Case Law Details
Brief of the Case
ITAT Delhi held in the case of Mrs. Samiksha Mahajan & Mrs. Anita Rani vs. ACIT that as per provisions u/s 24, it is crystal clear that deduction is allowable on account of interest paid on the borrowed capital within three years from the end of the financial year in which capital was borrowed. As per the explanation appended to the proviso of the aforesaid section, it is also clear that the property either be acquired or constructed with the borrowed capital. It is nowhere mentioned that the property must be acquired as well as constructed with the borrowed capital. The use of the word “or” in between acquired and constructed makes it clear that the property can either be acquired or constructed with the borrowed capital and if the income is earned which is assessed under the head ‘income from house property’, the deduction to the maximum extent of Rs.1,50,000/- is allowable on account of interest paid on the loan raised to acquired the property. In the present case, the assessee raised loan of Rs.22.50 lacs from the Indian Overseas Bank and acquired the property, income of which was assessed under the head ‘income from house property’. Therefore, the interest paid amounting to Rs.1,42,123/- was deductible u/s 24.
Facts of the Case
The assessee e-filed the return of income on 30.03.2011 declaring an income of Rs.7,03,420/-. Later on, the case was selected for scrutiny. The AO observed that the assessee had declared income at Rs.10, 22,171/- under the head income from house property. He also observed that the assessee was the co-owner of the farm land with Smt. Anita Rani Mahajan, both having the equal share and entered into an agreement with M/s Nimitya Properties Ltd. who will construct the farm house on the land, bearing all the expenditure incurred on the development and construction of the said farm house and that on the completion of the project, the developer i.e. M/s Nimitya Properties Ltd. will be entitled to 50% share out of the total consideration to be received after selling the said farm house and in case the property is rented out, the developer will receive 70% of the rent, the remaining 30% will go to the owners of the land. Thus, the assessee alongwith Smt. Anita Rani Mahajan was entitled to receive 30% of the rent. The individual share of the assessee being 15% of the total rent which came to Rs.11,79,375/- whereas the assessee had declared rent of Rs.10,22,171/-. According to the AO, the assessee had declared rent short by Rs.1,10,043/- which was added to the income of the assessee.
During the course of assessment proceedings, the AO also noticed that the assessee claimed deduction u/s 24(a) for a sum of Rs.1,42,123/- and had not spent any amount on construction of the farm house, therefore, he was of the view that the deduction could not be allowed. The AO also observed that the assessee claimed deduction of Rs.1,00,000/- u/s 80C, which was restricted to the sum of Rs.51,000/- and remaining amount of Rs.49,000/- was added to the income of the assessee.
Contention of the Assessee
The ld counsel of the assessee support the order of CIT (A). He further submitted that the assessee raised a housing loan for purchasing the property in question and acquired the right in the property. It was stated that the income from the said property was assessed under the head ‘income from house property’ and even the addition was made by the AO in the income under the head ‘income from house property’. It was further stated that the CIT(A) cited the wrong decision, facts of which were not applicable to the facts of the assessee’s case because in the said case the loan was taken for eviction and the money was utilized for paying the tenant for handing over the possession of the property or in other words, for surrendering the tenancy rights in the property while in the assessee’s case, the loan was raised for acquiring the property, the income generated from which was assessed under the head ‘income from house property’. Therefore, the interest paid by the assessee was allowable u/s 24(b).
Contention of the Revenue
The ld counsel of the revenue supported the orders of the lower authorities.
Held by CIT (A)
CIT A) after considering the submissions of the assessee observed that the assessee had purchased land by taking the loan from Indian Overseas Bank; however, the property was constructed by M/s Nimitya Properties Ltd. and not by the assessee. He further observed that Section 24(b) of the Act provides for deduction in respect of acquisition of property consisting of any buildings or land appurtenant thereto. Thus, the land appurtenant thereto is to be understood in the context of the building and not independently. The reliance was placed on the decision of the Hon’ble Supreme Court in the case of G. Claridge and Co. Ltd. (1991) 2 SC Cases 229 and Dr. Devendra M. Surti AIR (1969) SC 63.
The CIT (A) further observed that the assessee had not spent any amount on the construction of the building; therefore, she was not entitled for deduction u/s 24(b). He, accordingly, upheld the disallowance made by the AO. As regards to the disallowance of Rs.49,000/- u/s 80C , the ld. CIT(A) held that the assessee had not incurred any amount for construction of farm house as construction cost was made by M/s Nimitya Properties Ltd. Accordingly, the said disallowance was also upheld.
Held by ITAT
ITAT held that it is an admitted fact that the assessee raised home loan of Rs.22,50,000/- from Indian Overseas Bank against the property and entered into an agreement with M/s Nimitya Properties Ltd. with an arrangement that the said company will construct the farm house on the land by incurring all the expenditure on the development and construction of the said farm house on completion of the project. The said developer company was entitled for 50% shares out of the total consideration to be received after selling the said farm house and in case the said property was to be rented out, the developer company would receive 70% of the rent and the remaining 30% will go to the owners of the land.
As per provisions u/s 24, it is crystal clear that deduction is allowable on account of interest paid on the borrowed capital within three years from the end of the financial year in which capital was borrowed and in the relevant assessment year, the deduction allowable was of Rs.1,50,000/- which has been enhanced to Rs.2,00,000/- by the Finance Act (No. 2), 2014 w.e.f 01.04.2015. As per the explanation appended to the proviso of the aforesaid section, it is also clear that the property either be acquired or constructed with the borrowed capital. It is nowhere mentioned that the property must be acquired as well as constructed with the borrowed capital. The use of the word “or” in between acquired and constructed makes it clear that the property can either be acquired or constructed with the borrowed capital and if the income is earned which is assessed under the head ‘income from house property’, the deduction to the maximum extent of Rs.1,50,000/- is allowable on account of interest paid on the loan raised to acquired the property. In the present case, the assessee raised loan of Rs.22.50 lacs from the Indian Overseas Bank and acquired the property, income of which was assessed under the head ‘income from house property’. Therefore, the interest paid amounting to Rs.1,42,123/- was deductible u/s 24(b) of the Act. In that view of the matter we set aside the impugned order and direct the AO to allow the claim of the assessee.
As regards to the issue relating to the deduction u/s 80C is concerned, it is noticed that the assessee claimed the deduction of Rs.49,000/- with regard to the repayment of home loan but the AO did not allow the same on the ground that the assessee herself did not construct the property but only acquired the land. As we have already noted in the former part of this order that the assessee purchased the land alongwith Smt. Anita Rani Mahajan on which the construction was done by M/s Nimitya Properties Ltd. and both the parties i.e. the assessee along with Smt. Anita Rani Mahajan and the developer company became co-owner of the constructed property. Therefore, it is clear that the assessee made the repayment of the home loan taken for acquiring the property whose income was assessed under the head ‘income from house property’. In the present case, the assessee borrowed the amount for acquiring the property whose income was assessed under the head ‘income from house property’ and made the repayment of the said loan. Therefore, the said repayment was eligible for claiming the deduction u/s 80C.
Accordingly appeal of the assessee allowed.
