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Tax Publishers Indraprastha Shelters (P) Ltd. v. Dy. CIT [I.T.A. No. 2597/Bang/2019, dt. 16-12-2020] : 2020 TaxPub(DT) 5484 (Bang-Trib) Allowability of interest deduction under section 24(b) on loans rolled over with private borrowing *Facts:* Assessee was in the business of real estate and renting of commercial building. They offered income from let out house property for Rs. 1.10 crores on which interest under section 24(b) was claimed as a deduction. One of the loans was a rolled over loan taken from Corporation bank which was repaid using an unsecured loan. The assessing officer disallowed the entire interest citing that no deduction under section 24(b) can be offered unless a certificate from the borrower of having paid the interest is manifested with effect from assessment year 2003-04. On appeal the Commissioner (Appeals) allowed all the interest except the interest which was rolled over with an unsecured loan. The Commissioner (Appeals)'s reasoning was that 3rd proviso read with Explanation 2 to section 24(b) was only in relation to self-occupied property which was not the case of the assessee. The reliance of the assessee on CBDT Circular No. 28, dt. 20-8-1969 (which confirms that rolled over loan interest will also be allowed as a deduction under section 24 was also incorrect as the said section itself has undergone many changes. Hence the circular being inapplicable to the assessee. On higher appeal -- Held in favour of the assessee that though CBDT Circular No. 28, dt. 20-8-1969 was issued in the realm of the erstwhile section 24(1)(vi) it would hold good even for section 24(b) in principle. The interest deduction under section 24(b) cannot be restricted citing it is applicable only if it is residential property and not commercial property as the said section does not make any such distinction. *Editorial Note:* The Board's Circular is appended as under -- Circular No. 28 [F.No. 8/8/69-IT(A-I)], dt. 20-8-1969 "Fresh loan raised to repay original loan taken for constructing/buying property--Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1) :-- 1. Section 24(1)(vi) provides that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the computation of income from the said property. 2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under section 24(1)(vi). 3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income Tax Officer, the interest paid on the second loan would also be allowed as a deduction under section 24(1)(vi).

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Indraprastha Shelters (P) Ltd. v. Dy. CIT [I.T.A. No. 2597/Bang/2019, dt. 16-12-2020] : 2020 TaxPub(DT) 5484 (Bang-Trib)

Allowability of interest deduction under section 24(b) on loans rolled over with private borrowing

Facts:

Assessee was in the business of real estate and renting of commercial building. They offered income from let out house property for Rs. 1.10 crores on which interest under section 24(b) was claimed as a deduction. One of the loans was a rolled over loan taken from Corporation bank which was repaid using an unsecured loan. The assessing officer disallowed the entire interest citing that no deduction under section 24(b) can be offered unless a certificate from the borrower of having paid the interest is manifested with effect from assessment year 2003-04. On appeal the Commissioner (Appeals) allowed all the interest except the interest which was rolled over with an unsecured loan. The Commissioner (Appeals)'s reasoning was that 3rd proviso read with Explanation 2 to section 24(b) was only in relation to self-occupied property which was not the case of the assessee. The reliance of the assessee on CBDT Circular No. 28, dt. 20-8-1969 (which confirms that rolled over loan interest will also be allowed as a deduction under section 24 was also incorrect as the said section itself has undergone many changes. Hence the circular being inapplicable to the assessee. On higher appeal --

Held in favour of the assessee that though CBDT Circular No. 28, dt. 20-8-1969 was issued in the realm of the erstwhile section 24(1)(vi) it would hold good even for section 24(b) in principle. The interest deduction under section 24(b) cannot be restricted citing it is applicable only if it is residential property and not commercial property as the said section does not make any such distinction.

Editorial Note: The Board's Circular is appended as under --

Circular No. 28 [F.No. 8/8/69-IT(A-I)], dt. 20-8-1969

"Fresh loan raised to repay original loan taken for constructing/buying property--Whether interest payable on second loan would also be admissible as a deduction under clause (vi) of sub-section (1) :--

1. Section 24(1)(vi) provides that where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the computation of income from the said property.

2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under section 24(1)(vi).

3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income Tax Officer, the interest paid on the second loan would also be allowed as a deduction under section 24(1)(vi).