Apr 262021


Nature and business of transaction The company is engaged in the business of construction, development of real estate projects, and renting of a commercial building.
Interest on loan for pre-construction period Rs 19,52,752/-
Interest due and paid during the financial year to corporation bank for the purpose of construction and letting out of commercial building project Rs 20,19,618/- The interest of unsecured loan taken from Mrs. Kaveri Bai

(Taken and used for the purpose of repayment of loan taken from corporation bank)

Rs 30,22,041/-
Total expenses claimed u/s 24(b)   Rs 69,94,411/-


Details as to unsecured loan: Borrowed monies from Mrs. Kaveri Bai and repaid the loan that was availed by the Assessee from Corporation Bank for the purpose of construction of a commercial building project.

Relevant rule – Section 24(b):

Sec. 24 of the Act lays down that income chargeable under the head “Income from house property” shall be computed after making some deductions. One of the deductions allowed u/s. 24(b) is as follows:

“Sec. 24(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 section 23(2) (self-acquired property etc.), 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 1st day of April 1999 and such acquisition or construction is completed 50[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 one lakh fifty thousand 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 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 installments for the said previous year and for each of the four immediately succeeding previous 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

o    such acquisition or construction of the property, or,

o    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.”

Analysis of the above provision:

  1. The expression used in sec. 24(b) is ‘property’ and not residential or commercial property. Therefore, irrespective of the nature of the property whether it is residential or commercial, the deduction has to be allowed under section 24(b) of the Act.

All the provisos to sec. 24(b) of the Act deal with property referred to in section 23(2), i. e., residential property. The proviso only carves out an exception to section 24(b) of the Act, in so far as it relates to property used for residential purposes and does not deal with the right of an assessee to get a deduction on interest paid on loans borrowed for the purpose of constructing a commercial property.


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