Case Law Details
The assessee claimed deduction of Rs. 11.05 crore u/s 24(b) of the Act. The Assessing Officer did not allow deduction of Rs. 1.56 crore paid as prepayment charges for the closure of the loan account which was taken for acquisition of property fetching the extant house property income. Under these circumstances the question arises as to whether such amount of `prepayment charges’ paid to HDFC for closure of loan account is deductible u/s 24(b) of the Act.
It is noticed that the assessee obtained loan from HDFC Limited for acquisition of property. Later on it arranged the money from other sources and repaid the loan which was taken for acquisition of property. The bank accepted the early repayment of loan on receipt of prepayment charges. By such repayment, the assessee managed to wipe out its interest liability in respect of the loan, which would have otherwise qualified for deduction u/s 24(b) during the continuation of loan. It is obvious that these prepayment charges have live and direct link with the obtaining of loan which was availed for acquisition of property. It is beyond our comprehension as to how the amount paid as interest for the loan taken is allowable as deduction but the amount paid as prepayment charges of the very same loan is not deductible. In our considered opinion the payment of such `prepayment charges’ cannot be considered as de hors the loan obtained for acquisition or construction or repair etc. of the property on which interest is deductible u/s 24(b) of the Act. Both the direct interest and prepayment charges are species of the term `interest’. We, therefore, set aside the impugned order on this issue and order for the grant of deduction.
INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES “G”, MUMBAI
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The judgment of the Tribunal is correct and revenue is expected to accept it and not to challenge before High Court. The Board can also issue circualr to allow such deductions in practical manner so as to compute real income as far as possible.
Strict interpretations will amount to overlooking ground realities:
In the changed circumstances, we need to be alive with changes. The law as formulated long ago can be considered to have visualized some circumstances, whereas in society and commercial world lot of changes takes place. Therefore, some specific provisions, worded in particular manner can at best be regarded as illustrative of situations. For example, world like ‘interest on capital borrowed for acquisition of house property,…’ if strictly interpreted, may not include interest by way of commitment charges, prepayment charges, late payment charges, etc. as also interest on loan obtained to repay original loan obtained for acquisition of house property. However, considering ground realities, the meaning of such expressions have to be expanded to cover changed circumstances.
There will be no justification, if interest on new loan taken to repay old loan is not allowed. In this case, the fact is not clear, however, when we notice that assessee claimed total deduction of Rs.11.05 crore, it may be a case that interest on new loan taken to repay old loan was also claimed and it was allowed by the AO. Whereas in some other cases, disputes are going on as to whether interest on new loan will be allowed or not u/s 24(b). In ACIT Vs, Sunil Kumar Agarwal (2011) 139 TTJ 49 it has been held that interest on new loan taken to repay old housing loan is also to be treated as loan taken for purchase or construction of house and interest paid on new loan is allowable u/s 24. This ruling is applicable in my case also.