Separately contracted maintenance services constitute business income, while replacement-loan interest remains deductible when linked to house property financing.

Maintenance charges under a separate agreement are treated as business income where they are independently contracted, separately identifiable from rent, and linked to distinct services and facilities rather than mere letting. Interest on fresh borrowings used to repay earlier property loans remains fully deductible under section 24(b) where the borrowing retains a nexus with acquisition or financing of the house property. Replacing an earlier loan does not, by itself, restrict the interest deduction.

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Issues: (i) Whether maintenance charges received under a separate agreement from tenants were taxable as income from house property or income from business; (ii) Whether interest on fresh borrowings used to replace earlier loans for the same property was deductible under section 24(b) in full.

Issue (i): Whether maintenance charges received under a separate agreement from tenants were taxable as income from house property or income from business.

Analysis: The assessee had executed separate agreements for letting the premises and for providing maintenance and allied services. The receipts were separately identifiable and the maintenance charges were linked to services and facilities distinct from the mere letting of the property. The character of these receipts was therefore not the same as rent and they could not be treated as part of house property income merely because they arose from the same premises.

Conclusion: The maintenance charges were taxable as income from business and not as income from house property, in favour of the assessee.

Issue (ii): Whether interest on fresh borrowings used to replace earlier loans for the same property was deductible under section 24(b) in full.

Analysis: The borrowing history showed successive replacement of old loans with new loans, while the funds remained relatable to acquisition and financing of the property. There was no finding that the overall interest claim exceeded the asset value or lacked nexus with the house property. Following the settled view that borrowing a fresh loan to repay an old loan does not by itself curtail deduction, the restriction imposed by the Assessing Officer was unwarranted.

Conclusion: The full interest claim was allowable under section 24(b), in favour of the assessee.

Final Conclusion: The assessee succeeded on the principal merits in both cross-appeals concerning characterisation of maintenance receipts and allowance of interest on borrowings, while the Revenue's challenge failed.

Ratio Decidendi: Where maintenance receipts are independently contracted and separately identifiable from rent, they are assessable as business income; and interest on a subsequent loan taken to repay an earlier loan for the house property remains deductible under section 24(b) if the requisite nexus with the property is established.

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