DEEGEE SOFTWARE P.LTD,MUMBAI vs. DCIT 5(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI "D? BENCH, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER, ITA- No. 7553/Mum/2014 (Assessment Year:2011-12) Deegee Software Pvt: Ltd Vs. DCIT-5(1), 44 Ajaydeep Building; Aaykar Bhawan 240, Perin Nariman Street, Churchgate, Mumbai Mumbai-4000O1 Pan No: AABCD5971E Appellant_ Respondent adarff & &i 4 / Appellant By:Shri Vipul Joshi Payeff 31 3ik 4/ Respondent By :Shri Purushottam Kumar, SrAR V7aRFf 3arrd@Date of Hearing 10.01.2017 w4u1 & TRd/Date of Pronouncement :20.01.2017 ORDER PER RAVISH SOOD, J.M: The present appeal is directed against the order of the CIT(A)-9, Mumbai, dated 22.10.2014, which in itself arises from the assessment order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short 'Act ) The brief facts of the case are that the assessee company had e- of income on 29.09.2011, declaring total income of flled its return ITA No.7553/Mum / 14 A.Y. 2011-12 [Degree Software Pvt: Ltd. vs. DCIT] Page Rs.82,66,531/- The case of the assessee was taken up for scrutiny assessment u/s 143(2) of the 'Act'. The assessee in its Treturn of income' had raised a claim of deduction of Rs_ 81,26,909/-, towards Tnterest on borrowed capital' under Sec 24(b) of the 'Act: The A.O during the course of the assessment proceedings, while deliberating on the claim of deduction raised by the assessee u/s 24(b), being of the view that as the property against which the assessee had claimed deduction of said Interest was demolished during the year under consideration, and as such, had remained in existence and let out only for the first 6 months, therefore the claim of the assessee towards irterest on borrowed capital could only be allowed for the period of 6 months, and thus was liable to be restricted to 50%. The A.O in the backdrop of his strong convictio thus called upon the assessee explain to as to why its claim of interest pertaining to the period when the property was not in existence, may not be disallowed. The assessee submitted before the AO that Sec 24, nowhere contemplated the cohtinuing existence of a property during the whole of the year, as a precondition for claim of deduction of interest pertaining to borrowed capital, which is utilized towards acquiring constructing, repairing, renewing Or reconstructing of such property, and as such, its claim for deduction under Sec: 24(6) in the return of income, was well in order. The submissions of the assessee did not find favor with the being A.O, who persuaded by his view that the entitlement of the towards claim of assessee interest on borrowed capital would stand jeopardized at the very point of time such property ceased to exist during the thus disallowed 50% of the claim year, raised by the assessee in its return of income' and after making an addition of Rs. 40,63,453/-, assessed the income at Rs. 1,76,22,430/- ITA No.7553 /Mum/ 14 A.Y 2011-12 [Degree Software Pvt. Ltd. vs DCIT] Page 3 3 The assessee being aggrieved with the assessment order, therein assailed the same before the CIT(A); who not finding favor with the contentions of the assessee, therein upheld the order of the A.O and dismissed the appeal: 4_ The assessee being aggrieved with the order of the CIT(A), had thus carried the matter in appeal before us. That during the course of thel appellate proceedings, it was submitted by the Ld: Authorized Representative (for short A.R) for the assessee that in the absence of any mandate in Section 24, as regards disallowance of any part of the Interest payable' on borrowed capital, which had been utilized by the assessee for acquiring, constructing, repairing; renewing or re con Istructing a property, the income of which is chargeable under the head Income from house property' for the reason that the property had ceased to exist during part of the year, no such disallowance was called for in the hands of the assessee. The Ld. AR in the backdrop of his aforesaid submissions, therein averred that the A.O by misconceiving and misconstruing the scope and gamut of Sec 24, had gravely erred in law and disallowed 50% of the claim of the assessee towards interest on borrowed capital, on the premise, that though the property under consideration was in existence and let out for the first 6 months during the year under consideration, however the same having been demolished thereafter, thus ceased to exist during the remaining part of the year, and as such, no deduction of interest could be allowed for the period during which the property was not in existence during the year under consideration: That on the other hand, the Ld: Departmental Representative (for short DRJ, therein submitted that as the property under consideration, which though was |in existence during the first 6 months of the year, was thereafter demplished, and such was no more in existence for the remaining 6 ITA No." 7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. VS_ DCIT] months during the year, therefore the A.0 had rightly disallowed 50%/ of the claim of deduction so raised by the assessee under Sec. 24(b), and the same had rightly been upheld by the CIT(A): We have heard the Ld. Authorized Representatives of both the parties, perused the orders of the lower authorities, as well as the material available on our record: The sole issue for consideration before us pertains to the scope and gamut of Sec. 24(b), i.e the allowability of interest pertaining to borrowed funds, which had been utilized by an assessee for acquiring, constructing repairing, renewing reconstructing an immovable property , the income of which is chargeable under the head Income from house property" 24_ That Sec. the scope and gamut of which we have been called upon to adjudicate, reads as under: "[Deductions from income from house _ property: Income chargeable under the head "Income from house_ property" shall be computed after making the following deductions, namely: - (a) a sum equal to thirty per cent of the annual value; (b) where the property has been acquired, constructed, repaired, renewed Or reconstructed wtth borrowed capital the amount of any Interest payable on such capital Provided that in respect of property referred to in sub-section (2) of section 23, the amount 0f deduction shall not exceed thirty thousand rupees; Provlded further that where the property referred to in the first proviso is acquired or constructed with capital borrowed after on the or Ist day of April, , 1999 and such acquisition Or Page ITA No.7553 _ Mum/ 14 A.Y_ 2011-12 [Degree Software Pvt. Ltd_ VS _ DCIT] construction is completed [within three years from the end of the financial year in which capital was borrowed] the amount of deduction under this clause shall not exceed [two lakh rupees]: Explanation- Where the property has been acquired or constructed with borrowed capital the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the year in the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for such each of the four immediately succeeding years: Provlded also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan Explanation- For the purposes of this proviso, the expression "new loan" means the whole Or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital 6 We are of the considered view that from a bare perusal of the aforesaid statutory provision, it can safely be concluded that the entitlement of an assessee to claim deduction of Interest payable' on borrowed capital, which has been utilized for acquiring, constructing, Page ITA No-7553/Mum/ 14 A.Y 2011-12 [Degree Software Pvt. Ltd. VS DCIT] Page repairing, renewing or reconstructing a property, the income of which chargeable under the head Income from house property therein emerges at the very point of time when the liability towards payment of interest on such borrowed capital arises in the hands of the assessee. Ihe scope of Sec. 24(b) has to be interpreted by giving effect to a plain and literal interpretation of the said statutory provision,, which takes Slpport from the very fact, that way back when the revenue was called Ypon to adjudicate upon the scope and domain of Sec. 24(l)(vi) [pari materia to Sec 24(6)], then the CBDT on being rest the called upon to put to dichotomy generated by the Income-tax officers, started who had construing the term 'Payable' as Paid' and allowed deduction of Interest claim of on borrowed capital' , pay not when the liability such interest to crystallized, Le the interest became Payable , ohly when the same was Paid , but therein had stepped in and came with a Circular, wherein it up was be clarified that the term Payable' had strictly to construed, as per its plain meaning; be Isubstituted and the same could not by the term Paid'. The relevant Circular No. 363 extract of the CBDT Dated 24-06-1983, read as under: 'Under section 241Jvi) of the Income-tax Act; 1961 where property has been acquired Or constructed with borrowed capital, a deduction in respect of amount of interest payable on such capital is allowed in computing house the income from property: Stnce the word used ts 'Pavable', deduction under section 241)vi) would be on the basis of accrual of interest which would start running from the date of the drawal of the advance We Have consciously, purposively and servide the intentionally pressed into aforesaid approach of the revenue in interpreting the scope ITA No.7553 /Mum/ 14 A.Y. 2011-12 [Degree Software Pvt. Ltd_ VS _ DCIT] and gamut of Sec.24, to drive home the fact, that the revenue has to strictly interpret a statutory provision, as per its plain and literal meaning without adverting to any addition or subtraction of any word fror the text of the statutory provision: Thus, in the backdrop of such rule of interpretation, we would now advert to the scope and gamut of allowability of Interest on borrowed capital' , in context of the issue involved in the present case. 7 We are of the considered view that though at the first blush, on a plain reading of Sec. 24, no such precondition emerges, from where it could be gathered that for allowability of Interest on borrowed capital , the property which had been acquired, constructed; repaired, renewed Or I€-constructed, should be existing during the year after it has been used /let out, nor on such prima facie perusal, we come across any suchl embargo, which therein contemplates that despite the fact an assessee had satisfied all the requisite conditions under Sec; 24, he would however stand disqualified from raising the claim, for the reason that the property had ceased to be in existence. We are however of the considered view, that a careful perusal of Section 24, which contemplates that the deductions are to be allowed at the time of computing the Income chargeable under the head Tncome from house property' , thus presupposes the very existence of the 'Annual Value" of the property, failing which, the entitlement of the assessee towards claim of deductions contemplated therein, would stand jeopardized. Thus, now when the determination of the 'Annual Value' , as stands gathered from a conjoint reading of Sec 22 I.W Sec. 23 of the Act' , itself requires the existence of the property, therefore, we though find ourselves to be in agreement with the view of the A.O, that to the extent where a property is not in existence during the whole year , Ithen, in the backdrop of the absence of the 'Annual Value', there Page ITA No.7553 Mum 14 A.Y. 2011-12 [Degree Software Pvt. Ltd. VS DCIT] Page 8 femains no occasion for computing the income of the the assessee under head Income from house property , and thus no claim deduction for under Sec. 24(b) can be raised. However , such an interpretation cannot be transposed and read into in a case the as that of present assessee before uS, where the property which is though in #xistence during part of the year, had however ceased to exist thereafter; because the very existence of the property during the any part year would therein render it eligible for determination 'Annual of its value' under Sec 23, and resultantly entitle the assessee to Slaim deduction towards Interest on borrowed capital' under 240b). Thus, to be brief Sec. and explicit; we are of the considered view as long that as the 'Annual value' of a property can Sec. be determined under 23, there would be no embargo as regards claim of Interest on borrowed capital' under Sec: 240b). We are further of View, the considered that though a restriction as regards the Interest quantum of deduction of on borrowed capital' in respect of certain Rreperties" residential is provided in the first proviso of Sec: 24 of However the 'Act' nothing emerges from the statute, which therein contemplates the jeopardizing of the claim of the interest on borrowed assessee towards capital, in a situation as that in the Present case of the assessee; where though the property was in existence part of the during year, but thereafter had ceased to exist during remaining part of the year: the We are of the considered absence view, of that in the anything being provided in the statute, restficting the entitlement as regards of the assessee towards the borTpwed capital , Interest on only for the period during been in which the property had existence, no such interpretation which the Plain would militate against meaning of the said statutory provision, the eyes of law. can be permitted in That a8 per the settled position of law, that even a ITA No.7553/Mum_ 14 A.Y 2011-12 [Degree Software Pvt. Ltd vS . DCIT] casus omissus can also not be supplied while interpreting a statutory provision, as the same remains within the exclusive domain of the legislative wisdom, we therefore refrain from reading into the aforesaid statutory provision, a restriction/embargo, which is consciously, purposively and intentionally not made available on the statute by the legislature in all its wisdom. We being not oblivious of the fact, that by subscribing to the view adopted by the lower authorities, and therein upholding the pro rata disallowance of Interest on borrowed capital;, for kthe part of the year during which the property of the assessee had ceased to be in existence, we would be doing violence to the literal interpretation of the aforesaid statutory provision, which would blatantly militate against its plain meaning: We thus, in light of our aforesaid observations are unable to persuade ourselves to subscribe to the findings of the lower authorities, who we are of the considered view, had erroneously restricted the claim of the assessee towards interest payable on the borrowed capital, only for the part of the year during which the property had remained in existence. We are persuaded to observe that if the legislature would have intended to resttict such a claim of the assessee, then the same would have spedifically been provided for in the statute. We are thus of the considered view that the CITA) had erred in sustaining the order of the AA.O, and thus misinterpreting the scope and gamut of Section 24(b) had wrongly disallowed 50% of the aforesaid Interest on borrowed capital' of Rs 40,63,453/- in the hands of the assessee. We thus set aside the order of the CIT(A), and allow the appeal filed by the assessee_ 8 That the appeal filed by the assessee is allowed Order pronounced in the open court 20/01/2017 Page ITA No.7553/Mum/ 14 A.Y. 2011-12 [Degree Software Pvt: Ltd. VS_ DCIT] Page 10 - / - (BR BASKARAN) ACCOUNTANTMEMBER Mumbai, Dated :20.01.2017 (RAVISH SOOD) JUDICIAL MEMBER Rohit kumar {Fuzrff s@LCopy of Order _ RiRa / Revenue Forwarded tok 2lludam Assessee 3kiafa &14ar &ya7 Concerned CIT BER &1Y4- ea / CIT (A) 5_ IlRiyuiden %T43r &raly &arru, tjqf / DR, ITAT, Mumbai 6 T W1a / Guard file: By orderlalag #, 3uNe14d tulaR d1ydr alaiy 3fedr0[, gasf