House-property interest deduction fails where later borrowing repays a business loan, not an eligible property loan.

Interest on a later borrowing used to clear an earlier loan was not deductible against house-property income under section 24(1)(vi) because the original borrowing had been taken for business purposes, not for acquiring, constructing, repairing, renewing or reconstructing the property. The provision extends to subsequent borrowing only where it repays a loan originally taken for an eligible house-property purpose. A circular relied on by the assessee was found inapplicable for that reason, and the authorities also noted that the later borrowing was not wholly confined to discharge of the old liability. The deduction was therefore disallowed.

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Issues: Whether interest paid on a subsequent loan taken to discharge an earlier loan, originally borrowed by the assessee's father for business purposes and secured on inherited property, was deductible under section 24(1)(vi) of the Income-tax Act, 1961 against income from house property.

Analysis: Deduction under section 24(1)(vi) is available where the borrowed capital is used for acquiring, constructing, repairing, renewing or reconstructing the property, and the later borrowing is to repay a loan taken for that eligible purpose. The original borrowing in this case was not for acquisition or construction of the house property but for business purposes, and the subsequent borrowing was therefore only to discharge an inherited liability. The circular relied upon by the assessee did not assist him because it applies only where the original loan itself was for an eligible house-property purpose. The authorities and the Tribunal also found that the later borrowing was not fully confined to repayment of the old liability.

Conclusion: The interest on the subsequent loan was not allowable as a deduction under section 24(1)(vi), and the disallowance was upheld against the assessee.

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