Prahlad Das Mittal v. ITO

INCOME TAX ACT, 1961

--Income from house property--Deduction under section 24(b) Property received as gift--Loan borrowed to repay liabilities created by donor--Allowability of interest on loan so borrowed--Where assessee made repayment of liabilities of donor as that which was incurred to perfect his title of property and thus it was cost of improvement and consequently borrowings made for the same was to be taken to that which was for incurring cost of improvement of property and consequently interest expenditure incurred was allowable under section 24(b).--Assessee derived income from house property and profession. He claimed interest under section 24(b) on ground that he incurred interest on borrowed capital utilised for acquiring one of the properties which was gifted to him. Assessee claimed to have repaid liabilities to various creditors which were liabilities of donor and that he also incurred certain expenditure towards cost of stamp duty for execution of gift deed. AO rejected assessee's contention that funds borrowed for purpose of repayment of liabilities created by previous owner as part of cost of acquisition. Held: The mortgage loan and other liabilities repaid by the assessee, to the extent it had improved his right to title and interest in the property should be considered as cost of improvement incurred by the assessee. Keeping in view the legal position laid down by the Apex Court, the AO was directed to consider the repayment of liabilities of the donor, made by the assessee as that which was incurred to perfect his title of the property and thus it was cost of improvement and consequentially the borrowings made for the same was to be taken as that which was for incurring the cost of improvement of the property and consequentially the interest expenditure incurred should be allowable under section 24(b).