Loan Prepayment charges allowed as deduction from house property income

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INCOME TAX APPELLATE TRIBUNALMUMBAI BENCHES “G”, MUMBAI

Before Shri R. K. Gupta, JM and Shri R. S. Syal, AM

ITA No.7192/Mum/2010

Asst.Year 2006-2007

M/s.Windermere Properties Pvt.Ltd.

Vs.

The Dy. Commissioner of Income-tax

 

The assessee claimed deduction of Rs. 11.05 crore u/s 24(b) of the Act. The Assessing Officer did not allow deduction of Rs. 1.56 crore paid as prepayment charges for the closure of the loan account which was taken for acquisition of property fetching the extant house property income. Under these circumstances the question arises as to whether such amount of `prepayment charges’ paid to HDFC for closure of loan account is deductible u/s 24(b) of the Act.

It is noticed that the assessee obtained loan from HDFC Limited for acquisition of property. Later on it arranged the money from other sources and repaid the loan which was taken for acquisition of property. The bank accepted the early repayment of loan on receipt of prepayment charges. By such repayment, the assessee managed to wipe out its interest liability in respect of the loan, which would have otherwise qualified for deduction u/s 24(b) during the continuation of loan. It is obvious that these prepayment charges have live and direct link with the obtaining of loan which was availed for acquisition of property. It is beyond our comprehension as to how the amount paid as interest for the loan taken is allowable as deduction but the amount paid as prepayment charges of the very same loan is not deductible. In our considered opinion the payment of such `prepayment charges’ cannot be considered as de hors the loan obtained for acquisition or construction or repair etc. of the property on which interest is deductible u/s 24(b) of the Act. Both the direct interest and prepayment charges are species of the term `interest’. We, therefore, set aside the impugned order on this issue and order for the grant of deduction.