TMI Blog1985 (12) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... Avenue. Calcutta from M/s Jute Exporters Ltd. At Rs. 2,45,000 and the said sum of Rs. 2,45,000 was paid to M/s Jute Exporters Ltd. On 22nd June, 1955 out of borrowing of Rs. 1,00,000 made from M/s General produce Co. Ltd. on different dates, as per copy of A/c already submitted and of Rs. 1,50,000 from M/s Modal Manufacturing Co. Ltd. on 27th June, 1955. Subsequently, on 29th Sept., 1955 the company repaid the loan of Rs. 1,00,000 received from General Produce Co. Ltd. out of refund of loan of Rs. 1,00,000 received from M/c Tusidas Kanoria Co. to whom the company had advanced money on loan in earlier years out of borrowings and/or the capital reserves of the company. Loan of Rs. 1,50,000 taken from M/s Modal Manufacturing Co. Ltd. was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared up by second loans which were also repaid. He also held that similar petty 3rd and 4th loans were also repaid. As such, he held that no interest was allowable under s. 24(1)(vi) even according to the Board Circular No. 28 of 1969 dt. 20th Aug., 1969. Disallowance of interest under s. 24(1)(vi) of the Act was also made for the asst. yrs. 1973-74 to 1981-82 on the basis of this finding. On appeal before the CIT(A) it was claimed on behalf off the assessee that "it is entitled to at least proportionate interest on borrowings used in the purchase of the property in question under s. 24(1)(vi) of the Act". According to the CIT(A) "the test laid down in s. 24(1)(vi) is that the loan should have been taken to acquire the property, it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Being aggrieved, the Department preferred these appeals. 4. The departmental representative very vigorously argued that the CIT(A) was incorrect in holding that the provisions of s. 24(1)(vi) apply to all loans subsequent to the second loan as stated in the Board Circular, that it was not necessary to connect to subsequent loans with the original loan for purchase of the property, and that Rs. 1,31,000 represents borrowings on which the assessee is entitled to deduction of interest. 5. The authorised representative for the assessee opposed these contentions and contended that s. 24(1)(vi) does not restrict it to the original or second loan but extends to all subsequent loans to pay the loan for eventual repayment of the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital". 7. The words "such capital" definitely refers to the borrowed capital and as such the section confines the benefit to the borrowed capital i.e., original loan only. The language is not capable i.e., original loan only. The language is not capable of being extended to second or any subsequent loan. The authorised representative for the assessee referred to the following observation in Kanga and Palkhivala's Law and Practice of Income-tax, 7th Edition at page 535 'interest on a fresh loan utilised in repaying the original loan taken for the above specific purpose would be equally deductible, and contended that this supports his content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee, effect should be given to it in spite of it not being strictly in accordance with the section. But it cannot be extended to subsequent loans as contended by the authorised representative for the assessee. As such, we are of the opinion that the CIT(A) was incorrect in holding that "the test laid down in s. 24(1)(vi) of the Act is that the loan should have been taken to acquire the property, it does not say whether it is the first loan or second loan or subsequent loan". As such his conclusion that the interest on the borrowings should qualify for deduction under s. 24(11)(vi) for all the assessment years cannot be sustained. On a careful consideration of the case we are of the opinion that the assessee was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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