Observing that Section 24(b) of the Income Tax Act uses the expression ‘property’ and not residential or commercial property, ITAT Bangalore has held that irrespective of the nature of the property, whether residential or commercial, deduction must be allowed under Section 24(b).
It was held that the proviso only carves out an exception to Section 24(b), in so far as it relates to property used for residential purposes. The Proviso does not deal with or curtail the right of an assessee to get deduction on interest paid on loans borrowed for the purpose of constructing commercial property.
The assessee was a company engaged in the business of construction, development of real estate projects and renting of commercial building. The assessee filed its return of income for the relevant AY and for the purpose of computing income under the head ‘Income from House Property’ claimed deduction under Section 24(b) of the Act as interest paid on capital borrowed for the purpose of construction of the property.
The assessee had borrowed money from Bank for the purpose of construction and letting out of commercial building. Subsequently, the assessee further borrowed money from another lender for repaying the loan taken from earlier Bank.
The Assessing Officer disallowed the entire claim of deduction on account of interest under Section 24(b) of the Act on the ground that third proviso read with second explanation to Section 24(b) of the Act is relevant only in relation to self-occupied property which is not the case of the assessee.
On appeal, the CIT(A) allowed the claim of the assessee for deduction of interest paid to earlier Bank but did not allow the claim of the assessee for deduction on account of interest paid to the subsequent lender. The CIT(A) rejected the reliance placed by the assessee on Circular No 28 dated 20 August 1969 on the ground that provisions of Section 24 of the Act had subsequently been amended w.e.f 1 April 2002. The assessee therefore, appealed before the Tribunal.
The CBDT vide Circular No. 28 dated 20 August 1969 had clarified that when a loan is taken to repay loan taken for construction of a property, interest paid on such loan is also deductible in computing under the head income from house property.
The Tribunal in the case Indraprastha Shelters Pvt. Ltd. v. DCIT [ITA No. 2597/Bang/2019] observed that the amended provisions of Section 24 of the Act do not alter the scheme of determination of house property income with regard to allowability as deduction of interest paid on loans borrowed for the purpose of constructing the property. Therefore, the reason given by the CIT(A) for not allowing the claim of the Assessee was held to be unsustainable.