Case Law Details
Sanjeev Jain Vs DCIT (ITAT Dehradun)
There is no dispute that there was a house property, which was noted by the borrowed capital of the family of the assessee. It is also not disputed that assessee was one of the applicant of the loan. Only dispute is with respect to the family settlement dated eighth day of April 2014 wherein the parents of the assessee who are the original owners of the property divided the property by executive an agreement between the parents and four other persons.
Assessee is one of the entities amongst those four persons who are also brothers of the assessee. According to that family settlement the assessee got 1/6 share in the property. Accordingly, the cost of the construction incurred by the parents was also divided in the ratio according to family settlement and consequent borrowings made by the parents of the assessee were divided amongst the owners of the property.
The learned CIT – A, before whom this document was produced by the assessee held to be a colorable device. However looking at the family settlement we do not find that there is any scheme of arrangement, which can be said to be a colorable device. The only factor that has been stated in the family settlement is that the property is now divided amongst different persons including the parents and their four sons. It was also mentioned in that deed that each of the member would be entitled to get their names recorded in the municipal corporation record. Nothing else mentioned in the deed.
The learned CIT – A had come to the conclusion that assessee cannot sell the property. He further came to conclusion that assessee cannot out of that property. However, both these restrictions are not mentioned in the family settlement deed. We failed to understand that how the learned CIT – A concluded that assessee is now not the owner of the house property. According to us the property west in the assessee with effect from 8 April 2014. The assessee has taken a liability to pay the amount borrowed for the purpose of renovation of that house property to the banker. He was also one of the borrowers in that particular loan.
Therefore, according to us the facts of the case are very straight that assessee is owner of the 1/6 portion of the impugned property for renovation of which the amount was borrowed by the parents and other applicant including the assessee. Therefore any interest arising there on requires to be granted as deduction to the assessee under the provisions of section 24 (b) of the income tax act as assessee is the owner of the property.
The learned CIT – A merely stated that as name of the assessee has not been entered into the main super records he is not the owner of the property. There is a definite clause in the family settlement deed that each of the co-owner can get their names entered into the records of the municipal Corporation.
Merely because of the fact that such act has not been carried out by the assessee, according to us he cannot be held to be not the owner of the property. Further, the family settlement deed also cannot be held to be a colorable device without examining the real motive of the deed.
There are no conditions except the divisions of the property in the family settlement deed therefore, it cannot be inferred that it is executed with an ulterior motive. According to us, it is a simple partition of the property by the parents in four sons and themselves. Accordingly, we reverse the orders of the lower authorities and direct them to granted deduction under section 24 (b) of the act to the assessee of the interest amount paid of ₹ 2 lakhs on housing loan.
FULL TEXT OF THE ITAT JUDGEMENT
01. This appeal is filed by the assessee, an individual for assessment year 2015 – 16 against the order of The Commissioner Of Income Tax (Appeals) , Kanpur dated 25 June 2019 wherein the addition of Rs 2 lakhs being the disallowance of interest amount paid on housing loan and claimed as a deduction under section 24 (b) of The Income Tax Act 1961 made by the learned Deputy Commissioner Of Income Tax, Central Circle, Dehradun made by order under section 153A (1) (b) read with section 143 (3) of The Act passed on 28/12/2018 is confirmed.
02 The brief facts of the case shows that assessee is an individual deriving income from retail trading of gold and silver jewelry and other gift items of gold and silver from his proprietary concern. The assessee filed his return of income under section 139 (4) of the act showing total income of ₹ 527460/– on 25/3/2016. Search took place under section 132 of the Act on 1/12/2016 at business and residential premises in the group of the cases. The case of the assessee was also covered therein.
03 The only issue in the appeal was that assessee has claimed loss from house property on account of loan borrowed on capital for construction of house. The learned assessing officer enquired about the amount of interest paid. The assessee explained that that renovation in respect of a residential house was made by parents of the assessee. Housing loan was obtained by them from Oriental Bank of commerce. The total investment made in construction or renovation of house was Rs. 85 lakhs. The housing loan was granted to the parents of the assessee in the name of his two sons, one of them being the assessee, therefore, father of the assessee divided the construction cost among himself and his two sons. The housing loan obtained from bank was also divided accordingly. The assessee did not make any investment in respect of renovation of residential house however as he has contributed to pay back loan of the bank, the interest paid by him is claimed s deduction u/s 24 (b) of the Act. The learned assessing officer noted that assessee does not own any house property but the property is owned by the parents of the assessee. Assessee has not made any investment in the renovation or construction of house. Assessee is merely a co-borrower of the loan granted by the bank. Therefore assessee is not entitled to deduction of interest expenditure on the above bank loan under section 24 (b) of the act. The learned assessing officer noted that according to the provisions of section 24 (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such loan is granted as deduction. As assessee is merely a co applicant for the loan and not an owner of the house property, he disallowed the claim of the interest expenditure of ₹ 2 lakhs made by the assessee. Accordingly the returned income was assessed at ₹ 7 27460/– .
04 Aggrieved with the order of the learned assessing officer assessee preferred an appeal before the learned CIT – A. Before him the assessee submitted an application for admission of additional evidence under rule 46A of The Income tax Rules, 1962 and stated that there is a family settlement amongst the family members of the assessee and because of this the appellant is the de facto owner of a portion of the property for which home loan was utilized for renovation and repair. Therefore, he is fully entitled to claim deduction in respect of interest paid on home loan under section 24 (b) of the Act. It was further contested that though assessee is not the legal owner of the said property but there was a family settlement between the appellant and his parents as Memorandum of Family Settlement dated 8/4/2014. As per that settlement, it was decided among the family members that appellant will have 1/6th share in the said property. It was also decided that each party would get their name mutated in municipal record and in so entitled to get separate number and separate house tax assessment done from municipal authority. The loan of the said bank shall be paid by each member to the bank as per his or her mutually agreed and assigned share. Therefore, it was contested that appellant is a defecto owner of his share of the said property and therefore he is entitled to get a deduction of interest paid on housing loan and thus the addition made by the learned assessing officer deserves to be deleted.
05 The learned CIT – A held that appellant is neither legally nor as per the above provisions of section 27 of the Act the ‘owner’ of the said property. The learned CIT – A further examined the memorandum of family settlement and noted that appellant has only acquired the right of living and does not have any right to sale property. Thus according to him the assessee does not have ownership right with regard to the asset or earn income from the said share of the property. He further noted that even after the lapse of five years from execution of memorandum of family settlement the property is not muted in the name of the assessee. In the end, he held that memorandum of family settlement neither confers an illegal ownership of the property and nor assessee is entitled to earn income from property in his own right. He further noted that family settlement is only for living separately and for payment of housing loan as per mutual agreement. Therefore, he held that memorandum of family settlement is only a colorable device in the name of family settlement to get extra benefit of deduction of the interest expenditure in the hands of the assessee. Therefore, he confirmed the addition made by the learned assessing officer. Thus, assessee is in appeal before us.
06 Despite notice, none appeared on behalf of the assessee therefore the issue is decided on the merits of the case.
07 The learned departmental representative vehemently supported the orders of the lower authorities. The crux of the issue is that the family settlement produced by the assessee is not genuine and further assessee cannot be said to be the owner of the property and therefore the deduction has rightly been denied.
08 We have carefully considered the rival contention and perused the orders of the lower authorities. There is no dispute that there was a house property, which was noted by the borrowed capital of the family of the assessee. It is also not disputed that assessee was one of the applicant of the loan. Only dispute is with respect to the family settlement dated eighth day of April 2014 wherein the parents of the assessee who are the original owners of the property divided the property by executive an agreement between the parents and four other persons. Assessee is one of the entities amongst those four persons who are also brothers of the assessee. According to that family settlement the assessee got 1/6 share in the property. Accordingly, the cost of the construction incurred by the parents was also divided in the ratio according to family settlement and consequent borrowings made by the parents of the assessee were divided amongst the owners of the property. The learned CIT – A, before whom this document was produced by the assessee held to be a colorable device. However looking at the family settlement we do not find that there is any scheme of arrangement, which can be said to be a colorable device. The only factor that has been stated in the family settlement is that the property is now divided amongst different persons including the parents and their four e sons. It was also mentioned in that deed that each of the member would be entitled to get their names recorded in the municipal corporation record. Nothing else mentioned in the deed. The learned CIT – A had come to the conclusion that assessee cannot sell the property. He further came to conclusion that assessee cannot out of that property. However, both these restrictions are not mentioned in the family settlement deed. We failed to understand that how the learned CIT – A concluded that assessee is now not the owner of the house property. According to us the property west in the assessee with effect from 8 April 2014. The assessee has taken a liability to pay the amount borrowed for the purpose of renovation of that house property to the banker. He was also one of the borrowers in that particular loan. Therefore, according to us the facts of the case are very straight that assessee is owner of the 1/6 portion of the impugned property for renovation of which the amount was borrowed by the parents and other applicant including the assessee. Therefore any interest arising there on requires to be granted as deduction to the assessee under the provisions of section 24 (b) of the income tax act as assessee is the owner of the property. The learned CIT – A merely stated that as name of the assessee has not been entered into the main super records he is not the owner of the property. There is a definite clause in the family settlement deed that each of the co-owner can get their names entered into the records of the municipal Corporation. Merely because of the fact that such act has not been carried out by the assessee, according to us he cannot be held to be not the owner of the property. Further, the family settlement deed also cannot be held to be a colorable device without examining the real motive of the deed. There are no conditions except the divisions of the property in the family settlement deed therefore, it cannot be inferred that it is executed with an ulterior motive. According to us, it is a simple partition of the property by the parents in four sons and themselves. Accordingly, we reverse the orders of the lower authorities and direct them to granted deduction under section 24 (b) of the act to the assessee of the interest amount paid of ₹ 2 lakhs on housing loan. Accordingly, all the grounds of the appeal, which are related to only this disallowance, are allowed.
09 In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 13/05/2020
