Court allows deductions for interest on house purchase loans under Income-tax Act

The High Court of Calcutta ruled in favor of the assessee, affirming the Tribunal's decision to allow deductions for interest paid on the initial borrowed amount used for acquiring the house and for subsequent borrowings related to the unpaid purchase price. The Court held that once capital is borrowed for acquiring a house property, the interest paid on it should be deductible under section 24(1)(vi) of the Income-tax Act, 1961. The Revenue failed to challenge the applicability of the provision to the assessee's case, leading to the Court upholding the deductions for interest paid to the vendor company and Badridas Keshav Prosad.

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Issues involved: Interpretation of section 24(1)(vi) of the Income-tax Act, 1961 regarding deduction of interest paid on borrowed capital for house property.

Summary:
The High Court of Calcutta addressed the issue of whether unpaid sale price could be considered borrowed capital under section 24(1)(vi) of the Income-tax Act, 1961. The assessee had borrowed Rs. 3,50,000 initially to acquire a house and later borrowed additional amounts for the unpaid purchase price. The Tribunal allowed deduction of interest paid on the initial borrowing and for the subsequent borrowing related to the unpaid purchase price, but not for interest paid to the vendor on the unpaid purchase price.

The Court noted that section 24(1)(vi) allows deduction of interest on borrowed capital used for acquiring, constructing, or repairing a house property. The Tribunal's decision to allow interest on the initial borrowed amount was upheld, as it was used for acquiring the house. The Court also supported the deduction of interest on the subsequent borrowing for the unpaid purchase price, as it was directly related to the house property.

The Revenue failed to provide any authority to challenge the applicability of clause (vi) of section 24(1) to the assessee's case. The Court concluded that once capital is borrowed for acquiring a house property, the interest paid on it should be deductible. Therefore, the Court ruled in favor of the assessee, affirming the Tribunal's decision to allow deductions for interest paid to the vendor company and Badridas Keshav Prosad.

In conclusion, the Court held that the Tribunal did not misdirect itself in law regarding the treatment of unpaid sale price as borrowed capital under section 24(1)(vi) and justified the assessee's entitlement to deductions for interest paid on the balance purchase price and subsequent borrowings for the unpaid purchase price. Judge B. M. Mitra concurred with the judgment.

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