TMI Blog2009 (11) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... , Chennai for the asst. yr. 2001-02. 2. The assessee has raised various grounds in this appeal. However, the only issue is whether the CIT(A) is justified in holding that there was no nexus between the borrowings and acquisition of the property in question and consequently the amount claimed as interest is not deductible as per s. 24(vi) of the IT Act against the income from house property. 3. The assessee stated to have inherited a house property No. 89, West Madha Church Street, Chennai from his father, The property was mortgaged to Egmore Benefit Society Ltd. (EBSL) on account of loan borrowed by his father for business purposes. Upon the death of his father, the property was inherited along with subsisting mortgage by the assessee. It was further stated by the assessee that subsequently loan from HSBC was utilized to repay the loan from EBSL taken by his father. Accordingly, the assessee claimed that the loan outstanding was the cost of acquisition for acquiring mortgage rights of the property so that he could become the absolute owner. The AO, after examining all the relevant records and materials, including the agreement, loan agreements, mortgage deeds, etc. has noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1997) 227 ITR 222 (SC) and submitted that in case of 'charge', the title of the successor is not affected and, therefore, the same was not treated by the Hon'ble Supreme Court as acquiring any title or interest in the property whereas in case of 'mortgage', the assessee has acquired a better title by repaying the mortgage amount, therefore the same is the cost of acquisition of the property. He has referred the family arrangement dt. 17th July, 1995, wherein the assessee got the property in question allowing existing mortgage charge. The learned counsel for the assessee has further submitted that for the asst. yr. 1997-98, the claim of interest paid on the original loan taken by his father was allowed by the Revenue and, therefore, the same cannot be disallowed in subsequent years. 6. On the other hand, the learned Departmental Representative has submitted that as per s. 24(1)(vi), if a property is acquired, constructed, repaired, renewed or reconstructed with borrowing capital, deduction of interest payable on such capital is allowable against the income from house property. In the present case, the loan was borrowed by the assessee's father from EBSL not for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement was Rs. 96,15,336 towards outstanding loan and interest thereupon, and Rs. 5,999 was towards principal and interest payable to M/s Kamala Agencies. Thus, it is clear that the assessee inherited the estate of his father. As per his share by this family arrangement, including immovable and movable properties worth Rs. 1.85 crores and liabilities of about Rs. 1 crore. After the division and distribution of the estate of his father, the assessee took a loan of Rs. 1 crore from EBSL. on 10th Dec., 1996 against the collateral security of the same property. This loan amount was invested by the assessee in shares and in partnership firm. In November, 1999 as recorded by the AO, the outstanding loan taken from EBSL was Rs. 43.4 lakhs representing the old loan taken by his father and Rs. 56.5 lakhs representing new loan taken by the assessee himself. The total outstanding loan in the month of November, 1999 towards EBSL was Rs. 99.9 lakhs. 8. The assessee took a loan of Rs. 1 crore on 24th Nov., 1999 from HSBC for repayment of the entire outstanding loan amount of EBSL. The assessee claimed deduction under s. 24(1)(vi) of the IT Act for the interest paid to HSBC against the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty owned by the assessee is independent and irrespective of the assets owned by the assessee under succession even in case the assessee had not received any asset and only liability was to be shared by the legal heirs. Therefore, the inheritance or succession of the property in question is the share of the assessee in the total estate and has no nexus with the liability shared by the assessee because the loan was not taken by the father of the assessee for acquisition of the property in question. A simple test for allowing the deduction under s. 24(1)(vi) of the IT Act is that, if the interest paid on the original loan is allowable as deduction, then the interest paid on the second loan for repayment of the original loan is also allowable. Therefore, when the interest payable on the original loan is not allowable under s. 24(1)(vi), then the interest paid or payable on the second loan for repayment of original loan is also not allowable. 10. In the case of V.S.M.R. Jagadishchandran (Decd) By LRs. vs. CIT cited the Hon'ble apex Court has held that: "In Civil Appeal Nos. 6098-6101 of 1983 filed against the judgment of the Full 'Bench of the Madras High Court in S. Valliammai vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in the case of capital gains is the transfer of title of the property and, therefore, the clearing of the title by the assessee by discharging the charge will be a part of the cost of acquisition for the purpose of capital gains. But in case of income from house property, the transfer in the name of the assessee is not an essential element if the assessee inherited and succeeded the property with existing charge, not created for acquisition of the property, by the previous owner, then the charge on the property does not affect the rights of the assessee in earning the income from house property. 12. In the case in hand, the assessee inherited the property under the family arrangement and the loan taken by the father of the assessee, by mortgaging the property has not affected the existence of the property, which is required for the purpose of computing income from house property. Since the father of the assessee has not created a charge for borrowing capital for bringing the property into existence; the original loan was not connected with the existence of the property, being prior to even the purchase of land by the father of the assessee. Hence, the principle laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that whether the charge created was voluntary or not, is a question of fact. The mortgage in respect of the Bombay house property was created under the pressure of a Court sale and in respect of Pune property, since the creditor demanded additional security, the assessee was obliged to create an equitable mortgage. Therefore, it could not be said that the charge was created by the assessee voluntarily. Therefore, the amount paid towards interest on the mortgages were deductible under s. 24(1)(iv) of the Act. Such is not the case here. The mortgage, in the case on hand, was created neither under a threat of Court sale nor to meet the demand for additional security. In CIT vs. Central Bank Executor Trustee Co. Ltd. For Late Mrs. Serenebai J. Mody (1993) 112 CTR (Bom) 289 : (1993) 203 ITR 666 (Bom), the Bombay High Court, held that where an overdraft was obtained with a bank on the security of the house property by creating a charge on it for the payment of estate duty, the interest payable on such loan, is not deductible under s. 24(1)(iv) of the Act, while computing the income from the property. In the present case, assuming there is a charge, the charge was created by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
