Purchasing a residential property these days is really a dream come true. Few years back government started giving incentive under section 24 of the income tax act by allowing interest on housing loan to be deducted from the total income of the relevant assessment year subject to a limit presently at Rs. 1, 50,000 per annum. This way state tried to help citizens to purchase residential houses by reducing their tax burden. Those who took housing loan to buy houses got benefited under section 24(b) by deducting interest paid on housing loan from total income during the repayment period.
Now the question raised was will the same interest for which benefit was availed u/s 24(b) become part of the cost of acquisition of the house so purchased at the time of sale resulting in higher cost of acquisition and lesser capital gain. In case the interest is allowed as part of cost of acquisition of house this will mean claiming benefit twice for the same expense once u/s 24(b) and again under section 48 while computing capital gain.
The department disallowed the benefit u/s 48 while computing capital gain with the explanation that an expense cannot be allowed as deduction twice from the income of the assessee. However, the ITAT Chennai resolved this issue in their recent judgment the relevant part of the decision is discussed as under:
In a recent judgment by Income Tax Appellate Authority Chennai Bench ‘C’ in the case of Assistant Commissioner of Income-Tax, Business Circle-IV vs. C. Ramabrahmam the bench decided the case in favor of assessee. The facts being that the assessee had added the amount paid as interest on housing loan already claimed as deduction us 24(b) to the cost of acquisition of the house while calculating the tax to be paid on capital gain u/s 48.
The assessing officer denied the claim of the assessee and added back the interest amount to the total income reason given was that since the assessee has already claimed the benefit of interest paid on housing loan u/s 24(b) the same cannot again be deducted from capital gain. In other words the contention of the assessing officer was that the interest paid on housing loan cannot be allowed as deduction twice once u/s 24(b) and again u/s 48.
Brief facts of the case are:
Assessee had purchased a house during the year 2003 and sold the same in the year 2006-07. Assessee had taken a loan for the purchase of the said house and had paid interest on the said loan. At the time of filing income tax return the assessee use to claim deduction of the amount of interest paid on housing loan during the relevant previous year under section 24(b).
Since the sale of property resulted in long term capital gain the assessee while calculating the tax liability added the cost of interest to the purchase value of the house for determining the cost of acquisition of the said house.
Assessing officer while assessing the income of the assessee excluded the amount of interest from the cost of acquisition of the said house thus amount of taxable long-term capital gain was reset at a higher value resulting in higher tax liability.
The grounds on which the assessing officer disallowed interest paid on loan to be part of the cost of acquisition of the house was since the assessee had already claimed deduction of such interest under section 24(b) and hence the same cannot be deducted under section 48 while computing of the capital gain.
Aggrieved by the decision of the assessing officer the assessee preferred an appeal against the assessment order, wherein additions made by the assessing officer were deleted by the CIT (A). The view of the CIT (A) was that the assessee can add the amount of interest paid on housing loan, even if claimed as deduction u/ 24(b), to the acquisition cost of the house for the purpose of the computation of capital gain under section 48.
The departmental representative of the Revenue reiterated the findings of the assessing authority as well as grounds of appeal and prayed for the restoration of the additions made by the Assessing Officer. He further submitted that once assessee had availed benefits under section 24(b) of the Act he cannot add the same amount for the purpose of computing capital gains under section 48.
After considering the submissions of both the parties including the findings of CIT (A) with respect to capital gain, it transpires that there is hardly any dispute that the assessee had availed the loan for purchasing the property in question. Since the assessee had shown the income under the head ‘house property’, he preferred to raise the claim of deduction under section 24(b) of the “Act” which reads as under:
"(b) Where the property has been acquired, constructed, repaired, renewed or reconstructed With borrowed capital, the amount of any interest payable on such capital:" There is no quarrel that since the assessee's claim of deduction was under the statutory provisions; therefore, he succeeded in getting the same. However, after the property was sold, he also chose to make the interest part of cost of the acquisition amount while computing capital gains under section 48 of the "Act", which reads as under:
"48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:
(i) Expenditure incurred wholly and exclusively in connection with such transfer;
(ii) The cost of acquisition of the asset and the cost of any improvement thereto:" After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the "Act" are altogether covered by different heads of income i.e., income from 'house property' and 'capital gains'. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from 'house property', whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the "Act".
Therefore, the CIT (A) has rightly accepted the assessee's contention and deleted the addition made by the Assessing officer. Hence, qua this ground, we uphold the order of the CIT (A).”
In view of the above judgment it is clear that the benefit of interest paid on housing loan can be availed both under section 24(b) as well as under section 48. The only precaution an assessee has to take is to preserve records with respect to interest paid on housing loan availed to prove the claim.
Note: Only interest paid on housing loan has been discussed out of the full order.
DILIP K RAINA –Chartered Accountant
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