Section 24(b)

Section 24(b) — the law in short

What the courts have decided on section 24(b), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sanjeev Goyal v Union of India High CourtHelps departmentValidity unconfirmed
  My client took his housing loan in 2014 and the interest has always been fully set off against salary. From AY 2018-19 the officer restricts the set-off to Rs 2,00,000. Can I argue the cap cannot apply to a loan taken before the amendment?
  No. The Delhi High Court upheld the constitutional validity of s.71(3A), inserted by s.31 of the Finance Act 2017, and rejected the alternative plea that it applies only to loans taken on or after 1 April 2017. The cap operates for assessment year 2018-19 and every later year on the loss of that year, whatever the vintage of the loan.
• Commissioner of Income Tax v M/s. Sane & Doshi Enterprises High CourtHelps taxpayer
  I am a builder and I let out the flats I could not sell, which sit in my books as closing stock. Is that rent business income, and can I claim the section 24 deductions including interest on the money that built them?
  It is house property income, and yes. The Bombay High Court dismissed the Revenue's appeals and upheld the finding that rent from unsold units of a commercial complex was assessable under the head income from house property with the section 24(a) deduction. It held that the character and nature of the income is decisive, not the treatment the assessee gives it in its books, so a consolidated profit and loss account did not convert the receipt into business income. It also upheld the provision of Rs 45 lakhs for incomplete work under the project completion method, and the deduction under section 24(b) of interest paid on partners' capital, where that capital had gone into constructing the premises that were let.
• CIT v Sunil Kumar Sharma High CourtHelps taxpayerHigh Courts differ
  I bought a site from a government body on instalments and pay interest on the unpaid instalments. There is no bank and no loan document. The officer says there is no borrowed capital, so no s.24(b) deduction. Is he right?
  No. Where a buyer agrees with the seller to pay the price in instalments carrying interest, the seller becomes the lender as regards the unpaid purchase price and the buyer becomes the borrower, and the unpaid purchase price is borrowed capital for s.24(b). The Punjab and Haryana High Court held the interest component of the instalments deductible and dismissed the Revenue's appeals.
• CIT v Mithlesh Kumari High CourtCuts both waysValidity unconfirmed
  I borrowed to buy a plot, paid interest on the loan for three years, then sold it. Can I add that interest to my cost when I compute capital gains?
  Yes for interest, no for ground rent. The Delhi High Court held that interest of Rs 16,878 paid on money borrowed to buy the plot formed part of the actual cost of the plot for computing capital gains. What the assessee laid out to acquire the asset is its cost, and it makes no difference that the interest went to a different person or was paid after the purchase. Ground rent of Rs 3,793 stood on a different footing: it was paid to keep the asset in her possession, not to acquire it, and could not be added.
• Deepak Kantilal Shah v DCIT ITATHelps taxpayerValidity unconfirmed
  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.
• Syeda Bibi Sadiqa v DCIT ITATHelps taxpayerValidity unconfirmed
  Is there a ceiling on the interest I can deduct on a house that is let out?
  No. The Tribunal held that the property was let out during the year — rent of Rs 4,74,69,381 having been received — and that there is accordingly no maximum limit on the deduction for interest on borrowed capital. The proof accepted was a certificate from the lending bank, supported by the same deduction having been claimed and allowed in earlier years, and by a finding that the loan had not been taken afresh for any renovation of the property.
• Rajesh Saluja v DCIT ITATHelps departmentValidity unconfirmed
  I am selling the house. Can I add the home loan interest to the cost of acquisition under s.48, with indexation, on top of whatever I claimed under s.24(b)?
  This Tribunal said no. Following the Supreme Court in CIT v. Tata Iron and Steel Co. Ltd., it held that the cost of an asset and the cost of raising money to buy the asset are two different and independent transactions, so interest on borrowed capital has no direct nexus with the property and cannot enlarge the cost of acquisition. The disallowance of Rs 1,16,43,521 claimed as indexed cost referable to interest of Rs 94,17,082 was upheld.
• Mangesh Ramesh Annachhatre v DCIT ITATHelps taxpayerValidity unconfirmed
  I got possession of my flat in December 2015. The officer says all the interest I paid from April 2015 to December 2015 is pre-construction interest and only one-fifth is allowable this year. Is he right?
  No. The pre-construction period ends on the 31st March immediately preceding the date of acquisition or completion, so for a December 2015 possession it ended on 31 March 2015. Interest paid from 1 April 2015 onwards is current-year interest of that previous year and is deductible in full, not in five instalments.
• Sameer Kishore Koticha v DCIT ITATHelps taxpayerValidity unconfirmed
  The CPC has restricted my s.24(b) interest to Rs 2,00,000 by treating my only property as self-occupied. It is a commercial unit that I cannot live in. Can the cap apply?
  No. The second proviso to s.24(b) caps the deduction only for a property referred to in s.23(2), and s.23(2) speaks of a house or part of a house in the owner's occupation for his own residence, which can only be a residential property. The Tribunal held the cap inapplicable to a commercial unit, allowed the whole interest of Rs 1,31,39,560, and directed that the resulting house property loss be carried forward under s.71B.
• Abeezar Faizullabhoy v CIT(A)-28 ITATHelps taxpayerValidity unconfirmed
  I booked a flat years ago and have been paying the home loan, but the builder and the society are in litigation and I still have no possession. The officer has disallowed my s.24(b) interest because I do not occupy the flat. Can he do that?
  No. Section 24(b) prescribes no condition that the assessee must have taken possession of the property. The Tribunal set aside the disallowance and directed the officer to allow the Rs 2,00,000 deduction, holding that entitlement under ss.22 to 24 turns on ownership and not on possession.
• Dynacon Equipments Pvt Ltd v ACIT ITATHelps taxpayerValidity unconfirmed
  My client's factory has been shut for years and the land, building and two generators are let out on one rent. The officer has taxed the whole of it as income from other sources. Can it be house property?
  Yes, on this decision. The Tribunal held that where the lease deed shows that the predominant objective is to let out the land and building along with the plant installed in it in order to earn rental income, and there is no visible intention to carry on organised and systematic business activity, the income is assessable under the head income from house property. It relied on the structure of section 14: income is to be assessed under the correct specific head, and only income that cannot be brought under any of the prescribed heads because of its nature falls to the residuary head of income from other sources.
• ACIT v SDV International Logistics Ltd ITATHelps taxpayerValidity unconfirmed
  My employees claim HRA and home loan interest together. Must I treat that as a double benefit?
  No, not on these facts. The point was ground 2 of a composite order under s.201 and s.271C. The first appellate authority had held the exemption and the interest deduction to be two independent provisions, each with its own conditions, and the Tribunal upheld that because the department could not controvert it, so the short deduction and the consequential penalty both fell away. The employees concerned had let out the houses they owned and were living in rented premises, with the whole of the interest set against rental income and the exemption claimed on the rent they actually paid.
• Bajrang Prasad Ramdharani v ACIT ITATHelps taxpayerValidity unconfirmed
  I pay rent to my wife for the flat she owns and we live in it together. The officer says the whole thing is a colourable device and has disallowed my HRA. Is living under the same roof as my landlord by itself fatal?
  No. The Tribunal read s.10(13A) with its own Explanation and held that the provision imposes only two conditions — that the assessee occupies the accommodation, and that he has actually incurred expenditure on rent — and that neither of them is broken merely because the landlord is his wife and lives in the same house. Where rent receipts were produced and the payments were traceable to bank transfers, the exemption was restored even though the Assessing Officer and the Commissioner (Appeals) had both branded the arrangement a device.
• ACIT v C Ramabrahmam ITATHelps taxpayerSuperseded by amendment
  I claimed housing loan interest under s.24(b) every year. When I sell, can the same interest also go into the cost of acquisition?
  Yes, on this Tribunal view - but the point is contested. The Chennai Bench held that a deduction under s.24(b) and the computation of capital gains under s.48 are covered by different heads of income and neither excludes the other, so interest already allowed against house property income may still be included in the cost when capital gains are computed. The Karnataka High Court has taken the opposite view.
• ITO v Smt. Parul Grover ITATHelps taxpayerValidity unconfirmed
  I refinanced. I took a fresh loan from another bank and used it to close my original house construction loan. The officer says the new loan was not taken for construction, so no s.24(b) interest. Is there authority against him?
  Yes. Where the second borrowing has really been used merely to repay the original loan taken for the house, interest on the second loan is deductible, and the Tribunal applied CBDT Circular No.28 dated 20 August 1969 to allow it. The deduction is confined to the part of the fresh loan actually traced to repayment of the original housing loan, worked out proportionately.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.