Among several avenues of investments that qualify for deduction u/s 80C clause (xviii) of sub-section (2) of section 80C provide for grant of deduction with reference to the following class of payments:
- Any sums paid by an assessee for the purpose of purchase or construction of a residential house property, the income from which is chargeable to tax under the head “Income from house property” (or which would, if it has not been used for the assessee’s own residence, have been chargeable to tax under that head) where such payments are made towards or by way of
- any installment or part payment of the amount due under any self-financing or other scheme of any Development Authority, Housing Board, etc.
- any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
- repayment of the amount borrowed by the assessee from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or certain other categories of institutions engaged in the business of providing long-term finance for construction or purchase of houses in India; or
- Any repayment of loan borrowed from the employer will also be covered, if the employer happens to be a public company, or a public sector company, or a university established by law, or a college affiliated to such university, or a local authority, or a co-operative society, or an authority, or a board, or a corporation, or any other body established under a Central or State Act; or
The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also be covered. Payment towards the cost of house property, however, will not include, admission fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or repair of the house property which is carried out after the issue of the completion certificate by competent authority, or after the occupation of the house by the assessee or after it has been let out. Payments towards any expenditure in respect of which the deduction is allowable under the provisions of section 24 of the Act will also not be included in payments towards the cost of purchase or construction of a house property.
Also where the house property in respect of which deduction has been allowed under these provisions is transferred by the taxpayer at any time before the expiry of five years from the end of the financial year in which possession of such property is obtained by him or he receives back, by way of refund or otherwise, any sum specified in section 80C(2)(xviii), no deduction under these provisions shall be allowed in respect of such sums paid in such previous year in which the transfer is made and the aggregate amount of deductions of income so allowed in the earlier years shall be added to the total income of the assessee of such previous year and shall be liable to tax accordingly. Extracts from CBDT Circular No. 17 of 2014, dated December 10, 2014.
Some time doubts are expressed on to whether sums paid for construction or purchase of a residential property would quality for relief u/s 80C even before such construction is completed and possession is received. The words “the income from which is chargeable to tax under the head “Income from house property” in clause (xviii)in the obvious lead to some confusion for ordinarily speaking a property can be chargeable under the Act only when it is complete and enjoyable.
Long ago in 1994 the SMC bench of the Delhi Tribunal in A D Mehndroo v. AO (1996)54TTJ394 in allowing relief to the assessee held that the provision under clause (xviii) would be rendered redundant if relief were to be given after possession date since physical possession of any property could be obtained only upon making full payment so that once the full payment is made no further deduction could be availed of. In this case the assessee who admittedly was a Member of the Lawyers Cooperative Group Housing Society Ltd. had been allotted a flat, the construction in respect of which had not been completed in the relevant year. The assessee having made a payment of a sum of Rs. 10,000 as an installment to the said Group Housing Society claimed the same as deduction under section 80C of the Act. The ITO rejected the claim for deduction on the ground that during the previous year under consideration the flat had not been completed and no income was taxable under the head “Income from house property” in the hands of the assessee.
The Single Member of the Delhi Tribunal recorded the following finding in this case:
“ After examining the rival submissions, I am of the view that there is substantial merit in the arguments advanced by the counsel for the assessee. The relevant provision of law stipulates the payment of an instalment to a housing society in respect of a property/flat which is allotted to a member of the said society and the only two requirements are that the construction be completed after 31st March, 1987 and secondly the income from the said property is chargeable under the head “income from house property”. It is not disputed that the construction of the flat was completed after 31st March, 1987 and we are in agreement with the view point canvassed by the learned counsel that the term used in the section is “chargeable” and not “charged”. Then again, it is common knowledge that physical possession of a flat whether in a group housing society or a scheme under a Govt. authority or a Housing Board or even in respect of housing schemes floated by private entrepreneurs is not handed over to the allottee unless and until the total cost of the flat/property is paid. In case the argument of the learned Departmental Representative is accepted then it would amount to a situation where no deduction would be allowable in respect of the instalment paid prior to the physical possession being handed over and once that is done then no further instalment would be due in respect of which the assessee can claim deduction. In other words, the relevant provision of law would become redundant and not at all workable. In my opinion, this was not the intention of the legislature when the relevant provision was brought on the statute book. In the final analysis, I opine that the assessee’s claim satisfies the various conditions laid down by the relevant provision of law and he is entitled to necessary deduction envisaged in the said provision. The ITO is directed to allow necessary relief.”
More than anything else therefore what weighed more with the single member bench is the intention of the legislature and not the words contained in the clause which turn the section in the redundant mode. Under the present scheme of section 80C however there is no condition in regard to the date of construction of the property. Further clause (xviii) of sub-section (2) in its present form also so incorporate the word ‘chargeable’ and not ‘charged’ therein so that the deduction will not get postponed any further beyond the date of payment of installment of the house or repayment of amount borrowed, as the case may be. The decision of the Delhi bench is not reversed so that the position is unchanged and therefore the deduction u/s 80C can be claimed viz a viz investment/repayment of housing loan without regard to the actual date of getting possession of house.
In the right earnest it is desirable that the Central Board Of Direct Taxes (CBDT) must bring out a clarification in the interest of all those individuals who have to turn to Chartered Accountants and Advocates for an advice on such little but tricky subject which is settled long ago but not advertised so well in the books and treaty satire.