ORDER
1. These six appeals filed by the revenue against consolidated order dated 25-7-2003 of the learned Commissioner (Appeals)-XXV, New ” Delhi, for the assessment years 1998-99 and 2001-02, involve common issue and the same therefore, are being disposed of by this single-consolidated order, for the sake of convenience.
2. The assessees are co-owners of the lease-hold rights in respect of a building in plot No. 2, Block-K, Connaught Circus, New Delhi (hereinafter referred to as (“the property”) having acquired the lease-hold rights from the Government. The assessees had sublet the property to one M/s. Rhone Poulence (India) Ltd. (hereinafter referred to as ‘RPIL’). The sub-tenant, RPIL was paying a rent of Rs. 2.66 lakhs per annum, which was the agreed rent between the assessees and the sub-tenant. The property was capable of fetching much greater rent than what was being paid by the sub-tenant. The assessees could not get back possession from the sub-tenant as the tenancy was subject to the Delhi Rent Control Act (hereinafter referred to as ‘DRCA’) and the assessees have to resort to proceedings for recovery of possession only in accordance with and to the extent permitted under the DRCA. The assessees paid a sum of Rs. 1.65 crores to RPIL and in consideration of receipt of such payment RPIL surrendered vacant possession of the property. The assessees borrowed moneys to make payment to RPIL and paid interest on such borrowing. The assessees let out the property afresh by way of sub-lease to others and derived an income of Rs. 1.34 crores per annum. The co-owners of the lease-hold rights offered their share of rental income to tax under the head ‘Income from house property’. All the co-owners had claimed deduction under Section 24(l)(vi) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) as it existed prior to its deletion by the Finance Act, 2001 with effect from 1-4-2002, while computing income under the head ‘Income from house property’.
3. Section 24(l)(vi) of the Income Tax Act, reads as follows:
24. (1) Income chargeable under the head ‘Income from house property’ shall, subject to the provisions of Sub-section (2) be computed after making the following deductions:
(vi) Where the property has been acquired or constructed, repaired, renewed or re-constructed with borrowed capital, the interest paid on such capital.
4. The question for consideration in all these appeals is as to whether the assessees are entitled to claim deduction under Section 24(1)(vi) of the Act, the amount of interest they paid on moneys borrowed to pay RPIL, from the income chargeable to tax under the head ‘Income from house property’.
5. Notice of hearing of these appeals were sent by Registered Post A. D. to the assessees at the address given in Form No. 36. Till date acknowledgement of service has not been received nor have the postal letters have been returned un-served. In the circumstances service of notice is presumed. None appeared for the assessees when the case was called for hearing. We, therefore, proceed to decide the appeals ex parte, on merits after hearing the learned departmental Representative.
6. The claim of the assessees for deduction was disallowed by the assessing officer for the reason that the money paid by the assessees to RPIL cannot be said to be for acquiring any property. According to the assessing officer it was only the moneys borrowed and paid to owner of the same property for acquiring same rights from him that can be considered under Section 24(1)(vi) of the Act. According to the assessing officer, the sub-tenant had no such rights, which he could part with for consideration to others. The assessees had placed reliance on the decision of the Hon’ble Delhi High Court in the case of Bawa Shiv Charan Singh v. CIT “, which was distinguished by the assessing officer as a case where capital gain on sale/acquisition of tenancy rights was the issue and not a case of deduction under Section 24(1 )(vi) of the Act. The Commissioner (Appeals) allowed the claim of the assessees for the following reasons:
I have carefully considered the submissions of the appellant and facts on records. I am convinced that tenancy right in a property is a capital assets and the appellants acquired more tenancy rights by paying borrowed funds to Rhone Poulence. In this view of the matter I am in agreement with my predecessor Commissioner (Appeals)-XXV, Delhi, in holding that the interest amounts paid by the appellants are allowable as deduction under Section 24(l)(vz). Accordingly ground Nos. 1 to 4 of the appellant are allowed and the additions made by the assessing officer by disallowing the interest claim are deleted.
Hence, the present appeals by the revenue before the Tribunal.
7. We have heard the submissions of the Learned departmental Representative, who principally reiterated the stand as taken by the assessing officer. We have considered the submissions. In the present cases, the assessees had only a lease-hold interest over the property. As lessees they had the right to sublet and derive rental income from the property. This rental income was brought to tax under the head ‘Income from-house property’. Under Section 24(1)(vi) of the Act where capital is borrowed to acquire the property the rental income from which is brought to tax under the head ‘Income from house property’, the interest paid on such borrowed capital is allowed as a deduction. The crucial expression used in Section 24(1)(vi) of the Act is “where the property has been acquired”. In the present case what was acquired by the assessees was a lease-hold right. Admittedly the money in question was not paid to the person from whom lease-hold rights were acquired. By granting sub-lease of the property, the assessees did not loose their lease-hold rights over the property. They continued to be lessees of the property. The moneys paid to the sub-tenant was only to get vacant possession of the property and terminate the sub-lease. By doing so, the assessees did not acquire any interest over the property. The assessees paid the sum in question for better augmenting their income from the property. They incurred the expenditure in question as a prudent man would do considering the time involved in getting back possession through court of law and the demand of the assessees for eviction being found to be in conformity with the provisions of the DRCA. The borrowing was, therefore, rightly held by the assessing officer to be not in connection with acquiring the property and the claim for deduction on account of such borrowing was rightly held by the assessing officer to be not deductible under Section 24(1)(vi) of the Act. The Commissioner (Appeals)’s conclusion to the contrary is not correct. We, therefore, reverse the order of the Commissioner (Appeals) and restore the order of the assessing officer.
8. In the result, the appeals of the revenue, are allowed.