Interest deduction survives loan refinancing when fresh borrowing repays property-related debt and remains connected with house-property acquisition.

Section 24(b) of the Income-tax Act, 1961 permits deduction of interest on borrowings used for acquiring, constructing, furnishing, installing, or otherwise completing a house property. Replacing an earlier property-related loan with a fresh loan raised to repay the earlier borrowing does not, by itself, prevent deduction of interest on the subsequent loan. The borrowing transactions and allocation of costs must remain connected with the property, and the claim must not exceed the asset's value. Circular No. 28 dated 20 August 1969 supports this treatment for fresh loans used to repay earlier loans.

---

---

Issues: Whether the restriction of deduction of interest claimed on borrowed funds under Section 24(b) of the Income-tax Act, 1961 was justified where earlier property-related loans were replaced by subsequent loans.

Analysis: Interest on borrowings used for acquisition, construction, interior work and installations of the house property is allowable under Section 24(b) of the Income-tax Act, 1961. Replacement of an earlier loan by a fresh loan for repayment of the earlier borrowing does not, by itself, disentitle the assessee from claiming interest on the subsequent loan. The loan transactions and allocation of borrowing costs were found relatable to the property, and the interest claim did not exceed the value of the asset. Circular No. 28 [F.No. 8/8/69-IT(A-I)] dated 20.08.1969 also supports allowability of interest on a fresh loan raised to repay an earlier loan.

Conclusion: The restriction of the interest deduction under Section 24(b) was unjustified, and deletion of the addition was upheld in favour of the assessee.

---