Refinancing of housing loan can support interest deduction, but only for sums tied to property acquisition or construction.

Interest on a subsequent loan taken to repay an earlier housing loan may qualify for deduction under section 24B where the later borrowing is in substance a refinancing of the original housing loan used to acquire or construct the property. The deduction is available only to the extent the assessee proves that the fresh borrowing was applied to discharge the earlier housing loan and only for the principal amount connected with acquisition or construction, not for unpaid interest or unrelated sums. The authorities must examine the claim on that legal basis and verify the factual link between the loans.

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Issues: Whether interest paid on a subsequent loan taken to repay an earlier housing loan is deductible under section 24B, and the extent to which such deduction can be allowed.

Analysis: The claim turned on whether the later borrowing from SBI was in substance a repayment of the earlier housing loan from KSFC, and whether the earlier borrowing had been used for acquiring the house property. The material on record indicated that the Revenue did not dispute the fact of repayment through fresh borrowing, but the authorities had not examined the claim in the correct legal framework. The relevant principle, supported by the cited circular and case law, is that if the second borrowing is used to repay the original housing loan, interest on the second loan can also qualify, but only to the extent the borrowing relates to the amount actually used for acquisition or construction of the house property and not to unpaid interest or unrelated amounts.

Conclusion: Deduction of interest on the subsequent loan is permissible in principle, but only if the assessee proves that it was used to repay the earlier housing loan and only to the extent of the principal amount used for acquiring or constructing the property.

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