Deduction of interest in a case

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Tarun Kumar (Querist)
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04 December 2010 X buy a showroom in mall and Make payment of rs 4000000rs.Out of which is 2000000rs loan from bank.Builder makes gurantee to pay rent after the 18 months period if possession is not given within 18 months. After 18 months X did not get the possession of the property.Then builder paid rent to X @28000 P.m. for 15 months.And x get the possession of the showroom after 33 months. What is the treatment of 15 months rental income? Can he claim deduction of the interest paid under the head income from other source for the interest paid for 15 months?And does it make any difference if he take loan form relative or friend?

CA Dhiraj Ramchandani

CA Dhiraj Ramchandani (Expert)
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04 December 2010 I think those 15 months interest can b claimed under IHP.., and rent is to b considered as IHP only., its not income from other sources....... And if such loan is taken from friend., there shud not b any problem in normal circumstances.... But if loan raised from relative (relative u/s 6), then such interest (i believe) will b disallowed to b charged as an expense...

Tarun Kumar

Tarun Kumar (Querist)
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05 December 2010 It can be said that income of 15 months will be the income under the head income from other source because the possession of the property is not taken by x.Till that date possession of the property is not taken by the owner of the property, income can not be chargeable under the head income from house property (principals of the income under the head of house property).
Now the question arise wheather the deduction will be allowed under head other source.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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05 December 2010 Mr Tarun is right in saying that possession of property is of prime importance for treating the income as HP Income. I assume that the possession could not be given as the construction was not completed.

Further, it will be a good tax planning, if the income which is compensatory in nature, is shown under the head IFOS. In that case interest can be deducted from such income. There is no restriction for taking interest bearing loans from relatives in this case.

However, in case of IFHP interest can be deducted from the income only when the construction gets completed. There is a requirements of production of interest certificate also.

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