9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (11) TMI 552 - AT - Income TaxIncome from house property Whether or not the interest is deductible u/s 24(vi) - In the present case, the original loan was not taken for the purpose as prescribed under cl. (vi) of sub-s. (1) of s. 24 and the same was taken for business purposes - The undisputed fact emerging from the records is that the deceased father of the assessee took the loan of Rs. 1 crore from EBSL for business purposes by mortgaging the property in question - When the interest payable on the original loan is not allowable under s. 24(1)(vi), then the interest paid or payable on the second loan for repayment of original loan is also not allowable - the loan taken from HSBC for repayment of earlier loan does not fall under the category of loan for discharging the liability of the loan taken for acquisition or construction etc. of the property Appeal is dismissed
Issues Involved:
1. Nexus between borrowings and acquisition of property for interest deduction under Section 24(vi) of the IT Act. Issue-wise Detailed Analysis: 1. Nexus Between Borrowings and Acquisition of Property: The primary issue in this appeal is whether the CIT(A) was justified in holding that there was no nexus between the borrowings and the acquisition of the property in question, thereby disallowing the interest claimed as a deduction under Section 24(vi) of the IT Act against the income from house property. The assessee inherited a property mortgaged by his father for business purposes. The loan from HSBC was used to repay the loan from EBSL taken by his father. The assessee argued that the loan outstanding was the cost of acquiring mortgage rights, making him the absolute owner. The AO found that the loan was borrowed for business purposes and not for acquiring or constructing the property, thus disallowing the interest deduction. On appeal, the CIT(A) confirmed the AO's order. The assessee contended that the utilization of the loan amount should not be the main criterion for allowing the interest claimed and referred to CBDT Circular No. 363, which allows interest deduction on a fresh loan raised to repay the original loan. The assessee also cited the Supreme Court decision in V.S.M.R. Jagadishchandran (Decd) By LRs. vs. CIT, arguing that repaying the father's loan to acquire the mortgagor's interest in the property should be considered the cost of acquisition. The Departmental Representative argued that Section 24(1)(vi) allows interest deduction only if the property is acquired, constructed, repaired, renewed, or reconstructed with borrowed capital. Since the original loan was for business purposes, the subsequent loan for repaying it cannot be considered for property acquisition or construction. The Tribunal considered the rival contentions and material on record. It noted that the father's loan was for business purposes, and the property was mortgaged as collateral. The assessee inherited both assets and liabilities, including the loan repayment liability. The Tribunal emphasized that the original loan was not for acquiring or constructing the property, and the subsequent loan for repaying it does not qualify for interest deduction under Section 24(1)(vi). The Tribunal referred to the Supreme Court decision in V.S.M.R. Jagadishchandran (Decd) By LRs. vs. CIT, which held that clearing a mortgage debt by a successor can be treated as the cost of acquisition for capital gains computation but not for income from house property. The Tribunal also cited the jurisdictional High Court decision in K. Govinda Bhatt vs. CIT, which held that interest on a mortgage executed for business purposes is not deductible under Section 24(1)(vi). The Tribunal concluded that the original loan was not for acquiring or constructing the property, and the subsequent loan was not fully utilized for repaying the father's loan. Hence, the interest on the subsequent loan is not deductible under Section 24(1)(vi). The order of the CIT(A) was upheld, and the appeal was dismissed.
|
