Commissioner of Income Tax vs Raghubir Saran

income tax Appellate Tribunal, Delhi, has referred the following question of law u/s 256(1) of the income tax Act (hereinafter referred to as "the Act"), for opinion of this Court: Whether, on the facts and in the circumstances of the case, the Ld. Tribunal was legally correct in holding that no annual charge was created by the assessee voluntarily on the property and, therefore, the assessee''s claim of deduction of Rs. 27,810 from the property income could not be disallowed under the provisions of section 24(1) of income tax Act?

We have heard Shri Govind Krishna, learned Standing Counsel for the Revenue and Shri Vikram Gulati, learned counsel for the respondent. The present reference relates to the assessment year 1980-81. The income tax Officer did not allow the deduction of Rs. 27,915 claimed by the respondent as annual charge of the property, as according to him, the charge had been voluntarily created. The Appellate Assistant Commissioner allowed the appeal and directed the income tax Officer to allow the deduction of Rs. 27,915 claimed by the respondent department. The appeal has been dismissed by the Tribunal. It may be mentioned here that in respect of the assessment year 1976-77, the respondent had claimed a deduction of interest on borrowed capital to the extent of Rs. 19,885 which he had borrowed for constructing the property in question. The income tax Officer had not allowed the amount as according to it the charge was created voluntarily. This Court in income tax Reference No. 43 of 1982 decided on 5th April, 1999 which is inter parties since reported in 1999 U.P. Tax Laws 741 has held that the amount out of interest which the respondent-assessee had paid to the creditors is nothing but interest paid by him towards borrowed amount which clearly falls u/s 24(1)(vi) of the Act which is allowable deduction while computing the income tax from house property. In the present case also, the claim of the respondent was that the aforesaid amount has been paid as interest towards borrowed capital used in the construction of the property in question. Thus, it was allowable not u/s 24(1)(iv) but u/s 24(1)(vi) of the Act.

Respectfully following the earlier decision of this Court, we answer the question referred to us that a sum of Rs. 27,915 was allowable as deduction u/s 24(1)(vi) of the Act.

However, the parties shall bear their own costs.