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of <h1>Tribunal Allows Interest Deduction for Property Construction: Emphasizes Nexus for Tax Eligibility</h1> <h3>Shivom Build Con. (P.) Ltd. Versus Income-tax Officer 7(2) -(3)</h3> Shivom Build Con. (P.) Ltd. Versus Income-tax Officer 7(2) -(3) - TMI Issues:Disallowance of interest claimed under section 24(b) of the Income-tax Act against income from house property.Analysis:The only issue raised in this appeal was whether the disallowance of interest claimed by the assessee under section 24(b) of the Income-tax Act against income received from house property was justified. The facts revealed that the assessee had entered into an agreement with a trust to lease a property and construct additional floors. The Assessing Officer disallowed the deduction of interest, stating that the borrowed capital was used for construction of floors not let out to the bank. On appeal, the CIT(A) upheld the disallowance. The assessee argued that the borrowed funds were used as part of the consideration for acquiring the leasehold right of the property. The Assessing Officer, in a remand report, acknowledged the agreement terms requiring construction by the assessee. The Tribunal found that the borrowed funds were indeed used as consideration for construction, making the interest paid on them deductible under section 24(b). The lower authorities' disallowance was deemed unjustified, and the claim for interest deduction was allowed.This judgment clarifies the interpretation of section 24(b) regarding the deduction of interest on borrowed capital used for property acquisition or construction. It emphasizes that if borrowed funds are utilized as part of the consideration for acquiring a property, the interest paid on such funds is deductible. The decision highlights the importance of analyzing the purpose for which borrowed funds were used in relation to the property in question to determine the eligibility for interest deduction under section 24(b). The Tribunal's ruling provides clarity on the nexus required between borrowed funds, property acquisition, and interest deduction, ensuring a fair application of tax laws in such scenarios.
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