TMI Blog1976 (4) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the entire amount of interest for the mortgage and in this connection he wanted relief under section 24(1)(iii) of the Income-tax Act, 1961. It maybe mentioned at this stage that with effect from April 1, 1969, by virtue of the provisions of the Finance Act, 1968, section 24(1)(iii) has been deleted. The Income-tax Officer apportioned the amount of interest between the properties on the one hand and the machineries on the other and allowed deduction of only interest attributable to the mortgage of the properties, the annual value of which was included in the company's total income. The following table shows the total claim of interest paid by the assessee, claim of interest on joint mortgage of buildings and machineries and the claim allowed by the Income-tax Officer. ----------------------------------------------------------------------------------------------------------------------------------- Asstt. Amount of Claim of interest on joint Claim Year interest paid mortgage of buildings and allowed machineries ----------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1962-63 43,658 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, and hence the portions occupied by the assessee for the purposes of his business or profession are not to be considered for arriving at the sum for which the property might reasonably be expected to let from year to year. Thus, this scheme of sections 22 and 23 requires the apportionment of income between the portions occupied by the assessee for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, and the rest of the property. Section 24 provides for deductions from income from house property and lays down that income charge- able under the head "Income from house property" shall, subject to the provisions of sub-section (2), be computed after making the following deductions. Clause (iii) of section 24(1) as it stood prior to April 1, 1969, was in the following terms : " (iii) where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge. " Mr. Shah contends that the words "interest on such mortgage or charge" means the entire amount of interest which is required to be paid by the assessee in respect of any mortgage on the property and, hence, according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, by the very scheme of section 22, means the portions of the house property other than the portions occupied by the assessee for the purpose of any business or profession carried on by him, the profits of which were chargeable to income-tax. Thus, so far as section 24(1)(iii) is concerned, when it uses the words "the property" it contemplates only the house property, that is, buildings or lands appurtenant thereto and nothing else, and it is only interest payable in respect of mortgage or capital charges on buildings or lands appurtenant thereto other than such portions of the house property as the assessee may occupy for the purposes of any business or profession carried on by him, that can be deducted under section 24(1)(iii). No other meaning appears to us to be possible on the language of these sections. Mr. Shah has relied on the following decisions in support of his contention: Commissioner of Income-tax v. Indian Bank Ltd. [1965] 56 ITR 77 (SC), Commissioner of Income-tax v. South Indian Bank Ltd. [1966] 59 ITR 763 (SC), Commissioner of Income-tax v. Maharashtra Sugar Mills Ltd. [1968] 68 ITR 512 (Bom), this being a Bombay decision, and the decision of the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Hughes v. Bank of New Zealand [1938] 21 TC 488 (CA), 512 (HL) ; 6 ITR 541 (CA), 636 (HL) that, in order to give effect to the Income-tax Act, bifurcation and apportionment of expenditure had got to be resorted to. We held that the scheme of the Income-tax Act required that profits and gains from non-taxable activities and taxable activities, both of which were components which had entered into the total income as known to income-tax law should be separated and that separation of these two components which had entered into the total income could only be done by finding out the proportionate net income, that is, after deducting from the amount of gross profits both for taxable activities as well as for non-taxable activities all expenditure attributable to these two different categories of cases. We said that it would be advisable to resort to the rule of three in finding out the proportionate net income out of the total income of the assessee. Thus, it has been held in Sabarkantha Zilla Kharid Vechan Sangh Ltd.'s case [1977] 107 ITR 447 (Guj), that apportionment of expenditure between taxable activities and non-taxable activities must be made in view of the specific language of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Property Act, as Mr. Shah has rightly contended, there is only one and indivisible mortgage when there is a composite mortgage burdening the building as well as the machineries kept in the building. It is possible, as Mr. Shah contends, that very often the machinery has to be embedded in the floor of the building but what is material is not the provisions of the Transfer of Property Act and the general law under the Transfer of Property Act but the Specific provisions of the Income-tax Act, 1961. These provisions clearly indicate, according to the scheme of sections 22, 23 and 24, that the deductions under section 24(1)(iii) are to be in respect of the amount of interest paid on the mortgage or capital charge on "the property", that is, on the buildings and lands appurtenant thereto. Under these circumstances, even though under the general law relating to transfer of property, a composite mortgage of the kind before us covers both lands and the machineries, under the Income-tax Act, we are only concerned with the income from buildings and lands appurtenant thereto and not with any other income. It is from the annual value thus arrived at that the deduction by way of interest has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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