Tribunal allows interest deduction on property loans, citing CBDT Circular principles.

The Tribunal overturned the decision of the CIT(A) and directed that the deduction claimed by the assessee for interest paid to the lender should be allowed. The Tribunal emphasized that the CBDT Circular principles remain applicable under the current provisions of the Income Tax Act, allowing deductions for interest paid on loans used to repay original property construction loans, irrespective of the property type. The Tribunal held that the disallowance of the deduction by the revenue authorities was unsustainable, emphasizing that the nature of the property does not restrict eligibility for deductions under section 24(b) of the Act.

---

---

Issues:
Appeal against disallowance of deduction on interest paid to a lender for a commercial building project under section 24(b) of the Income Tax Act, 1961.

Detailed Analysis:
1. The assessee, a company engaged in real estate projects, filed a return declaring income under "Income from House Property" for Assessment Year 2011-12, claiming a deduction of interest paid on capital borrowed for property construction under section 24(b) of the Act.
2. The dispute arose when the Assessing Officer disallowed the deduction on interest paid to a lender, Mrs. Kaveri Bai, despite the funds being used to repay a loan taken for property construction from Corporation Bank.
3. The CIT(A) upheld the disallowance, citing the third proviso to section 24(b) of the Act, which was inserted by the Finance Act, 2002, emphasizing that the provision is relevant only for self-occupied properties as per Section 23(2) of the Act.
4. The assessee contended that the CBDT Circular No. 28 dated 20-8-1969, applicable under the previous provisions of the Act, remains relevant, allowing deduction for interest paid on loans used to repay original property construction loans, irrespective of the property type.
5. The Tribunal analyzed the statutory provisions of Sec. 22, 23, and 24 of the Act, emphasizing that the deduction under Sec. 24(b) is applicable to properties acquired, constructed, or renewed with borrowed capital, without specifying the property type.
6. Referring to the CBDT Circular, the Tribunal disagreed with the CIT(A)'s interpretation, asserting that the circular's principles remain applicable under the current Sec. 24(b) provisions, allowing deduction for interest paid on loans used to repay original property construction loans, regardless of property type.
7. The Tribunal concluded that the reasons provided by the revenue authorities for disallowing the deduction were unsustainable, directing that the deduction claimed by the assessee for interest paid to Mrs. Kaveri Bai should be allowed.

This detailed analysis highlights the interpretation of statutory provisions and the applicability of the CBDT Circular in allowing deductions for interest paid on loans borrowed for property construction, emphasizing that the nature of the property does not restrict the eligibility for such deductions under section 24(b) of the Income Tax Act, 1961.

---