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2015 (4) TMI 584 - ITAT MUMBAI

2015 (4) TMI 584 - ITAT MUMBAI - TMI - Income from house property - Deduction of Interest paid on security deposit received from the tenants - Interest bearing deposits - Held that:- Generally under a lease agreement, the security deposits are taken as an advance of rent of a certain period which are generally not interest bearing. Here in this case the deposits received from various tenants are more than 100 times of the arrival rent amount. These deposits have been taken/accepted on a payment .....

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are interest bearing and is to be refunded back, then debt is created on the assessee which it is liable to be discharged in future. Here the concepts of debt has to be understood as per the terms of the parties. If the deposits had been security deposit simplicitor to cover the damage of the property or lapses on part of the tenant either for non-payment of rent or other charges, then such a deposit cannot be equated with the borrowed money, because then there is no debt on the assessee. A mome .....

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dent : Shri Neil Philip ORDER Per Amit Shukla, JM: This appeal has been filed by the Revenue against order dated 27.09.2012, passed by Ld. CIT-13, Mumbai for the quantum of assessment passed u/s 143(3) for the A.Y. 2009-10, vide which following grounds have been raised:- i) The Learned CIT(A) has erred in law and on facts in treating the interest bearing refundable security deposits received from Tenats as Capital borrowed for the purpose of Sec. 24(b) of the I.T. Act 1961. ii) The Learned CIT9A .....

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ed Capital v) The Learned CIT(A) has erred in law and on facts in considering the expression ''capital borrowed" predicates the relation of a borrower and a lender; which relationship does not exists in that case. vi) The Learned CIT(A) has erred in law and on facts in appreciating that the interest bearing refundable security deposits received from the tenants only to protect the possible damage to the rental property or non -payment of rent. vii) The learned CIT(A) has erred in la .....

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be set aside. " 2. Thus the only issue raised by the revenue is that, deduction of interest claimed by the assessee u/s 24 (b) is not allowable because the same has been paid on security deposit received from the tenants. 3. The brief facts of the case are that, assessee is engaged in the business of builders and developers. During the year the assessee had shown income from house property, income from capital gain and income from other sources. In the computation of income house perty, th .....

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agreement assessee received deposits from these tenants for sum aggregating to ₹ 10,25,40,000/-. These deposits were interest bearing where the assessee had to pay interst @ 6%. These deposits were utilized for the repayment of loan taken form the Reliance industries. The assessee s submission in this regard have been incorporated by the AO from pages 2 to 4 of the assessment order. The Ld Assessing Officer held that section 24(b) clearly provides that, interest should be payable on capit .....

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after giving detail reasoning, he held that such an interest is not allowable as deduction u/s 34(b). 4. Before the Ld. CIT(A), the assessee gave following details of borrowing made in the Financial Year 2006-07, which were in the form of loan and deposits. Date Name of the Party Nature of receipt Amount (Rs.) 01.03.2007 Simplex Construction Pvt. Ltd Loan 1,50,00,000/- 02.03.2007 Rambhita Trading Pvt. Ltd. Loan 11,00,000/- 03.03.2007 Laderup Corporate Advisory Pvt. Ltd. Loan 50,00,000/- 07.03.2 .....

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Borrowings 10,25,40,000/- Then again in the A.Y. 2008-09, the assessee accepted further deposits of ₹ 10,39,000,00/-. These amounts were utilized to repay the balance of earlier loan taken. The purpose and utilization of subsequent loans/deposits was submitted before him in the form of fund flow statement and the bank statement. These deposits were in fact were a kind of loan only, as it beared the interest rate of 6%. Such a loan on deposits were utilized for the repayment of original lo .....

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rust reported in (2006) 9SOT 583. 5. The Ld. CIT-(A) after dealing with the entire observation of the AO as well as submissions of the assessee, and the facts of the case, allowed the claim of deduction of interest u/s 24(b) after observing and holding as under:- "It was an admitted fact that security deposit taken by the appellant from the tenants was interest bearing i.e @. 6%. The facts shows that the security deposits taken by the appellant was more than 120 times of the monthly rent of .....

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tal! loans. Any interest bearing loan/capital taken for repayment of original loan partakes the character of original loan as explained and recognized in sec.24 of the IT Act. In my considered view, if interest is payable on amount repayable, such interest expenses is allowable as deduction u/s 24(b) of the Act Whether term used for the amount borrowed is ''Security deposit" or ''Borrowed Capital 'of "Borrowed loans". If interest is payable on security deposit .....

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bearing money borrowed and the term "Capital , "loan or "deposit" is immaterial. it is also immaterial whether the lender party was nor not in the business of money lending. The AO also raised a doubt as to whether the amount received as security deposit was utilized for repayment of original loan. The appellant has explained that the amount of security deposit taken was utilized only for the purpose of repayment of original loan. In support of its argument, the appellant ha .....

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from the tenants and loan, if any taken from other persons, was allowable as expenditure ujs.24(b) of the Act. The AO is directed to allow deduction of such interest expenses. " 6. Before us, Ld. DR strongly relied upon the order of the AO and submitted that the assessee has repaid the loan from the deposits received from the tenants of the property. Such deposits cannot be equated with the loan as the same was in lieu of usage of the property for rent. From the perusal of the lease agreeme .....

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as also received deposits from the tenants on which assessee had to interest. Therefore, such deposit was in the nature of loan only and hence interest paid on the deposits also which was utilized in repayment of the loan should be allowed. 8. We have heard the rival submissions and also perused the relevant finding given in the impugned orders, The assessee had purchased property by utilizing the loan of ₹ 11 crores taken from Reliance Industries Ltd., for a short period. This loan was in .....

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