K GOVINDA BHATT Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance, of the assessee, the Tribunal, has referred the following question for the opinion of this Court under s. 256(1) of the IT Act, 1961.

(2.) THE assessee is an individual. In the previous year ended 31st March, 1976 corresponding to asst. yr. 1976-77, the assessee purchased a property at No. 460, P.H. Road, Madras from one S. Jayalakshmi Ammal on 25th May, 1972 for Rs. 1,15,000. THE assessee paid Rs. 30,000 in cash and mortgaged the property, which was purchased, to the seller for the balance of purchase money. THE assessee claimed deduction for the interest on mortgage loans paid to Smt. Jayalakshmi Ammal. THE ITO disallowed the said claim and on appeal, the AAC accepted the view of the ITO. On further appeal to the Tribunal, the contention of the assessee was that the interest paid on the mortgage loan was interest on capital borrowed for acquiring the property and should be allowed as a deduction under s. 24(1)(iv) of the IT Act, 1961 (hereinafter referred to as the Act). THE Tribunal held that the liability to pay interest was neither the annual charge nor involuntarily created so as to be allowed as a deduction under s. 24(1)(iv) of the Act. With regard to the deduction under s. 24(1)(vi) the Tribunal found that since the mortgage deed could not have been executed before the sale, the loan raised could not be considered as capital borrowing for the acquisition of the property. THE Tribunal, therefore, confirmed the order of the authorities below.

(3.) IN Metro Theatre (Bombay) Ltd. vs. CIT (1946) 14 ITR 638 (Bom) : TC 15R.860, the Bombay High Court held that a mere purchase of capital asset on long-term credit with a stipulation for payment of interest on the redeemed balance did not amount to borrowing capital within the meaning of s. 10(2)(iii). IN the present case, the assessee cannot execute the mortgage deed prior to the sale. It is only after the execution of the sale deed, the assessee would become the owner of the property and only thereafter, he can mortgage the property. Therefore, the mortgage deed in the present case cannot be considered as for the purpose of borrowing capital to purchase the property. Therefore, the assessee is not entitled to ask for relief under s. 24(1)(vi) of the Act.