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Commissioner of Income-tax Vs. Rajah Dhanrajgiriji - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 262 of 1978
Judge
Reported in(1985)45CTR(AP)53; [1985]154ITR719(AP)
ActsIncome Tax Act, 1961 - Sections 24 and 24(1)
AppellantCommissioner of Income-tax
RespondentRajah Dhanrajgiriji
Appellant AdvocateM. Suryanarayana Murthy, Adv.
Respondent AdvocateNone
Excerpt:
direct taxation - deduction - sections 24 and 24 (1) of income tax act, 1961 - suit decreed and house property brought to sale - house property was under requisition of government of india (goi) - before sale could be held creditor and assessee entered into settlement - as per settlement goi lent certain sum to assessee and took house on mortgage - assessee agreed to pay interest - payment of interest allowed as deduction as charge on house property was not created voluntarily. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows..........of the income tax act ?' 2. the assessee was deriving income from different sources including house property. he owned two houses, viz., on me at bombay know as 'dhanraj mahal' and another at pune known as 'pudumjee terrace'. the assessee had raised certain loans both for the purpose of constructing the said houses and also to meet his personal needs. while it is not necessary to set out the history of the dealings between the assessee and his creditors, it is sufficient to mention thatm, so far so the house 'dhanraj mahal' at bombay is concerned, a suit (o.s. no. 452 of 1954) was filed by the creditor, m/s. secunderabad trading syndicate, represented by sri. m. m. malani, against the assessee. the suit was decreed and the suit property was brought to sale in execution of the.....
Judgment:

Jeevan Reddy, J.

1. The following question is referred for our opinion under s. 256(1) of the I.T. Act, 1961 :

'Whether, on the facts and the in the circumstances of the case, the interest as claimed is deductible under section 24(1)(iv) of the Income tax Act ?'

2. The assessee was deriving income from different sources including house property. He owned two houses, viz., on me at Bombay know as 'Dhanraj Mahal' and another at Pune known as 'Pudumjee Terrace'. The assessee had raised certain loans both for the purpose of constructing the said houses and also to meet his personal needs. While it is not necessary to set out the history of the dealings between the assessee and his creditors, it is sufficient to mention thatm, so far so the house 'Dhanraj Mahal' at Bombay is concerned, a suit (O.S. No. 452 of 1954) was filed by the creditor, M/s. Secunderabad Trading Syndicate, represented by Sri. M. M. Malani, against the assessee. The suit was decreed and the suit property was brought to sale in execution of the decree. The sale was notified to be held on December 2, 1959. But before the sale was held a settlement was arrived at between the assessee and the creditor. The said building 'Dhanraj Mahal' was under requisition by the Government of India for accommodating the Government offices and for other public purposes. The Government of India lent a sum of Rs. 29,00,000 to the assessee by taking a mortgage of the entire house in its favour. The credits was paid off from this amount. Under the mortgage exerted by the assessee in favour of the Government of India, the assessee agreed to pay interest at a particular rate and also stipulated that, if the interest was not paid as agreed, it would be added to the principal and further interest would be calculated. A charge was created in respect of both principal and interest on the said property. Now, coming to the Pune house, 'Pudumjee Terrace', it was found on an account being taken, that, the at the end of Diwali year 1963-64, the assessee was owing an amount of Rs. 3,33,753. The creditor insisted on some security being offered in addition to the promissory note execute by the assessee. Accordingly, the assessee created an equitable mortgage in respect of the said house by deposit of title deeds. Under this equitable mortgage, he agreed to pay interest at the rate of 8% per annum.

3. The assessee was paying interest in respect of both the mortgages i.e., to the Government of India as well as to the other credit in respect of the Pune house property. This was being allowed as deduction from out of the income arising from the house property till the assessment year 1968-69. But after the Finance Act, 1968, amended clause (iv) of sub-s. (1) of s. 24 of the I.T. Act the ITO disallowed the said interest as a deduction. This was challenged by the assessee in appeal before the AAC. The matter ultimately went before the Tribunal. The Tribunal held that the deduction is allowable. It held that, on the facts and in the circumstances of the case, the deduction fell within clause (iv) of sub-s. (1) of s. 24. Thereupon, the Revenue asked for and obtained this reference.

4. Section 24(1) of the I.T. Act specifies servile deductions which can be allowed out of the income from house property. Clause (iv), as amended by the Finance Act, 1968, reads as follows :

'24. (1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of sub-section (2), be computed after making the followed deductions, namely :- ......

(iv) where the property is subject to an annual charge (not being a charge created by the assessee voluntarily or a capital charge) the amount of such charge.'

5. Before the amendment, the words 'a charge created by the assessee voluntarily or' were not there. In this reference, we are concerned with the assessment years 1970-71, 1971-72, 1972-73 and 1973-74 and, therefore, the matter is governed by the amended clause (iv). A regarding of clause (iv) discloses that for claiming the said deduction, three requirements must be satisfied viz :

(1) the sum claimed s a deduction must be an annual charge on the house property which which is yielding income;

(2) the charge should not have been created by the assessee voluntarily; and

(3) it should not be a capital charge.

6. It is not necessary further that the annual charge should have been created for the purpose of acquiring or constructing house property which is yielding income.

7. While in the case all other deductions provided in s. 24(1), there is a nexus between the deduction and the house property, such a nexus is not provided in clause (iv) of s. 24(1). We can only presume that it must have been done by Parliament knowingly. So long as the above three requirements are satisfied, the amount paid on account of the annual charge is deductible out of the house property income.

8. A good amount of controversy is raised before us as to the meaning of the word 'voluntarily' occurring in the said clause. The said word cannot of be understood as signifying a meaning opposite to the words 'by operation of law'. If that was the intention of Parliament, it would have used the words 'by act of parties', which is the expression generally understood as the opposite of the words, 'by operation of law'. Here, the expression used is 'voluntarily', which be understood as distinct from, and as opposed to, the expression 'involuntarily'. The word 'involuntarily' means, without there being any option, i.e., under an enforceable obligation. On this reasoning, where a person creates an annual charge to meet an existing, genuine, legal or contractual obligation, it would not be a case of creating a charge voluntarily.

9. It is evident that the Finance Act, 1968, amended clause (iv) by introducing the word 'voluntarily' to overcome certain decisions rendered by the courts to the effect that, so long as there is annual change, the amount payable on that account is deductible under clause (iv) as it stood prior to amendment, irrespective of the fact whether the charge is created voluntarily or involuntarily.

10. Coming back to the facts of this case, it is evident that the mortgage with respect to the Bombay house property was created under the pressure of the a court sale. So far as the Pune house property is concerned, the finding is that, because the creditor demanded additional security, the assessee was obliged to create an equitable mortgage. In the circumstances, therefore, it cannot be said that the charge was created by the assessee 'voluntarily'. We may also indicate that, whether a charge was created voluntarily or not, is a question of fact which the assessing authorities have to go into, if and when raised. But so far as we are concerned, there is a finding in this case that the said mortgages were created under the pressure of the creditors and involuntarily. Another fact to be noticed is that the amount that the assessee is claiming by way of deduction is only the amount paid towards interest and no the amount paid on account of the principal due under the mortgages; payment of any such account would be a capital charge and not permissible under clause (iv).

11. We find that there are no decided cases throwing light on the meaning of the word 'voluntarily'. Two decisions, one of the Bombay High Court in CIT v. Bakshi Dalip Singh : [1980]122ITR96(Bom) and the other of the Delhi High Court in CIT v. Dr. Rameshwarlal Pahwa : [1980]123ITR681(Delhi) are brought to our notic. But, both these cases arose and were decided with reference to the unamended clause (iv). Therefore, there was no occasion for them to discuss the meaning of the expression 'voluntarily' which occurs only in the amended clause (iv). In CIT v. Bakshi Dalip Singh : [1980]122ITR96(Bom) the Bombay High court found, as a fact, that the charge was not created voluntarily and being an annual charge, qualified for deduction. So far so the decision in CIT v. Dr. Rameshwarlal Pahwa : [1980]123ITR681(Delhi) is concerned, all that the Bench of the Delhi High Court held was that, according to the language of clause (iv), before its amendment, it is not necessary that the charge should have been created voluntarily by the assessee qualifies foe deduction. Be that the is it may, on the language of clause (iv), we must hold that the Tribunal was right in holding that the amounts paid towards interest on the aforesaid mortgages qualify for deduction under clause (iv) of s. 24(1).

12. For the above reasons, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.


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