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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
Before: SHRI J.SUDHAKAR REDDYM & SHRI CHANDRA MOHAN GARG
This appeal by the assessee has been filed against the order of the CIT(A)- XXXII, Delhi dated 24/4/2012 passed in first appeal no. 464/2009- 10/218(A) 32 for AY 2007-08.
The sole ground raised by the assessee- appellant reads as follows : “That under the facts and circumstances, the lower authorities erred in law and on merits in not allowing the deduction of interest expenses of Rs. 20,64,347/- out of rental income and alternatively partly out of rental income and partly under the head, income from ‘business and profession’ and / or any other appropriate head of income.”
Briefly stated the facts giving rise to this appeal are that for the relevant financial period relevant to AY 2007-08, the assessee declared rental income of Rs. 60 lacs from property bearing no. 53, Ishwar Nagar, Mathura Road, New Delhi. The AO disallowed the claim of assessee u/s 24(b) of the Income Tax Act, 1961(for short as Act) about interest of Rs. 20,64,347/- paid by the assessee to State Bank of India on loan of Rs. 2 crores taken in AY 2006-07. The AO disallowed same on the ground that property has not been constructed/ acquired repaired from the borrowed funds from SBI, and the property was already in existence since earlier year and the loan amount from SBI was invested in the shares. Therefore, the claim of the assessee u/s 24(b) of the Act was disallowed by the AO finally holding that the interest is neither allowable as business expenses nor allowable from rental income from house property. The assessee carried the matter before CIT(A) but remained empty handed as the disallowance was upheld by the first appellate authority. Now the aggrieved assessee is before this Tribunal with the sole ground as reproduced above.
We have heard arguments of both the sides and carefully perused the material placed on record before us. The ld. AR submitted that the loan of Rs. 55 lacs was taken from State Bank of Bikaner & Jaipur (SBBJ) on 29.8.2003 for construction of said property and out of Rs. 55 lacs, loan of Rs. 16,17,500/- was outstanding at the time when the loan was sanctioned by SBI of Rs. 2 crores. The SBI put a condition to liquidate the balance loan of Rs. 16,17,500/- of SBBJ as a pre condition for giving loan of Rs. 2 crores, hence, the assessee paid Rs. 16,17,500/- on account of switching over housing loan from SBBJ to SBI which is included in the loan amount of Rs. 2 crores. The Ld. AR further contended
3 JNG Builders (P) Ltd. that proportionate interest on 16,17,500/- which was switched over and paid to SBBJ out of loan of 2 crores from SBI should be allowed u/s 24(b) of the Act.
The Ld. DR strongly supported the action of the AO and impugned order of CIT(A) and submitted that when only Rs. 16,17,500/- only was used for making payment of outstanding loan out of Rs. 2 crores then entire interest paid on this loan can’t be allowed as business expense or out of rental income from house property u/s 24(b) of the Act. However, the Ld. DR could not controvert this fact that the assessee has decleared income from house property and outstanding loan of Rs. 16,17,500/- from SBBJ was paid out of loan of Rs. 2 crores from SBI.
On careful consideration of above rival submissions of both the sides, at the outset, admittedly and undisputedly the assessee paid outstanding housing loan of Rs. 16,17,500/- pertaining to property no. 53 to SBBJ out of loan of Rs. 2 crores taken from SBI in AY 2006-07. From computation made by the AO in the operative para of the assessment order it is vivid that the rental income from said property has been assessed as “income from house property” hence, the assessee is entitled for proportionate part interest paid to SBI which is Rs. 1,67,006/- and this amount has not been seriously disputed by the Ld. DR.
As per preposition laid down by ITAT, Lukhnow “A” bench in the case of ACIT vs. Sunil Kumar Agarwal reported as 139 TTJ (LUCK)(UO) 49 interest on loan raised for repayment of original housing loan is allowable as subsequent loan partakes the character of original loan as there is a direct nexus between the loan and purchase of house property and interest paid on the loan was deductiable u/s 24(b) of the Act from the rental income realized from the house property. The relevant operative para 13 of the said order of the Tribunal (Supra) reads as follows :
13. We have considered the rival submissions and carefully gone through the material available on the record. In the present case it appears that the assessee purchased the house property for a sum of Rs. 1,19,55,353 and the payment was made after raising a loan from HDFC Bank. The assessee raised the loans from HDFC against RBI Bonds. The said RBI Bonds were maturing in November, 2002 and to get those bonds realized from HDFC Bank, the assessee raised loan from the relatives and IDBI Bank, thus, the subsequent loans were raised by the assessee to repay the original loan raised to purchase the house property, as such, those loans partake the character of original loan as there was direct nexus between the loan and the purchase of the house property, therefore, the interest paid on the loan was deductible under s. 24 of the Act from the rental income realized from the house property. In this regard, the CBDT issued a clarification in its Circular No. 28, dt. 20th Aug., 1969 (F.No. 8/8/69-IT(A-1) 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 ITO, the interest paid on the second loan would also be allowed as a deduction under s. 24(1)(vi) of the Act. We, therefore, considering the totality of the facts, as discussed hereinabove, are of the view that the learned CIT(A) rightly deleted the addition made by the AO. In that view of the matter, we do not see any merit on this issue raised by the Department.
In view of above in the present case undisputedly the assessee paid outstanding housing loan of Rs. 16,17,500/- out of Rs. 2 crores which was subsequently taken in AY 2006-07 and hence, proportionate part of interest of Rs. 1,67,006/- is allowable u.s 24(1)(vi) of the Act as per CBDT circular no. 28 dated 20.8.1969. We, therefore, considering the totality of the facts and circumstances of the present case, as discussed above, are of the opinion the Ld. AO was not justified in disallowing the entire claim of the assessee and the first appellate authority was incorrect in upholding the same in toto. Thus, orders of the authorities below are demolished and the AO is directed to allow proportionate interest of Rs. 1,67,006/- paid towards outstanding loan of Rs. 16,17,500/- which was switched over to SBI out of housing loan of Rs. 2 crores taken in AY 2006-07. Accordingly sole ground of the assessee is allowed in the manner as indicated above.
In the result, appeal of the assessee is allowed. Order Pronounced in the Court on 17/02/2016.