide accordingly. In the result, the assessee’s appeal is partly allowed on the aforesaid terms.

FULL TEXT OF THE ITAT JUDGEMENT

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-29, Mumbai (‘CIT(A)’ for short) dated 13.12.2012, partly allowing the assessees’ appeal contesting his assessment for Assessment Year (AY) 2009-10 vide order u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’) dated 30.12.2011.

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