S.K. Kapur, J.
(1) This order will dispose of Income-tax Cases Nos.4 of 67, 9 of 67 and 10 of 67 relating to the assessment years 1952-53, 1955-56 and 1956-57 respectively. Except for the difference in the amounts of interest allowed as a deduction to the assessed under Section 9 of the Indian Income-tax Act, 1922 and which deduction is sought to be challenged by the revenue there is no difference in the facts of these cases. It is sufficient, thereforee, if I confine myself to the facts of Income-tax Case No.4 of 1967.
(2) The assessed a registered firm purchased a property in Lahore known as 'Nedous Htoel' for Rs.46 lakhs. For acquiring the said property, the assessed took interest bearing loans of about Rs.30 lakhs from Bharat Bank Limited, Lahore, and of about Rs.18 lakhs from Raja Rana of Jubbal. In the return of income filed by the assessed it inter alias claimed that the income from the property be computed u/s 9 of the Indian Income-tax Act, 1922, and a sum of Rs.1,00,723/-, payable to the Bharat Limited as interest on the loan mentioned hereinbefore allowed as a deduction. The Income-tax Officer decided that the property in question had under the provisions of evacuee laws in force in Pakistan vested in the Custodian of Evacuee Property which resulted in the assessed ceasing to be the owner thereof and the assessed could neither include the annual letting value in its income nor claim the interest payable as a deduction.
(3) The assessed's appeal before the Appellate Assistant Income-tax Commissioner also failed and the matter was then taken by the assessed to the Income-tax Appellate Tribunal. The order of the Appellate Tribunal is printed in the Income-tax Reference No.2 of 67, the Commissioner of Income-tax Punjab, Jammu and Kashmir and Himachal Pradesh, Patiala v. M/s. R. B. Jodha Mal Kuthiala.
(4) Before I refer to the decision recorded by the tribunal, it is necessary to analyze the decision given by the tribunal on assessed's appeal with respect to the assessment year 1951-52. I say so because the tribunal while disposing of the appeal for this year has referred to its earlier decision dated August 8, 1963, also printed in the said Paper Book. There has been a considerable controversy at the Bar as to whether or nto the revenue disputed to deduct the interest payable.
(5) The contention of the learned counsel for the assessed is that this question had been raised in appeal for the assessment year 1951-52 by the revenue but with respect to the assessment year 1952-53 the revenue confined its contention only to the question whether or nto the assessed was owner of the property in question within the meaning of Section 9 of the Indian Income-tax Act, 1922. In the order dated August 8, 1963, the tribunal had held that the effect of the evacuee legislation in Pakistan was nto to deprive the assessed of ownership in the said property and the interest was an allowable deduction. It is appropriate to qutoe the observations of the tribunal regarding the question of interests.
'Mr. Malhtora, appearing for the Department, argued that the matter was governed by the Displaced Persons (Debts Adjustment) Act, 1950. In view of the provisions contained in that Act, according to Mr. Malhtora, no interest accrued to the assessed after the enactment of that Act. We find further that the Income-tax Officer in his order has stated that the assessed was deprived of the ownership merely by passing of the Evacuee Properties Act in Pakistan and secondly, that no interest accrued because the assessed had disputed the interest liability in a suit instituted by the Bank in the Civil Court at Lahore. In reply, it was pointed out by Mr. Chadha that firstly the Debts Adjustments Act did nto govern the present case because that Act contemplated proceedings by a debtor who was also an evacuee and in this case Bharat Bank was nto an evacuee; Secondly, it was pointed out that the creditor, namely, Bharat Bank, had never filed any petition for adjustment of the debt in accordance with that Act. In particular, he drew our attention to the fact that Bharat Bank had nto filed such application even though they knew that the assessed had enough properties in India. On the toher hand, they have chosen to file a suit in the Pakistan Court for the recovery of the amounts due to them in which the assessed alone was imp leaded as defendant and nto the Custodian.
We have considered the matter carefully in the light of the contentions pressed before us on btoh sides. We are of opinion that the assessed's contention is well founded and that the Departmental Officers erred in nto treating the assessed as the 'owner' of the property in question and on that fotoing refusing to allow the loss under this head. The Income-tax Officer will compute the loss by allowing the interest claimed in terms of Section 9(I)(iv) of the Act, and by adjusting the gross annual letting value of the property as previously determined in the preceding years'
In the appeal relating to the year in question, the tribunal observed:-
'Grounds 1 to 6 may be taken up first. These pertain to the 'Nedous Htoel' property situated at Lahore. The legal possession with regard to the ownership of this property came to be considered by us in connection with the assessment year 1951-52 (I. T. A. No.6845 of 1959-60) and by our order dated 8-8-1963 we have held that the assessed should be treated as the 'owner' of the property for purposes of computation of the Act and by adjusting the gross annual letting value of the property'
(6) The said grounds Nos. 1 to 6 have nto been made available to us but the perusal of the order of the tribunal shows that it did record a finding allowing the interest to the assesee. From this I feel inclined to hold that the question of deduction of interest was raised by the revenue. The Commissioner of Income-tax by an application under Section 66(I) prayed for two questions being referred to this Court namely:
'1. Whether on the facts and in the circumstances of the case the tribunal was justified in holding that the assesse was the owner of the property in question and in directing that the loss should be computed under Section 9?
2. Whether on the facts and in the circumstances of the case the interest of Rs.1,00,723/- was admissible as a deduction even though no such amount was paid by the assessed nor was any amount intended to be paid?
(7) The Income-tax Appellate Tribunal by its order dated March 5, 1965, referred only one question to this Court reading thus:
'Whether on the facts and in the circumstances of the case the assessed continued to be the owner of the property for the purposes of computation of income under Section 9 of the Indian Income-tax Act, 1922?'
(8) Regarding the second question the tribunal said:-
'This question is, in our opinion, purely a question of fact, inasmuch as whether the assessed paid the amount of interest or did nto intend to pay it was purely a question of fact'
(9) Mr. Awasthy, the learned counsel for the Revenue, firstly pressed on us to hold that the tribunal was nto right in treating the question as one of facts. He referred us to the records of Income-tax Reference No. 3 of 1967 relating to an earlier year between the same parties. In that case the question of validity of the same loan was referred to this Court by the Tribunal. That does nto in may opinion, help the Revenue. The test in such matters is: does a question of law arise out of the Tribunal's order? If the question sought to be referred is one of fact, an earlier reference by the Tribunal will nto convert into a question of law. I would nto like to express my views on the validity of the earlier reference as the matter is pending in this Court. Under Section 9(1)(1v) of the Indian Income-tax Act, 1922, 'interest payable' on capital borrowed for acquisition of property is allowable as a deduction. Neither before the Tribunal nor before us has it been disputed by the Revenue that the property was acquired with borrowed capital. The question, thereforee, to be answered by the Tribunal was whether or nto interest was payable thereon. This would necessarily be a question of fact.
The Revenue appears to have only contended (1) that the interest was nto paid and (2) it was nto intended to be paid. The question of actual payment is indifferent to the section and even if intention to pay is taken in the context of its being 'payable' the Tribunal has recorded a finding of fact that it was payable. That does nto, thereforee, call for any reference to this Court. Mr. Awasthy then contended that even if the property vested in the Custodian for a limited purpose and the assessed continued to be its owner, no interest would be payable by the assessed. That was nto the question which the Revenue asked the Tribunal to refer and consequently it cannto be said that there was a refusal by the Tribunal to refer the question entitling this Court to issue a mandamus under Section 66(2) of the said Act. Moreover, the question as now sought to be raised was nto raised before the Tribunal and it cannto, thereforee, be said that it arises out of the order of the Tribunal.
(10) In these circumstances, there is no merit in these applications which are dismissed with no order as to costs.