ORDER
U.T. Shah, Vice President
1. Since a common point is involved in these appeals, they are disposed of together for the sake of convenience.
2. The assessee is a practising Chartered Accountant and is a partner in the firms of M/s. M.B. Agrawal & Co., and M/s. M.B. Agrawal & Associates. The assessment years are 1987-88 and 1988-89 and the relevant previous years are the corresponding financial years ended on 31-3-1987 and 31-3-1988 respectively.
3. The facts pertaining to the issue involved could be gathered from the statement of facts filed by the assessee along with the Appeal Memo before the first appellate authority. The said facts are reproduced below :
1. Your appellant has two self-occupied flats. One flat in Bhavani Complex ‘A’ and the other flat in Bhavani Complex ‘B’. Both the flats are not actually let during any part of the previous year and no other benefit therefrom is derived by the appellant. These facts are not under dispute. The income from self-occupied flat in Bhavani Complex ‘B’ is taken as Nil. This is as per the contemplation under Section 23(2)(a)(i) of the Income-tax Act, 1961, and no deduction whatsoever are claimed. Your appellant has exercised the option as given to the appellant under Section 23(2)(b) of the IT Act, 1961. Hence in case of one self-occupied flat in Bhavani Complex ‘B’ income is taken as Nil and no deductions are claimed. In the case of second self-occupied flat in Bhavani Complex ‘A’ the computation of income from house properly is attached in the statement, of income filed along with the return of income, as deemed let out. The actual interest Rs. 55,366 accrued paid during the previous year relevant to the assessment year 1987-88 is claimed as deduction under Section 24(1)(vi) of the Income-tax Act, 1961, The limit of the deduction of interest in Section 24(2) is applicable only to one self-occupied flat. This is clearly stated to the proviso to Section 24(2). The full deduction of interest is available in the case of more than one self-occupied flats as deemed let out flat and the restriction under Section 24(2) is not applicable to the second self-occupied flat. Learned Income Tax Officer erred in restricting the interest deduction at Rs. 5,000 for the second self-occupied flat.
It may be mentioned that the actual interest paid for the assessment year 1988-89 is Rs. 47,328 in place of Rs. 55,366 in respect of the assessment year 1987-88.
4. While framing the assessment under Section 143(3) of the Act, the ITO allowed deduction of Rs. 5,000 only under Section 24(1) of the Act. The said action of the ITO is confirmed by the first appellate authority.
5. Being aggrieved by the order of the first appellate authority, the assessee has come up in appeal before the Tribunal. Inviting my attention to Sections 23(2)(b),24(1)(v) and 24(2) of the Act, the learned Advocate for the assessee vehemently argued that the Income-tax authorities ought to have accepted the assessor’s contention that he was entitled to interest deduction of Rs. 55,366 in the first year and Rs. 47,328 in the second year in respect of the Flat at Bhavani Complex ‘A’ instead of only Rs. 5,000 allowed by them. In this connection, he highlighted the fact that under the said provisions the assessee had an option to select one house for his residence. The restriction regarding deduction of interest to the extent of Rs. 5,000 would be applicable only in the case where the assessee is occupying the house for his own residence. Since the assessee has opted the Flat at Bhavani Complex ‘B’ for his own residence, the restriction of the deduction of interest to Rs. 5,000 will be applicable in determining the income from house property of that Flat by virtue of Sub-clause (i) of Clause (a) of Sub-section (2) of Section 23 of the Act, the income from such property is taken at Nil. However, the restriction of deduction of interest would not be applicable in the case of other self-occupied Flat at Bhavani Complex ‘A’ and, therefore, the IT authorities ought to have accepted the assessor’s claim for deduction of Rs. 55,366 and Rs. 47,328 respectively in determining the income from house property of the said Flat. He also submitted that there is no prohibition under the relevant provisions of the Act for assessee claiming deduction of interest payment in respect of other self-occupied Flat, which is not used for his own residence. He also invited my attention to 158 ITR 84 (statute) containing notes on clauses in respect of the amendment made in Sections 23 and 24 of the Act. He, therefore, urged that the ITO should be directed to accept the assessor’s contention and modify the assessments accordingly. The learned representative for the department, on the other hand, supported the action of the IT authorities. According to him, since both the properties were self-occupied property of the assessee, the assessee was entitled to interest deduction of Rs. 5,000 only as contemplated in Sub-section (2) of Section 24 of the Act. He, therefore, urged that I should uphold the action of the IT authorities.
6. I have carefully considered the rival submissions of the parties. In order to better appreciate the rival stand taken by the parties, it is necessary to reproduce below the relevant portion of the provisions of the Act. Section 23 of the Act, which contains provisions for determining annual value. Sub-section (2) thereof reads as under:-
Section 23. Annual value how determined-
(1) ** ** ** (2) where the property consists of- (a) a house or part of a house in the occupation of the owner for the purposes of his own residence;- (i) which is not actually let during any part of the previous year and no other benefit therefrom is derived by the owner, the annual value of such house or part of the house shall be taken to be nil; (ii) ** ** ** (b) more than one house in the occupation of the owner for the purposes of his own residence, the provisions of Clause (a) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;
(c) more than one house and such houses are in the occupation of the owner for the purposes of his own residence, the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under Clause (b), shall be determined under Sub-section (1) as if such house or houses has been let.
Section 24 of the Act contains various clauses indicating “deductions from income from house properly”.
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, namely:-
(i)to(v) ** ** ** (vi) where the property has been acquired, constructed repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. Explanation: ** ** ** (vii) to (x) ** ** ** (2) No deduction shall be allowed under Sub-section (1) in respect of property of the nature referred to in Sub-clause (i) of Clause (a) of Sub-section (2), or subsection (3) of Section 23 :
Provided that nothing in this sub-section shall apply to the allowance of a deduction under Clause (vi) of Sub-section (1) of an amount not exceeding five thousand rupees in respect of the property of the nature referred to in Sub-clause (0 of Clause (a) of Sub-section (2) of Section 23.
7. On proper reading of the aforesaid provisions of the Act, the stand taken on behalf of the assessee has to be accepted. The assessee has been given option to select one of the self-occupied properties to be used for own residence. It is with regard to such property that the interest deduction is restricted to Rs. 5,000. However, there is no such restriction in respect of other self-occupied property which is not used for own residence. The notes on clauses reported in the aforesaid Volume of ITR also support the stand taken on behalf of the assessee. I would, therefore, direct the ITO to accept the assessee’s contentions in this regard and modify the assessments accordingly.
8. Before parting with this order, it may be mentioned that at the time of hearing the learned Advocate for the assessee did not press ground No. 2 taken up in respect of assessment year 1987-88 regarding short term capital loss of Rs. 4,197. The same is, therefore, rejected.
9. In the result, the appeal for the assessment year 1987-88 is partly allowed and that for the assessment year 1988-89 is allowed in full.