[Opinion] Finance Bill 2023 – Double Deduction Plugged

Authored by S. Krishnan | CA

Table of Content

1. Introductory Remarks

2. Order passed by Asstt. CIT v. C. Ramabrahmam [2012] 27 taxmann.com 104 (Chennai-Trib)

3. Remedial measure adopted by the Legislature

4. Concluding Remarks

1. Introductory Remarks

Sometimes intention of the Legislature either is not expressed in clear terms or the loopholes in the language of the section are being taken advantage by the assessees and such stand taken by the assessees also have the blessings of judicial authorities in the sense that such stand gets recognised by the decisions rendered by such judicial authorities. One such area is deduction claimed by the assessees towards interest paid on borrowed capital with which the property had been acquired, constructed, repaired, renewed or reconstructed out of income chargeable to tax under the head “Income from house property “under section 24(b) of the Income-tax Act (the Act). The same amount is also being claimed under section 48 of the Act as part of cost of acquisition.

2. Order passed by Asstt. CIT v. C. Ramabrahmam | [2012] 27 taxmann.com 104 (Chennai-Trib)

The Chennai Bench was the first judicial authority to support the stand of the assessee that deduction towards interest paid can be claimed both under section 24(b) and section 48 of the Act.

The ITAT Chennai Bench in the case of C. Ramabrahmam (supra) held that an assessee can include interest paid on housing loan for computation under section 48 even though said amount has already been deducted under section 24(b) while computing income from ‘house property ‘

The Tribunal made the following observations at para.8 of its order as under-

“After perusing the above said provisions, we are of the opinion that deduction under section 24(b) and computation of capital gains under section 48 of the “Act” are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Further, a perusal of both the provisions makes it unambiguous that none of them excludes operative of the other. In other words, a deduction under section 24(b) is claimed when concerned assessee declares income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. We do not have even a slightest doubt that the interest in question is indeed an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee in the instant case is certainly entitled to include the interest amount at the time of computing capital gains under section 48 of the “Act”. Therefore, the CIT(A) has rightly accepted the assessee’s contention and deleted the addition made by the Assessing officer.”

A few other Tribunal benches followed suit.

3. Remedial measure adopted by the Legislature

This double deduction has been plugged by the Finance Bill 2023 introduced today by adequately addressing this issue in clause 22 of the Bill as under the heading “Prevention of double deduction claimed on interest on borrowed capital for acquiring, renewing or reconstructing a property.”

1. Under the existing provisions of the Act, the amount of any interest payable on borrowed capital for acquiring, renewing or reconstructing a property is allowed as a deduction under the head “Income from house property” under section 24 of the Act.

2. Section 48 of the Act, inter alia, provides that the income chargeable under the head “Capital gains” shall be computed, by deducting the cost of acquisition of the asset and the cost of any improvement thereto from the full value of the consideration received or accruing as a result of the transfer of the capital asset.

3. It has been observed that some assessees have been claiming double deduction of interest paid on borrowed capital for acquiring, renewing or reconstructing a property. Firstly, it is claimed in the form of deduction from income from house property under section 24, and in some cases the deduction is also being claimed under other provisions of Chapter VIA of the Act. Secondly while computing capital gains on transfer of such property this same interest also forms a part of cost of acquisition or cost of improvement under section 48 of the Act.

4. In order to prevent this double deduction, it is proposed to insert a proviso after clause (ii) of the section 48 so as to provide that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA.

5. This amendment is proposed to take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.

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4. Concluding Remarks

The amendment proposed is a laudable and in tune with the intention of the legislature. As the amendment has been proposed from the assessment year 2024-25 only it is prospective in nature and the legislature has been magnanimous by not making the amendment retrospective and this is a good sign.

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