2021 (10) TMI 7 - AT - Income Tax

Income from House Property - Disallowance of deduction u/s 24(b) - interest on Home Loan - addition on the ground that the possession of property has not yet been acquired by the appellant - HELD THAT - As for claiming deduction of interest under Sec. 24(b) of the Act there is neither any such precondition nor an eligibility criteria prescribed that the assessee should have taken possession of the property so purchased or acquired by him. we are unable to persuade ourselves to accept the view of the CIT(A) that as in the absence of any control/domain over the property in question the assessee would not be in receipt of any income from the same, therefore, allowing of deduction under Sec. 24(b) qua the said property would be beyond comprehension. We are afraid that the said view of the CIT(A) is absolutely misconceived and in fact divorced of any force of law. Determination of the annual lettable value of a property - same as per Sec. 22 r.w Sec. 23 of the Act is dependant on the ownership of the property, irrespective of the fact whether the assessee has taken the possession of the same or not - as per the plain literal interpretation of Sec. 24(b) of the Act there is no bar on an assessee to claim deduction of interest payable on a loan taken for purchasing a residential property, though, the possession of the same might not have been vested with him, however, even otherwise the logic given by the CIT(A) for declining the aforesaid claim of deduction of the assessee clearly militates against the mandate of Sec. 22 to 24 of the Act. Accordingly, as in the case before us the assessee had admittedly paid interest on the capital that was borrowed by him for acquiring the property in question, which was duly evidenced on the basis of the certificate that was filed in the course of the assessment proceedings, therefore, we are unable to concur with the lower authorities who had declined his aforesaid claim for deduction of interest under Sec. 24(b) of the Act. We, thus, not finding favor with the view taken by the CIT(A) therein set-aside his order and direct the A.O to allow the assessee s claim for deduction of ₹ 2 lac under Sec. 24(b) of the Act. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of deduction under Section 24(b) of The Income Tax Act pertaining to interest on Home Loan
- Justification of declining the assessee's claim for deduction of interest paid on loan for purchasing a residential house

Analysis:
1. The appeal was filed against the order passed by the CIT(A) confirming the disallowance of deduction under Section 24(b) of The Income Tax Act regarding interest on a Home Loan. The assessee claimed a deduction of ?2,00,000 under Section 24(b) for interest on a borrowed capital related to a residential property. However, the AO disallowed the claim as the assessee had not acquired possession of the property. The CIT(A) upheld the disallowance stating that the appellant's lack of control over the property due to ongoing disputes with the builder/society meant no income could be generated, thus denying the deduction.

2. The issue revolved around whether the lower authorities were justified in declining the assessee's claim for deduction of interest paid on a loan used to purchase a residential house. The assessee had acquired a property by agreement in 2009 and paid interest on the loan during the relevant year. The statutory provision of Section 24(b) allows deduction of interest on borrowed capital for property acquisition without specifying possession as a prerequisite. The upper limits set by the provisos do not negate an assessee's entitlement to claim such deductions for properties not falling under a specific category. The CIT(A)'s reasoning that lack of control over the property negated income generation and deduction eligibility was found to be legally unfounded. The possession of the property is not a condition for claiming such deductions, as ownership determines the annual lettable value per Sections 22 and 23 of the Act. The AO's and CIT(A)'s denial of the deduction was overturned, directing the AO to allow the claim for ?2,00,000 under Section 24(b) of the Act.

3. The Tribunal allowed the appeal, disagreeing with the CIT(A)'s decision. The possession of the property was not a prerequisite for claiming the deduction under Section 24(b) of the Act. The assessee's payment of interest on borrowed capital for property acquisition was a valid basis for claiming the deduction, and the lack of possession did not disqualify the claim. The lower authorities' denial of the deduction was deemed incorrect, and the assessee's appeal was allowed based on the statutory provisions and legal interpretation provided.