2015 (12) TMI 685 - AT - Income Tax

Deduction on interest of housing loan u/s 24(b) - Assessing Officer restricted it to 25% and 75% of the property is belongs to other co-owners - Held that - In the instant case, the plot was purchased by four persons and their shares are not specified in the sale deed. Even the housing loan had also been taken jointly by the same four persons, therefore, the authorities below were justified in holding that since the individual shares were not specified in the sale deed, the logical conclusion is that everyone had equal share in the property. It is also relevant to state here that the assessee has claimed that she has invested for purchase / construction of the house property, but no evidence in support of this stand is available on records. Considering the entire facts and circumstances of the present case, fully agree with the observations of the CIT(A) that the allowable interest to the assessee will be 25% of the entire interest and the Assessing Officer was justified in his action. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of 75% of the deduction claimed under section 24(b) of the Income-tax Act, 1961.
2. Interpretation of section 45 of the Transfer of Property Act, 1882.
3. Application of the decision in the case of ACIT v. C.K. Malik (89 ITD 249 All.).
4. Liberal construction of provisions for deduction/relief/incentive.
5. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of 75% of the deduction claimed under section 24(b):
The assessee claimed a deduction on interest payment of Rs. 6,86,971/- under section 24(b) for a housing loan on a property co-owned by four individuals. The Assessing Officer (AO) allowed only 1/4th of the total interest payment, disallowing Rs. 5,15,228/-, concluding that each co-owner is entitled to an equal share of the deduction since the sale deed did not specify individual shares. The CIT(A) upheld the AO's decision, noting the lack of evidence supporting the assessee's claim of sole investment and payment of the loan.

2. Interpretation of section 45 of the Transfer of Property Act, 1882:
The AO and CIT(A) referred to section 45, which states that if consideration for a property is paid out of a common fund, the interest in the property is proportionate to the interest in the common fund. In the absence of evidence to the contrary, it is presumed that each co-owner has an equal share. The assessee's claim of sole investment was unsupported by evidence, leading to the conclusion that the property and loan were jointly held, justifying the equal division of the interest deduction.

3. Application of the decision in the case of ACIT v. C.K. Malik (89 ITD 249 All.):
The CIT(A) distinguished the present case from C.K. Malik, where individual shares were specified. In the current case, the shares of co-owners were not specified, leading to the presumption of equal ownership and interest in the property and loan. Thus, the CIT(A) found the facts of C.K. Malik inapplicable.

4. Liberal construction of provisions for deduction/relief/incentive:
The assessee argued for a liberal interpretation of section 24(b) as a beneficial provision. However, the CIT(A) and the Tribunal found that the lack of evidence supporting the assessee's claim of sole investment and the joint nature of the loan and property justified the equal division of the interest deduction.

5. Initiation of penalty proceedings under section 271(1)(c):
The Tribunal noted that no appeal lies against the initiation of penalty proceedings under section 271(1)(c). Therefore, this ground of appeal was rejected.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision to allow only 25% of the interest deduction under section 24(b) due to the joint ownership and loan arrangement, and rejecting the appeal against the initiation of penalty proceedings under section 271(1)(c). The judgment emphasized the need for evidence to support claims of sole investment in jointly held properties and loans.