Legal Basis
As per Section 24B, interest paid on a home loan shall be allowed as a deduction at the time of computing income from house property.
Section 48, 49 and 55, suggest the manner of computation of capital gain and the cost which shall be considered for the purpose computing the capital gains. This section does not explicitly state whether the interest paid on a home loan can be considered as a cost of acquisition to compute capital gain on sale of house property.
In other words, Income Tax Act is silent whether an assessee can claim the double benefit of deduction under section 24B as well as adding the same interest in the cost of acquisition at the time of computing capital gain on sale so house property.
Decision of ITATs& High Courts
Various case laws are having different decision related to this exact question of double deduction of home loan interest.
ITAT Chennai Bench (ACIT v C.Ramabrahmam) in 2012
The assessee borrowed some funds for purchasing a house property. The interest paid on the said loan was claimed by the assessee as a deduction u/s 24(b). When the house property was sold, the interest paid on the said loan was treated as “cost of acquisition” and claimed as a deduction u/s 48 in computing the capital gains. The Assessing Offer held that as the interest had been allowed as a deduction u/s 24(b), it could not be allowed again in computing capital gains.
The CIT(A) upheld the view of the assessee. Deduction under section 24(b) and computation of capital gains under section 48 were altogether covered by different heads of income, i.e. income from ‘house property’ and ‘capital gains’. None of them excludes operative of the other. The interest in question was indeed expenditure in acquiring the asset. Since both provisions were altogether different, the assessee was entitled to include interest paid on housing loan for computation of capital gains under section 48 even though same had been claimed under section 24(b) while computing income from house property. The revenue’s appeal was dismissed by the ITAT, Chennai Bench and kept the view of CIT(A).
ITAT Bangalore Bench (Captain B L Lingaraju Vs. ACIT) in 2016
Taxpayer sold his house property which has resulted in a short-term capital gain. The income from such house is offered to tax in the previous years after claiming the deduction of interest paid on housing loan. The taxpayer at the time of computing capital gain included the interest paid on housing loan as a part of the cost of acquisition. The Assessing Officer has disallowed the claim of such interest as part of the cost of acquisition as the said amount of interest has already been claimed at the time of reporting income under the head income from house property and cannot be claimed again. The tax paper file appeal with the Commissioner of Income Tax Appeal and CIT (A) withheld the decision of the Assessing Officer. The taxpayer filed an appeal before the Tribunal on the ground that CIT (A) had not considered the decision of Karnataka High Court in the case of Shri Hariram Hotels where the Court had held that since the property was purchased out of a loan borrowed by the tax taxpayers, the interest paid on such loan was to be included in computing the cost of acquisition of the property.
The Tribunal’s mentioned that the taxpayer should have placed reliance on various other judgments of the Madras High Court, Delhi High Court and of other Tribunals. As there was a judgment of its own jurisdictional High Court, the Tribunal did not consider these other judgments as relevant to the case. Moreover, the Tribunal justified that in the case of Shri Hariram Hotels, High Court followed its original judgement in case of MaithreyiPai (CIT v/s MaithreyiPai 1985 152 ITR 247 Karnataka). In the case of MaithreyiPai, the taxpayer deducts the interest paid on loan received from directors for the purchase of shares, at the time of computing capital gains. The High Court held that the interest paid on the borrowings for the acquisition of capital assets must fall for deductions as the cost of acquisition. The tribunal followed the rationale behind the decision of the High Court in the case of MaithreyiPai and held, in the present case, the taxpayer was not eligible to claim interest paid on home loan as part of cost of acquisition in computing capital gain as the said interest was already allowed as a deduction from house property. No taxpayers under the scheme of the Act could be allowed deduction of the same amount twice.
Our Comments
A reference paragraph from the decision of The Apex Court in the case of Escorts Ltd & Another v Union of India (1993) 199 ITR 43 (SC) gave its observations on the possibility of claiming double deductions under the Income-tax statute:
“In our view, there was no difficulty at all in the interpretation of the provisions. The mere fact that a baseless claim was raised by some over-enthusiastic assessees who sought a double allowance or that such claim may perhaps have been accepted by some authorities is not sufficient to attribute any ambiguity or doubt as to the true scope of the provisions as they stood earlier…..
…A double deduction cannot be a matter of inference; it must be provided for in clear and express language regard being had to its unusual nature and its serious impact on the revenues of the State.”
The position of claiming expenditure under both the head of income would certainly invite litigations. So, one would have to consider the cost of litigation with the benefit of possible tax saving at the time of claiming a double deduction. The case is strong in favour of assessee when he was not able to claim complete amount of interest paid as a deduction from house property (due to subject to a limit of Rs. 2 Lakhs or Rs. 30,000). Since the excess interest has not been allowed as a deduction earlier so it would not amount to double deduction.
