2017 (1) TMI 1331 - AT - Income Tax

Addition being 50% of the interest on housing property - the property jointly owned by assessee and his wife, assessee was entitled to claim to the extent of 50%of the interest on housing loan only - Held that - The spouse who though shown as a co-owner may appear to be entitled to claim deduction simply on the basis of the said fact but in the facts of the present case has to be excluded from availing the benefits due to the tax-payer when there is substantial evidence to the contrary that the property was neither purchased nor sourced through a loan applied by the wife. Hence, in the absence of any actual financial contribution for acquiring the asset the mere addition of the name of the spouse as a coowner by itself can not be the determinative criteria denying the deduction claimed by the husband and on verification of facts, it has to be allowed. The fact that no rental income has been received by the assessee s wife is also a consistent claim on record which needs to be verified. Statute permits deduction of interest on loan taken for purchase of house property to the person taking the loan for acquiring, constructing, repairing, renewing or reconstructing with borrowed capital, it is such a person who has himself made the initial down payment and paid EMIs from his own resources for purchase of the property belonging to him (or acquired through that loan) and has received the rent income if any from the property who alone is entitled to tax relief. Accordingly on a consideration of the material available on record and the views of the tax authorities as expressed in the orders and the argument of the assessee before the CIT(A), I am of the view that the impugned order deserves to be set aside. The assessee on facts has placed fresh evidences before the CIT(A) which as per record have been remanded to the AO who has failed to file any Remand Report. In the circumstances, while remanding the issue to the CIT(A) it is directed that another reasonable attempt may be made to obtain a Remand Report from the AO and in case the AO still fails to respond, the CIT(A), may consider and verify the evidences at his level and pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Deduction of interest on housing property jointly owned by the assessee and his wife.
2. Deduction of interest on housing loan for a property in Bangalore.
3. Apportionment of rental income from the Bangalore property between the assessee and his wife.
4. Consideration of fresh evidence submitted by the assessee.

Issue-wise Detailed Analysis:

1. Deduction of interest on housing property jointly owned by the assessee and his wife:

The assessee contended that he should be allowed to claim the entire interest on the housing loan for the property at C-440, Sushant Lok-1, Gurgaon, even though the property and loan were jointly held with his wife. The Assessing Officer (AO) and the CIT(A) limited the deduction to 50% of the interest, citing joint ownership and liability. The CIT(A) emphasized that the appellant's liability was limited to 50% of the total interest, despite the appellant paying the entire interest. The Tribunal noted that the property was purchased entirely from the assessee's own funds, and the wife did not contribute financially. The Tribunal found that the socio-economic and cultural reasons for joint ownership should not deny the deduction and remanded the issue for reconsideration, directing the CIT(A) to verify the evidence and pass a speaking order.

2. Deduction of interest on housing loan for a property in Bangalore:

The AO allowed only 73% of the interest deduction for the Bangalore property, based on the rental income sharing ratio between the assessee and his wife. The CIT(A) upheld this, noting the joint ownership and the wife's 27% share in the property and rent. The Tribunal disagreed, highlighting that the loan was taken solely by the assessee and the wife did not contribute financially. The Tribunal emphasized that the deduction should be allowed to the person who made the down payment and paid the EMIs. The Tribunal remanded the issue for the CIT(A) to verify the evidence and pass a speaking order, considering the assessee's claim that he declared 100% of the rental income.

3. Apportionment of rental income from the Bangalore property between the assessee and his wife:

The assessee argued that he declared 100% of the rental income from the Bangalore property, while the rent for furniture and appliances was received by his wife. The CIT(A) assumed the wife owned 27% of the property and allowed only 73% of the interest deduction. The Tribunal noted that the rent agreement specified the rent for furniture and appliances was receivable by the wife and found no evidence to contradict the assessee's claim. The Tribunal directed the CIT(A) to verify the evidence and reconsider the apportionment of rental income and interest deduction.

4. Consideration of fresh evidence submitted by the assessee:

The assessee submitted fresh evidence to the CIT(A), including bank account statements showing the property was purchased from his own funds. The CIT(A) remanded the evidence to the AO, who did not file a Remand Report. The Tribunal directed the CIT(A) to make another attempt to obtain the Remand Report and, if the AO still fails to respond, to verify the evidence at his level and pass a speaking order. The Tribunal also advised the CIT(A) to report the AO's conduct to the appropriate authority if the AO fails to respond.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, remanding the issues to the CIT(A) for reconsideration and verification of the evidence, with directions to provide a reasonable opportunity of being heard to the assessee. The Tribunal emphasized the need to consider the socio-economic and cultural reasons for joint ownership and the actual financial contributions made by the assessee. The order was pronounced in the open court on 23rd December 2016.