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TMI Blog2013 (12) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... hether in the facts and circumstances of the case, the claim of deduction made by the assessee on account of interest paid to the bank is an allowable deduction u/s 24(1)(vi)/ or u/s 24(1) (iv) of the Income Tax Act, 1961 and had been rightly allowed in the original assessment?" 2. Since the matter in controversy as also questions of law are the same in these references, therefore, the same are being taken up together for adjudication. For convenience and clarity, facts of ITR No.186 of 1998 titled Mrs. Manju Kumar Versus The Commissioner of Income Tax, Patiala are being taken up for discussion. 3. The reference pertains to assessment years 1985-86, 1986-87 and 1988-89 to 1991-92. The assessee as individual having property income was assessed to income tax for the assessment years 1985-86, 1986-87 and 1988-89 to 1991-92. The assessment for all the six years was framed separately by the Assessing Officer (hereinafter referred to as, the AO) vide assessment orders (Annexures A-1 to A-6). A joint appeal was preferred by the assessee for the assessment years 1985-86 and 1986-87 before the Deputy Commissioner of Income Tax (Appeals) Range, Chandigarh [hereinafter referred to as, the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst rent of Rs.4,81,032/- of the property received during this period. It was further noticed that interest on house building was claimed at Rs.2,25,263/- against declared rent of Rs.5,54,603/- received from the property for the assessment year 1986-87. 9. The AO falling in line with the assessment order for the year 1984-85 had held the assessee to be entitled to only simple interest on the principal amount outstanding during the year out of the loan raised by the assessee. In short, interest @ 15% per annum on outstanding principal amount of Rs.5,05,000/- was allowed. 10. Counsel for the assessee had challenged the legality of proceedings initiated under Section 148 of the Act claiming that allowability of interest as simple interest or compound interest was not a circumstance sufficient enough to conclude that some income had escaped assessment but this fact was covered within the domain and sweep of "change of opinion and hence proceedings under Section 148 of the Act could not be initiated in such circumstances". 11. Per contra, claim of the revenue is that in the return of income, the assessee had neither furnished data nor details as to how she had been claiming compoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction was to be allowed or not? 16. To answer this aspect, we need to go through the provisions of section 9(1)(iv) of the Indian Income Tax Act, 1922 with its relevant provisions under Section 24 of the present Act. Section 9(1)(iv) of the Indian Income Tax Act, 1922 for ready reference is appended as below: "9. Property-(1) The tax shall be payable by an assessee under the head 'income from property' in respect of the bonafide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession "or vocation carried on by him the profits of which are assessable to tax, subject to the following allowances, namely: i) .... ..... .... ii) .... .... .... iii) .... .... .... iv) where the property is subject to mortgage or other capital charge, the amount of any interest on such mortgage or charge; where the property is subject to an annual charge not bring a capital charge, the amount of such charge; where the property is subject to a ground rent, the amount of such ground rent; and where the property has been acquired, constructed, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the law permits is the deduction of the "amount of any interst on such mortgage or charge". The interest payable by the assessee on the capital charge was at the rate of 6¾% per annum. But if he fails to pay that in accordance with the terms of the contract, he was liable to pay compound interest. In other words, if he fails to pay interest in accordance with the contract, he was liable to pay interest on interest. Or, to put it differently, when the interest payable is not paid, the same became a part of the principal and, thereafter, interest has to be paid not only on the original principal but also on that part of the interest which had become a part of the principal. It cannot be said that the interest which became a part of the principal can be considered as the capital charge." 20. It was further held in this judgment as under: "What the assessee is entitled to deduct is the interest payable by him on the capital charge and not the additional interest which because of his failure to pay the interest on the due date had been considered as a part of the loan. In fact, the real capital charge is that which was originally due. The other portion is merely an interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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