I owned two houses at the start of the year and sold one in July. I treated the second house as deemed let out for those first months and claimed the full section 24(b) interest for that period. The Assessing Officer says there is no such thing as a split-year claim and has capped me at Rs 2,00,000. Who is right?
The Tribunal held that the assessee was right. Section 23(4)(a) is a complete and self-exhaustive code for the case where more than one house is held, the legislature has not restricted it by any proviso or explanation, and it does not restrict a splitting-up of the accounting period; applying a strict construction the Tribunal held that both the lower authorities had erred and deleted the disallowance of Rs 13,81,247.
Decided by the ITAT (Satbeer Singh Godara, Judicial Member and Girish Agrawal, Accountant Member) on 2024-07-10, reported as I.T.A. No. 1423/Mum/2024 (ITAT Mumbai, D Bench), assessment year 2018-19. It bears on section 22, section 23, section 23(2), section 23(4), section 24, section 24(b), section 270A of the Income Tax Act 1961, in House Property and Deductions & Disallowances matters.
This is the point that arises whenever a taxpayer buys or sells a house mid-year. Section 23(2) applies where a single house is in the owner's own occupation; section 23(4) applies where more houses are held and lets the assessee specify which one is to be taken at nil, the rest being valued under section 23(1) as if let. If the second house drops out mid-year, the Department's instinct is to say the option is exercised once for the whole year and the remaining house was self-occupied throughout, which caps interest at Rs 2,00,000 and destroys the loss. The Tribunal's answer is that nothing in section 23(4)(a) says so. Two limits to keep in view. The order is on assessment year 2018-19, when section 23(4) allowed only one house to be taken at nil; the Finance Act 2019 raised that to two houses with effect from assessment year 2020-21, so on the same facts today the assessee might not need the argument at all. And the interest that survives becomes a house property loss, which since assessment year 2018-19 can be set off against other heads only up to Rs 2,00,000 under section 71(3A), the balance being carried forward under section 71B for eight assessment years; under the section 115BAC regime the set-off against other heads is not available at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2018-19 the assessee held two house properties in Mumbai: 'Kshitij', 202, Nepean Sea Road, held throughout the year, and 'Rajul', 804-B, J. Mehta Marg, held from 1 April 2017 until it was sold on 23 July 2017. In the return he treated 'Kshitij' as deemed let out from 1 April 2017 to 23 July 2017 and as self-occupied from 24 July 2017 to 31 March 2018, claiming interest on borrowed capital for the deemed let out period and Rs 2,00,000 for the self-occupied period, and carrying forward a house property loss of Rs 12,95,147. The case was selected for scrutiny on the house property issue. The Assessing Officer took the view that the second property had not been shown in the return, that the assessee had knowingly described 'Kshitij' as deemed let out for a short period to obtain a larger interest deduction, treated 'Kshitij' as self-occupied for the whole year, restricted the section 24 deduction to Rs 2,00,000, disallowed the excess of Rs 13,81,247 and disallowed the carry forward. The Commissioner (Appeals), National Faceless Appeal Centre, confirmed the disallowance, holding that nothing in the Act allows an assessee to switch or toggle the option between deemed let out and self-occupied for a fraction of the year, that the return is the only document in which the option can be exercised, and that since the assessee resided at 'Kshitij' as shown in the personal information part of the return, that property had to be treated as self-occupied for the whole year under section 23(2)(a).
The assessee's appeal was allowed and the disallowance of the section 24(b) interest for the period from 1 April 2017 to 23 July 2017 was deleted (paragraphs 7 and 8). Section 23(4)(a) does not restrict a splitting-up of the accounting period, and both the lower authorities erred in law and on the facts in rejecting the loss relief under section 24(b) for that period.
The Tribunal recorded that there was no dispute on the facts: in the previous year the assessee held two residential properties until 23 July 2017 and was left with one thereafter (paragraph 5). It read section 23(2)(a) and section 23(4)(a) together and held that the former applies where the assessee occupies a single house property for his own residence while the latter comes into play where more than one house property is held and requires the exercise of a specific option for computing annual letting value (paragraph 7). It then held that section 23(4)(a) is a complete self-exhaustive code dealing with that latter case and that the legislature has not restricted its scope by any proviso or explanation. Faced with that, and invoking strict interpretation of an exempting provision in the light of the Constitution Bench decision in Commissioner v. Dilip Kumar & Co. (2018), it concluded that because section 23(4)(a) does not restrict splitting-up of the accounting period for the purpose of restricting the statutory exemption, the lower authorities had erred and the relief had to be granted (paragraph 7). The Tribunal rejected the Revenue's contention that there is no concept of a pro rata section 24(b) claim on a split-up basis (paragraphs 6 and 7).
We are of the considered view that section 23(4)(a) is complete self exhaustive code in itself dealing with the above latter case wherein the legislature has not restricted its scope by any proviso or explanation
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Handle my notice → Ask a CA on WhatsAppThe Tribunal held that the assessee was right. Section 23(4)(a) is a complete and self-exhaustive code for the case where more than one house is held, the legislature has not restricted it by any proviso or explanation, and it does not restrict a splitting-up of the accounting period; applying a strict construction the Tribunal held that both the lower authorities had erred and deleted the disallowance of Rs 13,81,247. This was decided by the ITAT (Satbeer Singh Godara, Judicial Member and Girish Agrawal, Accountant Member) and bears on section 22, section 23, section 23(2), section 23(4), section 24, section 24(b), section 270A of the Income Tax Act 1961. It is reported as I.T.A. No. 1423/Mum/2024 (ITAT Mumbai, D Bench), assessment year 2018-19. This is the point that arises whenever a taxpayer buys or sells a house mid-year. Section 23(2) applies where a single house is in the owner's own occupation; section 23(4) applies where more houses are held and lets the assessee specify which one is to be taken at nil, the rest being valued under section 23(1) as if let. If the second house drops out mid-year, the Department's instinct is to say the option is exercised once for the whole year and the remaining house was self-occupied throughout, which caps interest at Rs 2,00,000 and destroys the loss. The Tribunal's answer is that nothing in section 23(4)(a) says so. Two limits to keep in view. The order is on assessment year 2018-19, when section 23(4) allowed only one house to be taken at nil; the Finance Act 2019 raised that to two houses with effect from assessment year 2020-21, so on the same facts today the assessee might not need the argument at all. And the interest that survives becomes a house property loss, which since assessment year 2018-19 can be set off against other heads only up to Rs 2,00,000 under section 71(3A), the balance being carried forward under section 71B for eight assessment years; under the section 115BAC regime the set-off against other heads is not available at all. If it applies to you, the first step is this: Set out a period-wise table of the properties held, with dates of acquisition and transfer, exactly as the assessee did here, and match it to the return.
For assessment year 2018-19 the assessee held two house properties in Mumbai: 'Kshitij', 202, Nepean Sea Road, held throughout the year, and 'Rajul', 804-B, J. Mehta Marg, held from 1 April 2017 until it was sold on 23 July 2017. In the return he treated 'Kshitij' as deemed let out from 1 April 2017 to 23 July 2017 and as self-occupied from 24 July 2017 to 31 March 2018, claiming interest on borrowed capital for the deemed let out period and Rs 2,00,000 for the self-occupied period, and carrying forward a house property loss of Rs 12,95,147. The case was selected for scrutiny on the house property issue. The Assessing Officer took the view that the second property had not been shown in the return, that the assessee had knowingly described 'Kshitij' as deemed let out for a short period to obtain a larger interest deduction, treated 'Kshitij' as self-occupied for the whole year, restricted the section 24 deduction to Rs 2,00,000, disallowed the excess of Rs 13,81,247 and disallowed the carry forward. The Commissioner (Appeals), National Faceless Appeal Centre, confirmed the disallowance, holding that nothing in the Act allows an assessee to switch or toggle the option between deemed let out and self-occupied for a fraction of the year, that the return is the only document in which the option can be exercised, and that since the assessee resided at 'Kshitij' as shown in the personal information part of the return, that property had to be treated as self-occupied for the whole year under section 23(2)(a). The matter was decided on 2024-07-10 by the ITAT (Satbeer Singh Godara, Judicial Member and Girish Agrawal, Accountant Member). On those facts the ITAT held as follows. The assessee's appeal was allowed and the disallowance of the section 24(b) interest for the period from 1 April 2017 to 23 July 2017 was deleted (paragraphs 7 and 8). Section 23(4)(a) does not restrict a splitting-up of the accounting period, and both the lower authorities erred in law and on the facts in rejecting the loss relief under section 24(b) for that period.
The Tribunal recorded that there was no dispute on the facts: in the previous year the assessee held two residential properties until 23 July 2017 and was left with one thereafter (paragraph 5). It read section 23(2)(a) and section 23(4)(a) together and held that the former applies where the assessee occupies a single house property for his own residence while the latter comes into play where more than one house property is held and requires the exercise of a specific option for computing annual letting value (paragraph 7). It then held that section 23(4)(a) is a complete self-exhaustive code dealing with that latter case and that the legislature has not restricted its scope by any proviso or explanation. Faced with that, and invoking strict interpretation of an exempting provision in the light of the Constitution Bench decision in Commissioner v. Dilip Kumar & Co. (2018), it concluded that because section 23(4)(a) does not restrict splitting-up of the accounting period for the purpose of restricting the statutory exemption, the lower authorities had erred and the relief had to be granted (paragraph 7). The Tribunal rejected the Revenue's contention that there is no concept of a pro rata section 24(b) claim on a split-up basis (paragraphs 6 and 7). In the words reproduced by the source cited on this page: "We are of the considered view that section 23(4)(a) is complete self exhaustive code in itself dealing with the above latter case wherein the legislature has not restricted its scope by any proviso or explanation" The decision followed or applied Commissioner v. Dilip Kumar & Co. 2018 (9) SCC (SC) (FB) — applied for strict construction of an exempting provision.
It was decided by the ITAT on 2024-07-10 and is reported as I.T.A. No. 1423/Mum/2024 (ITAT Mumbai, D Bench), assessment year 2018-19. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 22, section 23, section 23(2), section 23(4), section 24, section 24(b), section 270A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The assessee's appeal was allowed and the disallowance of the section 24(b) interest for the period from 1 April 2017 to 23 July 2017 was deleted (paragraphs 7 and 8). Section 23(4)(a) does not restrict a splitting-up of the accounting period, and both the lower authorities erred in law and on the facts in rejecting the loss relief under section 24(b) for that period. It arises in House Property and Deductions & Disallowances matters, on section 22, section 23, section 23(2), section 23(4), section 24, section 24(b), section 270A of the Income Tax Act 1961, and was decided by Satbeer Singh Godara, Judicial Member and Girish Agrawal, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Identify which sub-section governs each block of the year: section 23(2) where one house is held and occupied, section 23(4) where more than the permitted number is held. Rest the argument on the words of section 23(4)(a), which contain no proviso or explanation restricting the period, and invoke strict construction of the exempting provision as the Tribunal did through Dilip Kumar & Co. Do not stop at section 24(b): compute the resulting house property loss and check the section 71(3A) cap of Rs 2,00,000 and the carry forward under section 71B before advising on the refund. Check which regime the client is in; a house property loss cannot be set off against other heads under section 115BAC. For assessment year 2020-21 onwards, first check whether the two-house limit in section 23(4) removes the problem.
Validity check could not be completed. Validity check could not be completed; later treatment was not searched. The order construes section 23(2) and section 23(4) in the form they took for assessment year 2018-19, when only one house could be taken at nil annual value. Section 4 of the Finance Act 2019 substituted 'two houses' for 'one house' in the opening portion of section 23(4) and 'two' for 'one' in clause (a), with effect from 1 April 2020, that is from assessment year 2020-21; the current text of section 23(4) in that form was separately confirmed from a judgment reproducing the section (ITAT Mumbai in Classic Mall Development Company Ltd., order of 21 March 2025). The reasoning about splitting the accounting period is not affected by that change, but any advice must be given by reference to the assessment year in question. A search of the disposal formula for a contrary outcome on the splitting-up point returned nothing that decides it: the only near case located, Gomathi v DCIT (ITAT Chennai, ITA 1504/Chny/2025, 4 September 2025), is a remand. The construction therefore rests on this single Division Bench order, against the reasoned contrary view of the Commissioner (Appeals), National Faceless Appeal Centre, reproduced at paragraph 4 of the order itself, and has not been tested on appeal so far as could be found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to eight paragraphs, of which paragraph 4 is entirely a reproduction of the Commissioner (Appeals)'s order and paragraph 3 of the grounds of appeal; the Tribunal's own reasoning is in paragraphs 5 to 8. There are defects in the report: paragraph 7 writes the terminal date as '23.7.2018' at its close where the grounds, the tables and paragraph 5 all show 23.7.2017, and the sentence beginning 'We are of the considered view' is garbled at its close ('whatsoever during the impugned relief of section 24(b) deduction for a part of the year as well'). The figures are also inconsistent: the grounds and the Assessing Officer's disallowance are Rs 13,81,247 while the reproduced Commissioner (Appeals) order records the interest claimed for the deemed let out period as Rs 13,38,247. Usefully, paragraph 4 reproduces section 23(2) and section 23(4) as they stood for assessment year 2018-19, when section 23(4) spoke of 'more than one house' and allowed the option 'only in respect of one of such houses'. The statements in this entry about section 71(3A), section 71B and section 115BAC are statutory context, not holdings of this order, which decides only the section 23(4)(a) point. Section 71(3A) and section 71B were verified from source (the Delhi High Court in Sanjeev Goyal v UOI reproducing section 71(3A) at its paragraph 18, and section 31 of the Finance Act 2017). No permitted source for the current text of section 115BAC was reached on this run, so the statement that a house property loss cannot be set off against other heads under that regime is carried on the strength of the standing brief and must be checked against the section before it is relied on in a reply. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The assessee's appeal was allowed and the disallowance of the section 24(b) interest for the period from 1 April 2017 to 23 July 2017 was deleted (paragraphs 7 and 8). Section 23(4)(a) does not restrict a splitting-up of the accounting period, and both the lower authorities erred in law and on the facts in rejecting the loss relief under section 24(b) for that period.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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