1. This appeal has been filed by the assessee against the order dated 16-11-1979 of the AAC. The asses-see is an HUF. The assessment year involved in this appeal is 1975-76 and the relevant previous year was the period from 27-10-1973 to 13-11-1974. The assessee derived income from property and other sources. The TRO attached the property at Bombay by an order dated 23-10-1974 issued under Rule 4(b) of the Second Schedule to the Income-tax Act, 1961 ("the Act"), for recovery of arrears of income-tax as certified by the ITO and interest payable thereon for the period commencing after the date of the certificate.
The case of the assessee before the ITO was that the order of attachment issued by the TRO created an annual charge, not being a capital charge, in respect of the interest payable by the assessee referred to above and so the said interest should be allowed as a deduction under Section 24(1)(iv) of the Act while computing the income of the said property. The ITO rejected the contention as not acceptable but did not specify any reasons therefor.
2. The assessee appealed to the AAC and contended that its claim should have been allowed. The AAC observed that the attachment order issued by the TRO did not create any charge within the meaning of Section 24(1)(iv). He further observed that no evidence was produced to show that the liability to pay the interest was actually incurred as the sum was not debited in the accounts of the assessee. In this view of the matter, he confirmed the action of the ITO.3. In this further appeal before us, Shri V.P. Mehta, the learned representative for the assessee, urged before us that the claim of the assessee should have been accepted. He produced a copy of the attachment order dated 23-10-1974 and pointed out that the property was attached not only for the tax arrears but also for the interest that might be payable for the period subsequent to the date of the certificate instituted by the ITO before the TRO. He fairly conceded that the arrears of tax represented a capital charge and contended that his claim was confined to the interest that would be payable for the subsequent period as, according to him, the said interest constituted an annual charge. Regarding the quantum of such charge, he pointed out that a rough and ready calculation was made by adding up the interest payable in respect of the assessment years 1947-48 to 1972-73 and dividing the total by the number of assessment years involved. He stated that the quantum of deduction claimed by the assessee on the aforesaid basis worked out to Rs. 11,608. He fairly stated that the actual amount of interest relating to the previous year under consideration might be calculated and allowed under Section 24(1)(iv).
4. Shri T.S. Srinivasan, the learned representative for the department, on the other hand, supported the order of the AAC. He urged that the order of attachment by the TRO was merely a prohibitory order restraining the assessee from disposing of or otherwise encumbering the house property and it did not create any charge on the same. According to him, the attachment order gave the right to the TRO to sell the house property and apply the sale proceeds towards the tax arrears as well as the interest thereon from the date of the certificate to the date of recovery. In other words, the attachment order did not operate as an order creating a charge on the property for paying any recurring amount year after year.
5. We have considered the contentions of both the parties as well as the facts on record. We have gone through the aforesaid attachment order dated 23-10-1974. This order prohibits the assessee from transferring or charging the house property specified therein. The question is whether that order created a charge within the meaning of Section 24(1)(iv). Shri V.P. Mehta had referred to us to the commentary of the learned authors, Kanga and Palkhivala's Law and Practice of Income-tax, 7th edition, page 334. We find therefrom that "annual charge" has been defined in the Act itself under Section 27(iv) as "a charge to secure an annual charge ...". The attachment order obviously took away the right of alienation in respect of the property attached from the assessee. In our opinion, that order did not create any charge to secure any annual liability. The order gave the right to the TRO for selling the property and invalidating any transfer made by the assessee subsequent to the date of the order of attachment. Beyond that, the attachment order, in our opinion, did not create any charge to secure any liability either capital or annual. It is true that the TRO could apply the sale proceeds not only towards the tax arrears but also towards the interest that may accrue for the subsequent period. But that fact alone does not mean that interest for the subsequent period will continue to accrue year after year and even if it did, it is secured as a charge by the attached property. A charge on an immovable property is created for security of a debt or a recurring liability.
The interest for the subsequent period, referred to above, may or may not arise, depending upon whether the assessee paid the tax arrears before the property was sold or whether the property was sold sooner or later. The liability to pay interest for the subsequent year will not arise unless and until the default in paying the tax arrears was made by the assessee and in such a case, there cannot be said to be any charge on the property, vide the decision in the case of Metro Theatres Bombay Ltd. v. CIT  14 ITR 638 (Bom.). Further, there must be an existing charge as was held in the case of Sri Bhagwan Radha Krishan Ji v. CIT  46 ITR 741 (All.). Hence, we hold that the attachment order under consideration did not create any charge envisaged under Section 24(1)(iv) and so the claim of the assessee has been rightly rejected.
6-9. [Paras 6 to 9 are not printed here as they deal with minor issues not covered in the synopsis.]