Commissioner of Income Tax vs Pearey Lai and Sons (P.) Ltd.

In this reference u/s 256(1) of the Income Tax Act, 1961, the following question of law has been referred for our opinion:

Whether, having regard to the nature of the transactions between the assessed and the Oriental bank of Commerce and the Ghaziabad Engg. Co. (P.) Ltd., the Tribunal was right in holding that the assessed was entitled to a deduction u/s 24(1)(vi) of an amount equal to the annual value determined for the basement, ground floor, first floor and second floor of property bearing No. 13/29, B-Block, Connaught Place, New Delhi

From the statement of case, it appears that the assessed had constructed some property in B-Block, Connaught Place. The assessed had taken a loan from Oriental Bank of Commerce Ltd. and had also entered into a mortgage deed dated 18-5-1971. The arrangement between the bank and the assessed was that the bank would take possession of the property and would pay rent for use and occupation thereof and the assessed would not F pay any interest on the loan amount. A similar mortgage deed was executed by the assessed with M/s. Ghaziabad Engg. Co. Pvt. Ltd. on 15-11-1971 in respect of another portion of the property.

The Income Tax Appellate Tribunal found, as a fact, that the loan amount was actually used for the construction of the property.

Section 24(1)(vi) of the Income Tax Act, 1961 read as under:

Deductions from income from house property. (I) 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:

(i) to (v)* * ** **

(vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

A finding of fact having been rendered by the Tribunal in favor of the assessed with regard to the utilisation of the capital in the construction of the building, a bare reading of Section 24(1)(vi) of the Act makes it quite clear that any interest payable on such capital is allowable as a deduction for the purpose of calculating the income from house property.

That being the position, on a plain reading of the said section, the question referred for our opinion must be answered in the affirmative, in favor of the assessed and against the revenue.