Where Assessee claimed deduction of interest on borrowed capital against rental income of house property, renting house to his own son and daughter, partially allowed u/s 24(b)

Facts of the case:

• Assessee, being an Individual, had claimed a loss of Rs. 15,32,120 on a/c of interest on borrowed capital.
• On the basis of Field Enquiry by the Assessing Officer (AO), found that rent is to be obtained from Assesee’s major Son and Daughter.
• Assessee was charging rent from his own Son and Daughter, residing with their family along with the Assessee.
• AO was of the opinion that the complete arrangement was only made to reduce tax, the same has to be ignored, treating the House Property as Self Occupied House Property and restricted the claim u/s 24(b) to Rs. 1,50,000.
• On further enquiry, Assessee was unable to answer the questions like
  • What is the total area as well as composition?
  • How many people were residing?
  • What is the area allotted to each tenant? and so on.
• However, both the tenants were financially independent, sharing the liability of their father. Instead of transferring the funds to the father, they were making the tax reduction of their father.

Decision held ITAT Bench (Mumbai):

In the view of Rent Agreement, House is considered as both a Self-Occupied as well as Let Out Property. The interest claimed (Rs. 21.62 lakhs) is against the entire property, which therefore cannot be allowed in full against the rental income and shall have to suitably proportioned, thus the interest claimed was allowed in proportion u/s 24(b) restricting to Rs. 1,50,000 only.

Conclusion:

If the Assessee is competent enough to prove the genuineness of the transaction, by proving that he has rented out complete property, then only he can claim deduction of full amount otherwise the amount has to restricted to Rs. 1,50,000 u/s 24(b) [Rs 2,00,000 from AY 2020-21].

Source: [2020] 115 taxmann.com 179 (Mumbai – Trib.)