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2015 (6) TMI 568 - ITAT MUMBAI

2015 (6) TMI 568 - ITAT MUMBAI - TMI - Interest paid on borrowed capital (from bank) invested in a house property - claim against interest income assessable u/s. 56, i.e., in computing the income chargeable under the head of income ‘income from other sources’ - disallowance of interest paid and claimed as deduction against the interest receipts - Held that:- In the present case, section 24(b) governs the deduction on account of interest on borrowed capital for the purpose of acquiring house prop .....

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ney lent and saving interest to bank, or, alternatively, assuming borrowing for investment in house property, being at par, both financially (perhaps, that is – the interest rates on borrowing and monies lent being not known), as well as under the tax regime. Assuming a tax equivalence, while none existed, then, thus, represents the fundamental fallacy in the assessee’s argument and case, i.e., the underlying assumption that the two arrangements being financially equivalent (or nearly so), would .....

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/implications, and carry different risks. The two streams of income, flowing from vastly different sources, are subject to different computational provisions under the Act, and bear different risk profiles. To say, therefore, that interest on a borrowing applied toward house property be deducted against the income from the property on the security on which the same is raised, is misplaced. Rather, the claim of interest on borrowing applied to a particular source of income (house property) agains .....

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e Order by the Commissioner of Income Tax (Appeals)-11, Mumbai ( CIT(A) for short) dated 28.02.2013, dismissing the Assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2010-11 vide order dated 11.01.2013. 2. The only issue arising in the instant appeal, agitated per its two grounds, as under, is the maintainability or otherwise in law of the assessee s claim of interest paid on borrowed capital (from bank) inves .....

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he provisions of law, the learned Commissioner of Income Tax (Appeals) has further erred in confirming application of section 14A for disallowing such interest, whereas the investment was not made for earning any exempt income. It was made for acquiring house property. 3. The admitted facts are that the assessee s borrowing from bank was toward and, in fact, utilized for/invested in a residential house, income from which is assessable u/s.22. The property being self occupied, the assessee in fac .....

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erest. Correspondingly, he would not suffer interest on the bank borrowing. In fact, that is what he had intended to, but could not, as he was not able to retrieve the loan money back from the person to whom he had lent, in time, necessitating a temporary arrangement by way of bank borrowing. However, the two arrangements are at par, so that interest suffered, i.e., in excess of ₹ 1,50,000/- (Rs.14.19 lacs), ought to be adjusted in computing his actual income . Reliance is placed on the de .....

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geable to tax there-under, is to be computed by classifying it, according to the nature of the income, under various heads of income, with the income not covered under any specific head falling to be classified under the residuary head, i.e., income from other sources . Further, income under any head of income is to be computed following the computation provisions as specified for the relevant head, which stand classified as various parts of Chapter IV of the Act, i.e., Chapter IV-A to IV-F. Onl .....

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condition/s specified for deduction, to which the same is therefore subject. In the present case, section 24(b) governs the deduction on account of interest on borrowed capital for the purpose of acquiring house property or improvement thereto. The same, however, limits the deduction in respect of self occupied property (SOP) at ₹ 1,50,000/-. This, in fact, even as observed during hearing, is what had led to what we may term as an imbalance as per the assessee s plans. But for this limit, .....

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e, while none existed, then, thus, represents the fundamental fallacy in the assessee s argument and case, i.e., the underlying assumption that the two arrangements being financially equivalent (or nearly so), would lead to a similar or same consequence in law as well. We have already clarified that income under the Act has to be necessarily computed following the computation provisions prescribed under the relevant head of income, i.e., under which it falls. That the two arrangements may be fin .....

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d, at best, read with s. 57(iii), and there is no need to travel to s. 14A of the Act; there being no income not forming part of the total income for invocation of the said section, to though either no benefit to the assessee or prejudice to the Revenue. 4.2 The issue under reference is in fact covered against the assessee, as again observed by the Bench during hearing, by the decision by the apex court in CIT vs. Dr. V. P. Gopinathan [2001] 248 ITR 449 (SC). In the facts of that case the assess .....

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s, as in the present case, between the interest earned and paid. Would it matter, the court wondered, if the assessee had instead taken a loan from a different bank or against any other security? The interest paid did not reduce the income by way of interest on fixed deposit placed by him with the bank in any manner. 4.3 Coming, next, to the decision in the case of Raj Kumari Aggarwal (supra). In the facts of that case the assessee borrowed on the security of the bank FDRs, and gifted the amount .....

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two cases are thus only apparently similar, and bear material differences. The borrowing in that case was not invested in any house property or toward any source of income. How could, one may ask, a borrowing be gifted? The assessee only intended to, and did indeed, gift the property represented by the FDRs, by, instead of closing the FDRs prematurely, borrowing against them in view of the latter course being more profitable, i.e., in terms of the net interest income. The borrowed capital could .....

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t on the basis of any financial equivalence, as contended by the assessee before us, but of a direct nexus, meeting, thus, the stipulation of s. 57(iii). This is as it found that the borrowing would directly impact the bank interest inasmuch as it (the borrowing) only saved interest. The decision in fact has support of the decisions by the apex court, as in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) and Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT [1997] 227 ITR 172 (SC). .....

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