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Additional Income-tax Officer Vs. M.N. Nambiar - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1985)13ITD581(Mum.)
AppellantAdditional Income-tax Officer
RespondentM.N. Nambiar
Excerpt:
.....of the property.2. the assessee is an individual. he is a member of a co-operative housing society. the society itself had arranged for loan for the construction of the apartment. the construction of the apartment was completed and sometime in september 1982 the society wrote to the assessee that the interest payable on advances covering the period from 30-4-1980 to 26-7-1982 amounted to rs. 6,498 and this amount should be paid before possession was given. the assessee paid off this amount.possession was given in january 1982.3. in the computation of income, he claimed this amount as a deduction.the ito held that the amount representing arrears of interest of prior years would not be allowable. on appeal, the aac, following the decision of the madras high court in the case of cit.....
Judgment:
1. In this appeal by the department, the only issue to be considered is whether the assessee is entitled to the deduction of Rs. 6,498 which represents the interest payable on loans taken for the construction of the property.

2. The assessee is an individual. He is a member of a co-operative housing society. The society itself had arranged for loan for the construction of the apartment. The construction of the apartment was completed and sometime in September 1982 the society wrote to the assessee that the interest payable on advances covering the period from 30-4-1980 to 26-7-1982 amounted to Rs. 6,498 and this amount should be paid before possession was given. The assessee paid off this amount.

Possession was given in January 1982.

3. In the computation of income, he claimed this amount as a deduction.

The ITO held that the amount representing arrears of interest of prior years would not be allowable. On appeal, the AAC, following the decision of the Madras High Court in the case of CIT v. East India Industries (M) (P.) Ltd. [1983] 139 ITR 1059, held that the assessee's claim is allowable.

4. The department is on appeal. It is common ground that the claim should be considered under Section 24(1)(vi) of the Income-tax Act, 1961 ('the Act'). This section reads as follows: (1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of Sub-section (2), be computed after making the following deductions, namely:-- (vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

It will be seen that where a property is being acquired with borrowed capital, the amount of interest payable on such capital should be allowed as a deduction. Shri Nambiar appearing in person emphasized the expression used 'interest payable' and stated that the interest was payable during the accounting year under consideration and so it should be allowed as a deduction. Shri Joy for the department referred to the Explanation inserted by the Finance Act, 1983, which is to be given effect from 1-4-1984. This Explanation states that where the property has been acquired with borrowed capital, the interest for the period prior to the previous year in which the property had been acquired or constructed as reduced by any part thereof allowed as a deduction under any other provision shall be deducted in equal instalments of the said previous year and for each of the four immediately succeeding previous years. In other words, according to Shri Joy, up to the assessment year 1983-84 there is no provision for the deduction of interest of the earlier years. It is only from this year that the claim would be allowable.

5. I am unable to accept the submission of the department. A plain reading of the section shows that the interest payable during the accounting year would be allowed as a deduction. In other words, an amount which is not payable in an earlier year would be allowed as a deduction if the liability to pay arose during the accounting year.

Now, it is common ground that the housing society has asked the asses-see to pay this amount only during the accounting year under consideration. There was no earlier demand for this amount. Since the loan was arranged by the society themselves, the society could in turn ask the members to pay the interest only when the member's liability to pay arises. On the facts, it must be accepted that such a liability arose only during the accounting year. The fact that it represented interest from 30-4-1980 is not relevant. As per contract between the members and the society, the interest would be liable to be paid by the member only on possession. Therefore, the claim made by the assessee has to be accepted.

6. The Explanation, which comes into force from 1-4-1984, would be applicable to different set of facts. Where an assessee takes a loan for construction of a property and as per contract with the financing agents interest accrues annually even before the construction is completed, then the assessee cannot claim any deduction because the property has not been constructed yet. Therefore, there is no income arising therefrom. At the same time, the assessee's liability to pay interest has arisen. This liability cannot be claimed because there is no income from house property. It is under these circumstances that the Parliament thought it fit to provide a benefit to the assessee by allowing a deduction in the five years following the completion of the construction and possession of the property.


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