It is well known that home loan interest is allowable u/s 24(b) of the Income Tax Act. It is also common among the home loan seeker to close one home loan and take another one or prepaying a home loan. The home loan companies generally levy a penalty in the form of charges for prepaying the home loan.
Two important lapses in the provision u/s 24 gave rise to controversy. The word interest is not defined u/s 24 and also there is nothing noted in the section 24 about any prepayment charges. Thus, in the case before income tax department, an A.O objected allowance of prepayment charges while computing the income from house property of an assesse. CIT(A) concurred with A.O, but Tribunal gave relief to the assessee holding that prepayment charges is allowable deduction u/s 24(b) of the Income Tax Act.