2015 (10) TMI 303 - AT - Income Tax

Income from house property - one is self occupied property and second is vacant property - AO has applied ALV at 7% of book value of the property and computed deemed house property income of ₹ 1,40,185/- Deduction on interest from such income - AO restricted the deduction by the AO to a sum of ₹ 1,40,193/- - Total interest of ₹ 3,50,641/- was paid - Held that - According to section 24(b), where the property is acquired, constructed, repaired or renewed or constructed with the borrowed capital then any interest payable on such borrowed capital would be an allowable deduction. The restriction of ₹ 1,50,000/- described in second proviso is with reference to the property which is referred in sub-section (2) of section 23. Section 23(2) would be applicable to a house or part of the house which either is in the occupation of the owner for the purpose of his residence or the same is not actually occupied by the owner for the reason that owning to his employment, business or provision carried on at any other place and he is to reside at that other place in building not belonging to him and ALV of such property would be taken as nil. Undisputedly, the flat at Bandra falls under the category of property mentioned in section 23(2) of the Act as AO did not assess the ALV of the said property as income of the assessee. Therefore, provisions of second proviso to section 24 would not be applicable and the case of the assessee would fall within clause (b) of section 24 in which there is no limit for allowability of the interest and the condition is that the said property should inter-alia be acquired out of borrowed capital. In the present case as per submissions of the assessee before AO vide letter dated 13/09/2010 which are reproduced in para-4.4 of the assessment order the assessee has paid interest of ₹ 3,50,641/- as interest for Nestle Property. Therefore, interest deductible out of ALV of Nestle property could not be restricted to any amount less than the interest paid by the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Computation of income from second property based on Municipal Rateable Value.
2. Allowance of full interest paid for the second property.

Analysis:
Issue 1: Computation of income from second property based on Municipal Rateable Value
The appellant challenged the decision of the Ld. CIT(A)-3 for not directing the Assessing Officer (AO) to adopt the Municipal Rateable Value for computing income from the second property, which was acquired during the year and remained idle. The appellant sought the adoption of Municipal Rateable Value based on a decision of the jurisdictional Bombay High Court. However, the appellant did not press this ground before the Tribunal, leading to its dismissal.

Issue 2: Allowance of full interest paid for the second property
The AO had restricted the deduction of interest paid by the assessee for the second property to a sum of Rs. 1,40,193, citing the second proviso to section 24 of the Income Tax Act, 1961. The appellant contended that the restriction of Rs. 1,50,000 under section 24(b) applied only to properties falling under section 23(2), which, in this case, was the Flat at Bandra. The appellant argued that there was no limit for the allowance of interest under section 24(b) for the Nestle Property. The Tribunal agreed with the appellant's interpretation, noting that the interest paid for the Nestle Property could not be restricted to an amount less than the actual interest paid by the assessee. Consequently, the Tribunal allowed the appellant's appeal on this ground, directing the AO to allow the full deduction of interest paid, amounting to Rs. 3,50,641.

In conclusion, the Tribunal partially allowed the appeal filed by the assessee, specifically on the issue of the allowance of full interest paid for the second property. The decision was pronounced in the open court on September 16, 2014.