TaxTMI 
TaxTMI 
2020 (12) TMI 1151
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....ee has filed return of income declaring total income of Rs. 1,10,88,029/-. In the return so filed, the assessee has declared income under the head "Income from House Property" at Rs. 1,10,64,559/-. In computing the income under the head "Income from House Property", the assessee has claimed deduction of a sum of Rs. 69,84,167/- under section 24(b) of the Income Tax Act, 1961 (hereinafter called 'the Act'), as interest paid on capital borrowed for the purpose of construction of the property. The breakup of the interest so claimed as deduction is as follows: "Pre Construction period interest : Rs. 19,52,752/- Interest on Term Loan during F.Y. 10-11 : Rs. 20,19,618/- Interest on unsecured loan F.Y. 10-11 : Rs. 30....
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....ee is in appeal against the order of the CIT(A). 5. In sustaining the disallowance of interest paid to Mrs. Kaveri Bai, the CIT(A) accepted the fact that originally funds were borrowed by the assessee from Corporation Bank for the purpose of construction of the property and the loan obtained from Mrs. Kaveri Bai was used for the purpose of repayment of the loan taken from Corporation Bank. Despite accepting the above factual position, the CIT(A) did not allow the claim of the assessee for deduction for the following reasons: "4.18 As regards allowability of interest of Rs. 30,22,041/- relating to interest paid to Ms. Kaveri Bai for the unsecured loan taken for repayment of the Bank loan taken for the construction of building, there is me....
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.... residential or any other property. His further submission was that the provisos to Sec. 24(b) applies to a particular category of case falling within Sec. 23(2) viz., property being house used for residence. It does not in any way affect deduction of interest for construction of commercial or any other property. The learned DR relied on the order of the CIT(A). 8. The relevant statutory provisions and CBDT Circular No. 28 dated 20.08.1969 referred to in the order of the CIT(A) are required to be set out. Under Sec. 22 of the Act, the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any busines....
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....hall not exceed thirty thousand rupees: Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed 50 [within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees. Explanation.--Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other pro....
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.... capital. Explanation.--Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years;" 11. The CBDT in Circular No. 28 dated 20-8-1969 has explained that when a loan is taken to repay loan taken for construction of a property interest paid on such loan is also deductible in computing under the head income from house property. The said Circular is ....
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....under the erstwhile provisions of Sec. 24 as it stood prior to 1.4.2002. The new provisions of Sec. 24 are also on the same lines with regard to the scheme of determination of income under the head income from house property and in particular with regard to allowability as deduction of interest paid on loans borrowed for the purpose of constructing the property. Therefore one of the reason given by the CIT(A) for not allowing the claim of the Assessee is therefore unsustainable. 13. With regard to the other reason given by the revenue authorities for denying deduction of interest paid to Mrs. Kaveri bai is by applying the 3rd proviso to Sec. 24(b) of the Act. On perusal of the provisions of section 24(b), it is clear that the deduction is ....