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1985 (1) TMI 94 - AT - Income Tax

Issues:
1. Deduction of interest payable on loans taken for property construction.

Analysis:
The appeal before the Appellate Tribunal concerned the deduction of Rs. 6,498, representing interest payable on loans taken for the construction of a property. The assessee, an individual and member of a co-operative housing society, had paid off this amount after completion of the apartment construction. The Income Tax Officer (ITO) disallowed the deduction, stating that arrears of interest from prior years would not be allowable. However, the Assessee Commissioner (AAC) allowed the claim based on a decision of the Madras High Court. The issue revolved around the interpretation of section 24(1)(vi) of the Income-tax Act, 1961, which allows for the deduction of interest payable on borrowed capital for property acquisition or construction.

The department contended that the Finance Act, 1983, inserted an Explanation stating that interest for periods before the previous year of property acquisition would be deductible in equal installments over subsequent years. The department argued that prior to this provision, interest from earlier years was not deductible. However, the tribunal disagreed, emphasizing that the plain reading of the section allows for the deduction of interest payable during the accounting year in which the liability arises. The tribunal noted that the housing society demanded payment only in the relevant accounting year, indicating the liability arose then. The tribunal held that the claim for deduction should be accepted based on the timing of the liability.

Further, the tribunal explained that the Explanation introduced in 1984 would apply to different scenarios where interest accrues before property construction completion. In such cases, where there is no income from the property yet, the liability to pay interest cannot be claimed until completion. The tribunal highlighted that the Explanation aimed to provide a benefit by allowing deductions in the years following property completion and possession. Ultimately, the tribunal dismissed the department's appeal, upholding the allowance of the deduction for the interest payable on loans taken for property construction.

 

 

 

 

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