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TMI Blog1984 (11) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3,50,000. Balance money of Rs. 5,50,000 was paid by the Corporation to the lady for the purposes of item Nos. (ii) and (iii). The loan advanced by the Corporation carried interest of 10 per cent per annum. The loan was granted by the Corporation against mortgage of Alipore and Beliaghata properties and the repayment was to be made within a period of ten years. The assessee made default with regard to the payment of the instalments. A case was filed by the Corporation in the High Court in Title Suit No. 119 of 1969. The assessee in the meantime started negotiations with the industrial Reconstruction Corpn. of India Ltd. for loan. The Industrial Reconstruction Corpn. of India Ltd. suggested that the business of F.N. Gooptu should be converted into a private limited company. This was completed by 28-8-1971 and the agreement was executed on 4-9-1971. However, in the meantime the Suit No. 119 of 1969 was mutually settled and the assessee on 7-6-1972 executed a promissory note for Rs. 11,57,296. It appears that again the assessee could not pay the amount according to the terms and consequently the Corporation filed a second suit in Title Suit No. 162 of 1974. The assessee claimed dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 14,39,189.96 ------------- The ITO allowed deduction for interest at 10 per cent on the above amount. Further the tenants were liable to bear the municipal tax of Alipore and Beliaghata properties. The deduction for municipal tax was claimed by the assessee and the same was allowed by the ITO. The Commissioner perused the assessment orders passed by the ITO for the assessment years 1979-80 and 1980-81 and he found that the ITO without applying his mind has allowed the deduction f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on 7-6-1972, etc. On the basis of these papers, the counsel has referred to the show-cause notice of the Commissioner and the facts of the case. The counsel urged that the Commissioner has not correctly mentioned the facts and, accordingly, he has come to the erroneous conclusion. The facts reproduced by the learned counsel have already been incorporated in the earlier part of this order. On those facts Shri Ray urged that the assessee was correctly allowed deduction for interest which was payable to the West Bengal Industrial Development Corpn. Ltd. He referred to section 24(1)(vi) and explained the plain meaning of the word 'renewed'. In this connection he also referred to the commentary of Kanga & Palkhiwala's Law and Practice of Income-tax, Seventh edn., p. 335 and at page 311 of the Sixth edn. He stated that there was a charge in favour of several persons on Alipore property and the same was discharged by taking loan from the Corporation. He further stated that no doubt the total loan was taken at Rs. 8,68,000 carrying interest of 10 per cent per annum but after the default a promissory note was issued by the assessee on 7-6-1972 for Rs. 11,57,296. The counsel was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring new business of F.N. Gooptu & Co. Under the above circumstances deduction cannot be allowed if it is allowable for interest under section 24(1)(vi). He further stated that the loan was taken by the assessee at Rs. 8,68,000. The loan carried interest of 10 per cent. The assessee is claiming interest at Rs. 11,57,296 which includes interest and after taking into consideration the Supreme Court decision in Shew Kissen Bhatter's case, interest on interest was not allowable. He further stated that the assessee is incorrect in his argument that after the execution of the promissory note on 7-6-1972 the first loan was wiped out and it was a fresh loan. He also stated that the ITO allowed deduction for municipal tax which was borne by the lessee and, therefore, the order of the ITO was erroneous. Shri Lahiri also supported the finding of the Commissioner that the ITO should reconsider whether the income from Beliaghata property should be assessed as income from house property or income from other sources. Accordingly, Shri Lahiri supported the order of the Commissioner. 6. The assessee had a property known as Alipore property on which there was a charge in favour of several persons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the ITO was erroneous on this issue which may be prejudicial to the interests of the revenue. Before going further on this point it would be relevant to mention that the assessee was not liable for municipal tax because it was borne by the lessee. Deduction has been claimed and allowed by the ITO. This is also an erroneous act of the assessee and, therefore, the Commissioner was justified in taking action under section 263. 7. Now the question is that what is the amount of loan which could be considered for the purpose of allowance of interest under section 24(1)(vi) or under business or under other sources. Originally the loan was taken by the assessee at Rs. 8,68,000. The loan carried interest of 10 per cent. The assessee made default. The Corporation filed a suit. The loan was ultimately settled and, the assessee executed a promissory note payable on demand for Rs. 11,57,296 on 7-6-1972. Therefore, once a settlement was arrived at the loan was renewed for Rs. 11,57,296 which was originally for Rs. 8,68,000. Under the above circumstances, the Commissioner's observation that the loan should only be considered at Rs. 8,68,000 is not correct and the loan outstanding against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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