I have been occupying an apartment at Bandra in Mumbai since 1976 as a tenant in a multi-storeyed multi-dwelling unit apartment block on a rent of Rs 500 per month. I acquired this low-cost tenancy by paying to the previous tenant a sum of Rs 3 lakh at the time of occupation and reportedly he passed on 30 per cent of this amount to the landlord to officially grant the tenancy to me.Having lived in the premises for the past 12 years, I have been considering the possibility of moving further north where I can purchase a three-bedroom apartment for about Rs 30 lakh. I have also been in touch with the brokers to find me a replacement tenant for the premises currently occupied by me and have been advised that it should be possible to secure a pugri of about Rs 18-20 lakh, provided I can persuade the landlord to transfer the tenancy in my nominee's name. I have discussed this matter with the landlord also and he has principally conveyed his agreement to make this change provided he is paid Rs 5 lakh ashis share of the booty.
Can I and the landlord receive this amount legally under the amended rules under the Mumbai Rent Act, whereby receiving and giving of pugri has been legalised. Will I be able to claim any set-off on account of pugri paid by me in 1986 to acquire the tenancy rights, keeping in view the fact that neither was any receipt given nor demanded by the parties concerned at the time of consummation of the previous deal? Please also advise the treatment of these receipts for income tax return purposes?
--Bismila Khan, Mumbai
Since the payments made by you to the tenant and the landlord remained unaccounted tax wise, it would not be possible for you to secure a set-off for these payments at this belated stage.
As far as the current proposition is concerned you should first discuss with your landlord whether he would be willing to enter into an agreement, whereby he would agree to transfer the tenancy rights in the demised property upon receipt of Rs 5 lakh from the proposedtenant that is pursuant to the receipt of a tenancy surrender and vacant possession handing over letter from you. You will, however, sign this letter only after you receive Rs 13-15 lakh (that is your share of the booty) by bank draft or otherwise as per your own requirement and in pursuance of your agreement with the prospective tenant.
The Mumbai Rent Act was proposed to be amended in March 1998 to make payments of pugri legal and therefore the proposed receipt and payment thereof would not constitute an offence under the Indian Penal Code, provided the changes proposed in early 1998 have since been notified.
However, these payments in your landlord's hand and your's would be deemed to be income from other sources and the benefits of set-off and indexation, as envisaged under the subsisting capital gains tax legislation, would not be available to either of you.
I suggest that you contact your solicitor in Mumbai to draw up the necessary agreement(s) and oversee the entire transaction in such a mannerthat it is not violative of the law of the land and at the same time legally enforceable.
Interest on capital borrowed for construction of a house is allowed as deduction for computation of taxable income of an assessee. In case of a self-occupied house, this interest amount is allowed to be set off against salary income or any other income as per Section 24 of the Income Tax Act. Please clarify whether this deduction shall also be allowed if the house is:
In Mumbai and is lying vacant (not rented) though in possession of the assessee who is serving in Delhi and is residing in a house rented by him;In Gurgaon (Haryana) and is lying vacant (not rented) but used occasionally on weekends by the assessee who is residing in a separate house in Delhi on rent. Your considered opinion is solicited.-- Anuradha, DELHI
Interest on borrowed capital under various provisions of section 24 (1) (vi) is tax deductible. It is also not necessary that for this purpose the loan so borrowedor the interest payable thereon be secured by a charge on property. The nature and the quantum of deduction depends upon whether the interest on sums borrowed relates to the period prior to the acquisition for property or the post-acquisition period.
An assessee is also entitled to deduct interest paid on borrowed capital in respect of a self-occupied property to the extent of actual interest paid by him during the previous year but subject to the limit of Rs 30,000 under section 24(2) of the Income Tax Act.
However, under this section no deduction will be allowed in respect of self-occupied property whose annual value is nil under section 23(3)(a)(i) or in respect of the property which cannot be occupied by the owner owing to his employment, business or profession carried on at any other place and where annual value is nil under Section 23(3).
However, this prohibition does not apply to deductions of interest on capital borrowed for acquisition, construction and repair etc under section 24(1)9(vi)pertaining to self-occupied property referred to in section 23(3)(a)(i) or section 23(3) if the amount of interest does not exceed Rs 30,000. Deductions under section 24(1) are exhaustive and no deductions can be claimed in respect of expenditure that may have been incurred by the assessee in the previous year towards items not specifically delineated in section 24(1) of the Act.
Arising from the above prima facie, your properties in Mumbai and Gurgaon will be deemed to be self occupied with nil annual value and under the circumstances you would be entitled to reduce your income for income tax purposes to the extent of actual interest paid by you in the previous year, subject to the ceiling of Rs 30,000 per annum as currently prescribed under the Income Tax Act. Any other expenses incurred by you towards payment of electricity and water charges etc. will not be tax deductible. I would, however, suggest that you also seek an independent expert opinion in the matter and thereafter act as you may deem fit.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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