Income Tax Appellate Tribunal - Mumbai
Deegee Software P.Ltd, Mumbai vs Dcit 5(1), Mumbai on 20 January, 2017
P M oO -- ch ] No IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI "'D" BENCH, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER, ITA. No. 7553/Mum/2014 (Assessment Year:2011-12) Deegee Software Pvt. Ltd Vs. | DCIT-5(1), 44 Ajaydeep Building, Aaykar Bhawan 240, Perin Nariman Street, Churchgate, Mumbai | Mumbai-400001 Pan No. AABCD5971E Appellant Respondent anfienef at az a /Appellant By:Shri Vipul Joshi Deaelf at six a/ Respondent By :Shri Purushottam Kumar, Sr.AR @t ARRa/Date of Hearing : 10.01.2017 Ht ARRa/Date of Pronouncement :20.01.2017 ORDER
ER RAVISH SOOD, J.M:
The present appeal is directed against the order of the CIT(A)-9, fumbai, dated 22.10.2014, which in itself arises from the assessment rder passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 for short 'Act).
The brief facts of the case are that the assessee company had e-
led its return of income on 29.09.2011, declaring total income of : ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] Page 2 Rs.82,66,531/-. The case of the assessee was taken up for scrutiny ssessment u/s 143(2) of the 'Act'. The assessee in its tTeturn of income' had raised a claim of deduction of Rs. 81,26,909/-, towards nterest on borrowed capital' under Sec. 24(b) of the 'Act'. The A.O uring the course of the assessment proceedings, while deliberating n the claim of deduction raised by the assessee u/s 24(b), being of ne view that as the Property against which the assessee had claimed dk duction of said Interest was demolished during the year under c : nsideration, and as such, had remained in existence and let out ot ly for the first 6 months, therefore the claim of the assessee towards 1 terest on borrowed capital could only be allowed for the period of 6 onths, and thus was liable to be restricted to 50%. The A.O in the b ackdrop of his strong conviction, thus called upon the assessee to e plain as to why its claim of interest pertaining to the period when the Property was not in existence, may not be disallowed. The assessee submitted before the A.O that Sec. 24, nowhere contemplated the © continuing existence of a property during the whole of the year, as a precondition for claim of deduction of interest pertaining to borrowed capital, which is utilized towards acquiring, constructing, repairing, renewing or reconstructing of such Property, and as such, its claim for deduction under Sec. 24(b) in the return of income, was well in order.
The submissions of the assessee did not find favor with the A.O, who beihg persuaded by his view that the entitlement of the assessee towards claim of interest on borrowed capital would stand jeopardized at the very point of time such property ceased to exist during the year the income at Rs. 1,76,22,430/-.
ass con dis} ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT} Page 3 The assessee being aggrieved with the assessment order, therein ailed the same before the CIT(A), who not finding favor with the itentions of the assessee, therein upheld the order of the A.O and missed the appeal.
The assessee being aggrieved with the order of the CIT(A), had thus carried the matter in appeal before us. That during the course of appellate proceedings, it was submitted by the Ld. Authorized Representative (for short 'A.R)) for the assessee that in the absence of any mandate in Section 24, as regards disallowance of any part of the 'Interest payable' on borrowed capital, which had been utilized by the ass essee for acquiring, constructing, repairing, renewing or re-
constructing a property, the income of which is chargeable under the head Income from house property', for the reason that the property had ceased to exist during part of the year, no such disallowance was called for in the hands of the assessee. The Ld. A.R in the backdrop of his aforesaid submissions, therein averred that the A.O by misconceiving and misconstruing the scope and gamut of Sec. 24, had gravely erred in law and disallowed 50% of the claim of the assessee towards interest on borrowed capital, on the premise, that though the property under consideration was in existence and let out for the first 6 months during the year under consideration, however the same having been demolished thereafter, thus ceased to exist during the remaining part of the year, and as such, no deduction of interest could be allowed for the period during which the property was not in existence during the year under consideration. That on the other hand, the Ld. Departmental Representative (for short 'D.R}, therein submitted that as the property under consideration, which though was |in existence during the first 6 months of the year, was thereafter demolished, and such was no more in existence for the remaining 6 ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] Page 4 tnonths during the year, therefore the A.O had rightly disallowed 50% oO f the claim of deduction so raised by the assessee under Sec. 24(b), ind the same had rightly been upheld by the CIT(A).
bu) fore us pertains to the scope and gamut of Sec. 24(b), i.e the allowability of interest pertaining to borrowed funds, which had been utilized by an assessee for acquiring, constructing, repairing, renewing or reconstructing an immovable property, the income of which is. chargeable under the head Income from house property'. That Sec. 2A, the scope and gamut of which we have been called upon to atijudicate, reads as under:-
'[Deductions from income from house property.
Income chargeable under the head "Income JSrom house Property"
shall be computed after making the following deductions, namely:-
(a) asum equal to thirty per cent of the annual value;
(b) where the Property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest Payable on such capital.
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees;
Provided further that where the Property referred to in the first Proviso is acquired or constructed with capital borrowed on or after the Ist day of Apri, 1999 and such acquisition or afore entitl borra ITA No:7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] Page 5 construction is completed [within three years from the end of the financial year in which capital was borrowed] the amount of deduction under this clause shall not exceed [two lakh rupees].
Explanation- Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the year in the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for such each of the four immediately succeeding years.
Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed , specifying the amount of interest payable by the assessee for the Purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation- For the purposes of this proviso, the expression "new loan" means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital."
We are of the considered view that from a bare perusal of the said statutory provision, it can safely be concluded that the ement of an assessee to claim deduction of 'Interest payable' on wed capital, which has been utilized for acquiring, constructing, ipon to adjudicate upon the Scope and domain of Sec. 24(1)(vi) [pari ateria to Sec. 24(b)], then the CBDT on being called upon to put to e le the dichotomy generated by the Income-tax officers, who had ed construing the term 'Payable' as 'Paid' and allowed claim of duction of 'Interest on borrowed capital', not when the liability to such interest crystallized, i.e the interest became 'Payable', but nly when the same was 'Paid', therein had stepped in and came up a Circular, wherein it was clarified that the term 'Payable' had to © Strictly construed, as per its plain meaning, and the same could not substituted by the term 'Paid'. The relevant extract of the CBDT rular No. 363 Dated - 24-06-1983, read as under:-
house Property. Since the word used is Payable' deduction under Section 24/] Nvi) would be on the basis of accrual of interest which would start running from the date of the drawal of the advance."
on such capital is allowed in computing the income from ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] | Page 7 | gamut of Sec.24, to drive home the fact, that the revenue has to tly interpret a Statutory provision, as per its plain and literal ing, without adverting to any addition or subtraction of any word the text of the statutory provision. Thus, in the backdrop of such of interpretation, we would now advert to the scope and gamut of ability of Interest on borrowed capital', in context of the issue involved in the present case.
€ are of the considered view that though at the first blush, on a reading of Sec. 24, no such precondition emerges, from where it be gathered that for allowability of Interest on borrowed capital', roperty which had been acquired, constructed, repaired, renewed
-constructed, should be existing during the year after it has been /let out, nor on such prima facie perusal, we come across any embargo, which therein contemplates that despite the fact an see had satisfied all the requisite conditions under Sec. 24, he however stand disqualified from raising the claim, for the n that the property had ceased to be in existence. We are however of the considered view, that a careful perusal of Section 24, which contemplates that the deductions are to be allowed at the time puting the Income chargeable under the head. Income from property', thus presupposes the very existence of the 'Annual ' of the property, failing which, the entitlement of the assessee 'Act', itself requires the existence of the property, therefore, we find ourselves to be in agreement with the view of the A.O, that extent where a property is not in existence during the whole hen, in the backdrop of the absence of the 'Annual Value', there ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] Pages emains no occasion for computing the income of the assessee under the head Income from house Property', and thus no claim for deduction under Sec. 24(b) can be raised. However, such an interpretation cannot be transposed and read into in a case as that of , € present assessee before us, where the Property which is though in existence during part of the year, had however ceased to exist | .
fi iereafter, because the very existence of the Property during any part _ of the year would therein render it eligible for determination of its 'Annual value' under Sec. 23, and resultantly. entitle the assessee to ¢laim deduction towards Interest on borrowed capital' under Sec. 4+(b). Thus, to be brief and explicit, we are of the considered view that A$ long as the 'Annual value' of a property can be determined under CI Péc. 23, there would be no embargo as regards claim of Interest on yorrowed capital' under Sec. 24(b). We are further of the considered iew, that though a restriction as regards the quantum of deduction of mterest on borrowed Capital' in Tespect of certain 'residential eroperties', is provided in the first proviso of Sec. 24 of the 'Act', Owever nothing emerges from the Statute, which therein contemplates the jeopardizing of the claim of the assessee towards interest on borrowed capital, in a situation as that in the case of the present assessee, where though the property was in existence during part of the year, but thereafter had ceased to exist during the Temaining part of the year. We are of the considered view, that in the absence of anything being provided in the statute, as regards restricting the entitlement of the assessee towards the 'Interest on cas pra legi sta ITA No.7553/Mum/14 A.Y. 2011-12 (Degree Software Pvt. Ltd. vs. DCIT] Page 9 SUS OMissUS Can also not be Supplied while interpreting a statutory vision, as the same remains within the exclusive domain of the slative wisdom, we therefore refrain from reading into the aforesaid tutory provision, a restriction/embargo, which is consciously, purposively and intentionally not made available on the statute by the legislature in all its wisdom. We being not oblivious of the fact, that by subscribing to the view adopted by the lower authorities, and therein upholding the pro rata disallowance of Interest on borrowed capital', for the part of the year during which the property of the assessee had ceased to be in existence, we would be doing violence to the literal interpretation of the aforesaid statutory provision, which would blatantly militate against its plain meaning. We thus, in light of our aforesaid observations are unable to persuade ourselves to subscribe to the findings of the lower authorities, who we are of the considered view, had €rroneously restricted the claim of the assessee towards interest payable on the borrowed capital, only for the part of the year during which the property had remained in existence. We are persuaded to observe that if the legislature would have intended to restrict such a claim of the assessee, then the same would have specifically been provided for in the statute. We are thus of the con the sidered view that the CIT(A) had erred in sustaining the order of A.O, and thus misinterpreting the scope and gamut of Section 24(b) had wrongly disallowed 50% of the aforesaid 'Interest on borrowed capital' of Rs. 40,63,453/- in the hands of the assessee. We thus set aside the order of the CIT(A), and allow the appeal filed by the assegsee.
8.
That the appeal filed by the assessee is allowed.
Order pronounced in the open court. 20/01/2017 ITA No.7553/Mum/14 A.Y. 2011-12 [Degree Software Pvt. Ltd. vs. DCIT] Page 10 Sd/- Sd/-
(B.R. BASKARAN) | (RAVISH SOOD) ACCOUNTANTMEMBER JUDICIAL MEMBER Mumbai, Dated :20.01.2017 phit kumar at PARTE ardtfter | Copy of Order Forwarded to:-
TRTSRG / Revenue 2 / Assessee 3 HART Agee / Concerned CIT 4, STAR sqad- atte / cep (A) 5, auf afer, Srtette ofezor, tag / DR, ITAT, Mumbai
6. Ws Wisc / Guard file.
By order/3e3] a SUMS Gollan SANE ec ere, a |