1. The assessee along with five others started construction of a property for which purpose of assessee and his two brothers had to borrow money as loan. However, in spite of these borrowings which were spent for the construction of the property, the property could not be completed for shortage of funds. Hence, further funds were obtained by all the six from the Bombay Mercantile Co-operative Bank Ltd., by mortgaging the property under construction and the construction of the property was completed. The shares of all the six co-owners of the property were known and certain. The assessee claimed deduction of the interest paid by him on the loan raised by him personally for contributing his share of the cost of construction contributed by him originally before it was pledged to the said bank. This deduction was claimed by him under cl. (iv) of s. 24(1) of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'), from out of his share of the income from the said property, under the head 'Income from house property'. The ITO made an assessment against all the six co-owners treating them as an association of persons in respect of the income from the said property. He computed the income after deducting the interest paid by the six co-owners to the bank on the loan collectively raised by them for further construction of the property. One-sixth of the income so computed was transposed by him to the assessee's assessment, as admittedly, all the six co-owners possessed equal shares in the said property. He, however, rejected the assessee's claim for the deduction of the interest paid by him on the loans individually raised by him for the acquisition and construction of his one-sixth share in the property on the ground that such deduction was not permissible under s. 26 of the said Act. The assessee was thus assessed for four assessment years from 1963-64 to 1966-67. The assessee preferred appeals against all the four assessment years before the AAC, who accepted the assessee's stand and allowed the deduction of the interest paid by him on the loan individually taken by him. Against the decision of the AAC, the revenue preferred appeals before the Tribunal and contended that the decision of the AAC was inconsistent with the express provisions contained of the revenue by observing that the assessee was entitled to the deduction of the amount of interest paid by him on the loan taken by him individually which was admittedly spent for acquiring and constructing his one-sixth share in the said property. The Tribunal further observed that these deductions had to be given in addition to the deduction of the interest amount paid on the loan taken collectively by the six co-owners for the completion of the remaining construction of the said property. The revenue having applied for stating the case under s. 256(1) of the said Act, the following question has been referred to this court by the Tribunal :
'Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of the interest paid by him on the loan raised by him individually for contributing his share of the price and cost of construction of the property in the computation of his income under the head 'Income from house property' ?'
2. On the admitted facts themselves we should have though that the position in law was simple. It is not disputed that before the property was mortgaged, the assessee and five other co-owners had started the construction of the property by contributing equally towards the cost of construction. It is also not disputed that a part of his share of the cost of construction had come to a certain stage and it was found that the moneys raised by each of the co-owners fell short of the required funds for completing the construction, that the property was mortgaged to the Bombay Mercantile Co-operative Bank Ltd., and a further sum was raised from the bank by all the six co-owners by mortgaging the property to the bank and thus the remaining construction of the property was completed. It is also an admitted fact that all the co-owners had equal, definite and determined shares in the property and the income therefrom.
3. Part 'C' in Chap. IV of the said Act relates to income from house property. This part consists of ss. 22 to 27. Section 22 states that the annual value of the property consisting of any buildings or lands appurtenant thereto such as the property in the present case shall be chargeable to income-tax under the head 'Income from house property'. Section 23 then lays down the manner in which the annual value of the house property is to be determined. Section 24 then permits certain deductions from the income from house property. One of the deductions so allowed is mentioned in cl. (vi) of sub-s. (1) of the said s. 24 and the same is the amount of any interest payable on capital when the property has been acquired, constructed, repaired, renewed or re-constructed with borrowed capital. We are not concerned with s. 25 of the said Act which lays down the amounts which was not permissible to be deducted. Then comes s. 26 which is important from our point of view and which is as follows :
'26. Where property consisting of building or building and lands appurtenant there to is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such persons in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.'
4. The Explanation to the said section which is as follows was added subsequently and was not available at the time of the assessment in question :
'Explanation. - For the purposes of this section in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.
5. 'The sum and substances of the said s. 26 is to prohibit the assessment of co-owners of the house property as an association of persons and to direct that the share of each such person be computed in accordance with ss. 22 to 25 and included in his total income where the share of such persons in the house property are definite and ascertainable.
6. A reading of ss. 22 to 26 makes it clear that where the property is owned by co-owners who have definite and ascertainable shares, the gross income of such property is first to be ascertained on the basis of the provisions of s. 23. From such gross income, deduction permissible under s. 24 are to be made which will give the net income of the total property as available to all the co-owners. This net income is further to be allocated to each of the co-owners according to their shares. After each of the co-owners is thus allocated his share in the income of the joint property, it becomes an income from the house property within the meaning of ss. 22 and 23 of the said Act. From that income again, each of these owners is entitled to deductions under s. 24. He is further individually entitled to such deductions of interest on the amount of the money which he might have borrowed for the construction or acquisition of his share in the property as in the present case. What the ITO, however, had done was to interpret s. 26 as a provision for a further allowance of deduction under s. 24 in the case of individual borrowings for the purpose of acquisition of individual shares. That was in fact to undo the provisions of s. 26 and to bring to tax the total income from the house property although the section in terms states that where the shares are definite and ascertainable the income of such property from each of the joint owners is to be computed in accordance with ss. 22 to 25 before it is included in his total income. In other words, although the ITO omitted the income of all the joint owners from the said property, computed in accordance with ss. 22 to 25, he did not permit the income of each of the individual owners to be computed and included in the manner laid down in s. 26. That was, according to us, rightly negatived by the Tribunal. To uphold the decision of the ITO would mean the whereas the loan taken collectively by the joint owners from the bank was lone entitled to be treated as loan taken collectively by the joint owners from the bank was lone entitled to be treated as loan or borrowed capital within the meaning of cl. (vi) of s. 24(1), the capital borrowed by one of the joint owners such as the assessee for the acquisition of his share in the property would not be entitled to be so treated. This is against the plain meaning of the provisions of ss. 23, 24 and 26.
7. We may also point out that a similar view has been expressed by this court in a decision in CIT v. Kanga : 120ITR404(Bom) . The same view has also been taken by the Delhi High Court in a decision in CIT v. Shyam Sunder : 122ITR541(Delhi) . It is not necessary to discuss the said decision in detail as according to us the point involved is very simple and does not require any require any elaborate argument.
8. In the result, we answer the question referred to us in the affirmative, in favour of the assessee and against the