1991 (1) TMI 189 - AT - Income Tax

Summary

Issues:
Interpretation of provisions related to deduction of interest on borrowed capital for self-occupied properties under sections 23(2)(b), 24(1)(vi), and 24(2) of the Income-tax Act, 1961.

Analysis:
The case involved a Chartered Accountant who was a partner in two firms and owned two self-occupied flats. The dispute arose regarding the deduction of interest on borrowed capital for one of the self-occupied flats (Flat at Bhavani Complex 'A'). The Income Tax Officer (ITO) allowed a deduction of only Rs. 5,000 under section 24(1) of the Act, which was confirmed by the first appellate authority.

The appellant contended that he was entitled to claim a higher interest deduction of Rs. 55,366 and Rs. 47,328 for the respective assessment years instead of the restricted amount. The appellant argued that the restriction of deduction to Rs. 5,000 applied only to the property occupied for own residence, and since he had chosen the other flat for residence, the restriction did not apply to the second flat. The department's representative supported the ITO's decision, stating that the restriction applied to both self-occupied properties.

The Tribunal analyzed the relevant provisions of the Income-tax Act, particularly sections 23(2)(b), 24(1)(vi), and 24(2). It noted that the appellant had the option to select one self-occupied property for own residence, and the restriction of deduction to Rs. 5,000 applied only to that property. The Tribunal found no such restriction for the second self-occupied property not used for own residence. The Tribunal referred to the notes on clauses in a relevant statute supporting the appellant's position and directed the ITO to accept the appellant's contentions and modify the assessments accordingly.

The Tribunal partially allowed the appeal for the assessment year 1987-88 and fully allowed it for the assessment year 1988-89. Additionally, the appellant withdrew a ground related to short-term capital loss for the assessment year 1987-88 during the hearing, which was rejected by the Tribunal.