Thursday, July 28, 2016

Prepayment charges on home loans are deductible as 'interest' under Sec. 24(b): Mumbai ITAT

a) The assessee had been claiming deduction on account of payment of interest to six bankers from whom the assessee had taken loan for construction of property.
b) The assessee took fresh loan from Axis Bank which was utilized for exclusive purpose of repayment of loans to the aforesaid six parties. In the process of change over of lender, it paid prepayment charges and processing charges to these six bankers.
c) It claimed deduction of such prepayment charges and processing charges under Section 24(b). The AO disallowed assessee's claim. The CIT(Appeals) upheld order of AO. The aggrievedassessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
1) The only issue that needed to be decided was whether 'pre -payment charges' and 'processing fee' shall form part of 'interest' under section 24(b). The term 'interest' has been defined in section 2(28A) as under:

“Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized”