2005 (11) TMI 196 - AT - Income Tax

Summary

Issues:
- Entitlement to deduction under section 24(1)(vi) of the Income-tax Act in respect of interest paid to banks while computing income from house property.

Analysis:
1. The case involved a question regarding the assessee's entitlement to deduction under section 24(1)(vi) of the Income-tax Act for interest paid to banks in relation to a property rented out to a company. The assessee borrowed money to make a payment to the company for vacating the property, claiming that it made him the full owner of the property and thus eligible for the deduction.

2. The Assessing Officer disallowed the deduction, stating that the loan was not taken for acquiring the property. The contention was that the assessee did not "acquire" the property by making the payment, as he was the owner both before and after the transaction, thus failing to satisfy the conditions for the deduction under section 24(1)(vi).

3. The assessee argued that by making the payment and obtaining the tenancy rights back, he "acquired" the property, as property includes a bundle of rights. However, the word "property" in section 22 is specific to buildings or land appurtenant thereto, limiting the interpretation to physical property and not just any interest in property.

4. The Tribunal highlighted that the property referred to in section 22 must be physical, i.e., buildings or land appurtenant thereto, and not just an interest in property. Therefore, the assessee could only claim the deduction if the borrowed money was utilized for acquiring such physical property, not for surrendering tenancy rights.

5. The Tribunal rejected the assessee's claim, emphasizing that the property referred to in the section is specific to physical buildings or land appurtenant thereto. The judgment also distinguished the case from previous decisions on capital assets and tenancy rights, clarifying that the interpretation of property in this context is limited to physical structures.

6. The Tribunal concluded that the assessee was not eligible for the deduction under section 24(1)(vi) for interest paid on borrowed amounts used for surrendering tenancy rights, as the property in question must consist of buildings or land appurtenant thereto. The decision of the CIT(A) was reversed, and the appeal filed by the Department was allowed.