COMMISSIONER OF INCOME TAX Vs. ABDULLABHAI M MOONIM

JUDGEMENT

(1.) THE assessee along with five others started construction of a property for which purpose of assessee and his two brothers had to borrow money as loan. However, in spite of these borrowings which were spent for the construction of the property, the property could not be completed for shortage of funds. Hence, further funds were obtained by all the six from the Bombay Mercantile Co -operative Bank Ltd., by mortgaging the property under construction and the construction of the property was completed. The shares of all the six co -owners of the property were known and certain. The assessee claimed deduction of the interest paid by him on the loan raised by him personally for contributing his share of the cost of construction contributed by him originally before it was pledged to the said bank. This deduction was claimed by him under cl. (iv) of s. 24(1) of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'), from out of his share of the income from the said property, under the head 'Income from house property'. The ITO made an assessment against all the six co -owners treating them as an association of persons in respect of the income from the said property. He computed the income after deducting the interest paid by the six co -owners to the bank on the loan collectively raised by them for further construction of the property. One -sixth of the income so computed was transposed by him to the assessee's assessment, as admittedly, all the six co -owners possessed equal shares in the said property. He, however, rejected the assessee's claim for the deduction of the interest paid by him on the loans individually raised by him for the acquisition and construction of his one -sixth share in the property on the ground that such deduction was not permissible under s. 26 of the said Act. The assessee was thus assessed for four assessment years from 1963 -64 to 1966 -67. The assessee preferred appeals against all the four assessment years before the AAC, who accepted the assessee's stand and allowed the deduction of the interest paid by him on the loan individually taken by him. Against the decision of the AAC, the revenue preferred appeals before the Tribunal and contended that the decision of the AAC was inconsistent with the express provisions contained of the revenue by observing that the assessee was entitled to the deduction of the amount of interest paid by him on the loan taken by him individually which was admittedly spent for acquiring and constructing his one -sixth share in the said property. The Tribunal further observed that these deductions had to be given in addition to the deduction of the interest amount paid on the loan taken collectively by the six co -owners for the completion of the remaining construction of the said property. The revenue having applied for stating the case under s. 256(1) of the said Act, the following question has been referred to this court by the Tribunal : 'Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of the interest paid by him on the loan raised by him individually for contributing his share of the price and cost of construction of the property in the computation of his income under the head 'Income from house property' ?'

(2.) ON the admitted facts themselves we should have though that the position in law was simple. It is not disputed that before the property was mortgaged, the assessee and five other co -owners had started the construction of the property by contributing equally towards the cost of construction. It is also not disputed that a part of his share of the cost of construction had come to a certain stage and it was found that the moneys raised by each of the co -owners fell short of the required funds for completing the construction, that the property was mortgaged to the Bombay Mercantile Co -operative Bank Ltd., and a further sum was raised from the bank by all the six co -owners by mortgaging the property to the bank and thus the remaining construction of the property was completed. It is also an admitted fact that all the co -owners had equal, definite and determined shares in the property and the income therefrom.

(3.) THE Explanation to the said section which is as follows was added subsequently and was not available at the time of the assessment in question : 'Explanation. - For the purposes of this section in applying the provisions of sub -section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub -section.