Sections 23(2), 24 –The restriction of Rs 1.50 lakh described in second proviso to section 24 is with reference of the property which is referred to in sub-section (2) of section 23. Restriction of Rs. 1.50 lakh does not apply to a property which is not let out and annual value whereof is not taken as nil nor is it a cumulative amount to be allowed as a deduction.
Facts :
The assessee was the owner of two properties, one of which was a flat in Marble Arch and the other was a flat in Nestle. The flat in Marble Arch was considered as self occupied property and the flat in Nestle was vacant throughout the previous year. The book value of the flat in Nestle was Rs. 57,22,000. This property was acquired by taking loan from bank. Interest of Rs. 3,50,641 was paid.
In respect of this property, the Assessing Officer (AO) considered Rs 4,00,540 (7% of book value of this property i.e. 7% of Rs. 57,22,000) to be its annual value. He restricted the claim for deduction of interest to Rs. 1,40,193 on the ground that the assesse could not be allowed a cumulative deduction more than Rs. 1,50,000 as per second proviso to section 24 of the Act.
Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
According to section 24(b), where the property is acquired, constructed, repaired or renewed or constructed with the borrowed capital than any interest payable on such borrowed capital would be an allowable deduction. The restriction of Rs. 1,50,000 described in second proviso is with reference to the property which is referred to in sub-section (2) of section 23. Section 23(2) would be applicable to a house or part of the house which either is in the occupation of the owner for the purpose of his residence or the same is not actually occupied by the owner for the reason that owing to his employment, business or profession carried on at any other place and he is to reside at that other place in a building not belonging to him and ALV of such property would be taken as nil. Undisputedly, the flat at Bandra falls under the category of property mentioned in section 23(2) fo the Act as AO did not assess the ALV of the said property as income of the assessee. Therefore, provisions of second proviso to section 24 would not be applicable and the case of the assesse would fall within clause (b) of section 24 in which there is no limit for allowability of the interest and the condition is that the said property should inter alia be acquired out of borrowed capital. In respect of the Nestle property the assessee has paid interest of Rs. 3,50,641. Interest deductible from ALV of Nestle property could not be restricted to any amount less than the interest paid by the assesse. The Tribunal directed the AO to give full deduction of interest paid of Rs. 3,50,641.
This ground of appeal filed by the assessee was allowed by the Tribunal.
Compiler’s Note:
It appears that the assessee had interest of Rs. 9,807 in respect of borrowing for flat in Marble Arch and that is why the AO restricted interest on loan for Nestle property to Rs. 1,40,193 (Rs. 1,50,000 – 9,807).
