Indraprastha Shelters (P.) Ltd. v. DCIT – [2021] 124 taxmann.com 569 (Bangalore – Trib.)

Assessee was engaged in the business of construction, development of real estate projects and renting of a commercial building.

It borrowed money from a bank (Original Loan) for construction and letting out of the commercial building.

Later on, it took another loan and repaid the original loan. Assessee claimed a deduction for interest paid on both the loans under Section 24(b).

 Assessing Officer (AO) disallowed assessee’s claim for deduction under Section 24(b).

CIT(A) allowed assessee’s claim in respect of interest paid on the original loan whereas interest paid on loan taken for repayment was disallowed.

Aggrevied-assessee filed the instant appeal before the Tribunal.

The Tribunal held that on perusal of the provisions of section 24(b), it is clear that the deduction is allowed on account of interest paid on any borrowed capital which is used for the purpose of acquiring, constructing, repairing, renewing or reconstructing the property.

The expression used in section 24(b) is ‘property’ and not residential or commercial property.

 Therefore, irrespective of the nature of the property whether it is residential or commercial, the deduction has to be allowed under section 24(b).

 As far as the 3rd proviso to section 24(b) is concerned, all the provisos to section 24(b) deal with property referred to in section 23(2) which refers to a residential property.

The proviso only carves out an exception to section 24(b), in so far as it relates to property used for residential purposes.

 It does not deal with or curtail the right of an assessee to get a deduction on interest paid on loans borrowed to construct a commercial property.

Thus, interest paid on the loan taken for repayment of the original loan was also deductible.