Monday, April 13, 2015

Interest paid on refundable deposits of tenants is allowable u/s 24 if deposits are used to repay housing loan


Interest paid on refundable security deposits received from tenants is allowable under section 24(b) if deposits are used to repay loan taken for purchase of house property.

Facts:
a)The assessee had purchased immovable property after utilizing the unsecured loan taken from Reliance Industries ltd.

b)Thereafter, properties were let out and in terms of agreement refundable security deposits were received from tenants. These deposits were interest bearing where the assessee had to pay interest @ 6%. These deposits were utilized for the repayment of loan taken form the Reliance industries.

c)Assessee claimed deduction under Section 24(b) for interest paid on refundable deposits received from tenants on the ground that it was borrowed capital utilized for the repayment of old loan.

d)The Assessing Officer disallowed interest under section 24(b) but the CIT(A) allowed the claim of assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In order to decide issue of allowance under Section 24(b) it had to be decided as to whether refundable deposits received from tenants could be reckoned as "borrowed capital" within the meaning of section 24(b)?. The word "borrow" as defined in Law lexicon (2nd edition) means to take or receive from another person as a loan or on trust money or other article of value with the intention of returning or giving an equivalent for.

2)A person can borrow on a negotiated interest with or without security. If the deposits are interest bearing and are to be refunded back, then debt is created on the assessee which is liable to be discharged in future.

3)Here the concept of debt had to be understood as per the terms of the parties. If the deposits had been security deposits 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 could not be equated with the borrowed money, because then there was no debt on the assessee.

4)The moment a deposit is accepted on interest, then it partakes the character of borrowed money. It was an undisputed fact that these interest bearing deposits had been utilized for repayment of borrowed capital. Thus, interest paid on refundable deposits would be deductible under Section 24(b). – ITO V. STRUCTMAST RELATOR (MUMBAI) (P.) LTD. [2015] 56 taxmann.com 107 (Mumbai - Trib.)

No disallowance of loss claimed in return filed u/s 153A after the due date prescribed under sec. 139(1)


Where assessee did not file its return under section 139(1) as he was statutorily required to file its return under section 153A, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under Section 139(1).

Facts:


a)A search and seizure operation was carried out by the department on assessee. Pursuant to the search, notice under Section 153A was served.

b)Assessee had not filed any return of income under Section 139(1) for the reason that assessment proceedings had abated in view of the second proviso to section 153A(1).

c)The assessee had claimed loss in the return filed under Section 153A but such claim was disallowed by Assessing Officer ('AO') by observing that business loss was not allowed to be carried forward since the return was filed by assessee after the due date prescribed under Section 139(1).

d)On appeal, the CIT (A) upheld the order of the AO and the aggrieved assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:

1)Section 153A provides that where a search is initiated under section 132, AO shall issue notice to assessee requiring him to furnish the return of income in respect of six assessment years.

2)It is specifically prescribed that the provisions of Section 153A, so far as may be, apply accordingly as if such return was a return required to be furnished under section 139.

3)The second proviso to section 153A(1)(b) provides that if on the date of search or requisition under section 132 or 132A any assessment or re-assessment proceedings relating to that particular assessment year falling within the six assessment years is pending, then the pending proceedings for the regular assessment shall stand abated and fresh assessment can be done only under section 153A.

4) The legislature has particularly used the words 'shall abate' and specifically it is also mentioned that return has to be filed under section 153A(1)(a) and such return is to be treated as the return of income required to be furnished under section 139.

5)In such circumstances, assessee was not supposed to file its return of income under section 139(1) because he was statutorily required to file return of its income in response to notice under section 153A.

6)Therefore, loss claimed by assessee could not be disallowed on ground that return was filed after due date prescribed under sec. 139(1).- MAITHANISPAT LTD. V. DEPUTY CIT - (2015) 55 taxmann.com 444 (Kolkata - Trib.)