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III. Direct Taxes Case Law:
1. DCIT Vs. M/s. Patton Developers Pvt. Ltd., I.T.A No. 1043/Kol/2014, Date of Order: 01.03.2017, ITAT- Kolkata
Issue:
Whether interest paid by assessee on loan taken for repaying the
loan earlier borrowed for acquisition of the property is allowed as
deduction u/s 24(b) of the Income Tax Act,1961?
Held: Yes
Brief Facts:
The assessee declared income under the head “income from house
property” and claimed deduction of interest paid on loan borrowed for
construction of the house property u/s 24(b) of the Act of a sum of
Rs.2,28,31,800/-. The property in respect of which interest expenses was
claimed as deduction was acquired by a company by name M/s. Centre
Point Reality P.Ltd after taking an advance of Rs.29.22 crores from M/s.
Patton International Ltd. Subsequently M/s. Centre Point Reality Pvt.
Ltd got amalgamated with the assessee company. The assessee thus became
the owner of the house property. The loan of Rs.29.22 crores availed by
the assessee from M/s. Patton International Ltd and another loan of
Rs.17,50,00,000/- was availed form State Bank of Mysore. This loan stood
reduced to Rs.8.37 crores after repayment. During the previous year,
the assessee borrowed a sum of Rs.20 crores and utilized the same to
repay the outstanding loan of Rs.8.37 crores to State Bank of Mysore and
the remaining Rs.11.63 crores for repaying loan to M/s. Patton
International Ltd. On the borrowing of Rs.20 crores the assessee paid
interest amounting to Rs.1,72,18,169/- and this was claimed against
income from house property as deduction u/s 24(b) of the Act.
The AO
was of the view that it was only the sum of Rs.8.37 crores repaid to
State Bank of Mysore that can said to be a loan borrowed for acquiring
the property and therefore interest paid on such amount was eligible for
deduction u/s 24(b) of the Act. Regarding the remaining loan of
Rs.11.63 crores the AO was of the view that this cannot be considered as
loan that was utilized for acquiring the property and therefore
interest paid Rs.1,00,12,365/- on Rs.11.63 crores was not an eligible
deduction u/s 24(b) of the Act and made the addition of same to the
total income of the assessee. The borrowing to the extent of Rs.11.63
crores were only to repay the amount borrowed for acquiring the property
and not for acquiring the property and therefore the requirement of
Sec.24(b) of the Act was not satisfied. Being aggrieved by the decision
of AO, the assesse appealed before the CIT(A) The CIT (A) held that the
assessee was entitled to deduction u/s 24(b) of the Act on amounts
borrowed and utilized to repay a loan that was borrowed for acquisition
of the property and deleted the additions made by AO. Therefore, against
the order of CIT(A), the revenue has preferred the appeal before the
Hon’ble ITAT.
Held:
The Hon’ble ITAT had placed reliance on the case which was followed
by CIT(A) in the impugned order was the subject matter of the appeal
before the Hon’ble ITAT and in ITA No.90/Kol/2013 by order dated
24.11.2015 the Tribunal held that the dis-allowance of interest u/s
24(b) of the Act cannot be sustained. Also by placing the reliance on
the provision for understanding of section 24(b) of the act and held
that the facts available on record that the sum of Rs.11.63 crores was
utilized for repayment of the original borrowing from M/s. Patton
International Ltd is erroneous, which was admitted a loan borrowed for
the purpose of acquisition of the property. In the light of the such
admitted factual position, Tribunal are of the view that the deduction
claimed by the Assessee has to be allowed as laid down in the proviso to
Sec.24(b) of the Act. With all respect, following the decision of the
Tribunal referred to above, Tribunal uphold the order of CIT(A) and
dismiss the appeal by the revenue.
The appeal of the revenue was dismissed.
(Please click here for judgment)
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