INCOME TAX ACT, 1961

Section 24(b)

Income from House Property - Deduction under section 24(b) - Allowability of interest on loans rolled over with private borrowing -

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 AO 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 wef assessment year 2003-04. On appeal, the CIT(A) allowed all the interest except the interest which was rolled over with an unsecured loan. The CIT(A)'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 dtd. 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. Held: Though CBDT Circular No. 28 dtd. 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. It is not correct on the part of the Commissioner (Appeals) to conclude that the aforesaid circular is not applicable as it was issued under the erstwhile provisions of section 24 as it stood prior to 1-4-2002. The new provisions of section 24 are also on the same lines with regard to the scheme of determination of income under the head 'Income from house property' and in particular with regard to allowability as deduction of interest paid on loans borrowed for the purpose of constructing the property. The expression used in section 24(b) is 'property' and not residential or commercial property. Therefore, irrespective of the nature of the property whether it is residential or commercial, deduction has to be allowed under section 24(b) of the Act.