ADDITIONAL INCOME TAX OFFICER v. M.N. NAMBIAR
[Citation -1985-LL-0124-4]

Citation 1985-LL-0124-4
Appellant Name ADDITIONAL INCOME TAX OFFICER
Respondent Name M.N. NAMBIAR
Court ITAT
Relevant Act Income-tax
Date of Order 24/01/1985
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags computation of income • arrears of interest • housing society • co-operative
Bot Summary: The ITO held that the amount representing arrears of interest of prior years would not be allowable. Income chargeable under the head Income from house property, shall subject to the provision of sub-s., be computed after making the following deductions, namely: xx xx xx where the property has been acquired, constructed, repaired, renewed o r reconstructed with borrowed capital, the amount of any interest payable on such capital. Shri Nambiar appearing in person emphasized the expression used interest payable and stated that the interest was payable during the accounting year under consideration and so it should be allowed as a deduction. 1983-84 there is no provision for the deduction of interest of the earlier years. A plain reading of the section shows that the interest payable during the accounting year would be allowed as a deduction. Where an assessee takes a loan for construction of a property and as per contract of a property and as per contract with the financing agents interest accrues annually even before the construction is completed, then the assessee cannot claim any deduction because the property has not been constructed yet. At the same time, the assessee s liability to pay interest has arisen.


K . S. VISWANATHAN, A.M.: In this appeal by Department, only issue to be considered is whether assessee is entitled to deduction of Rs. 6,498 which represents interest payable on loans taken for construction of property. assessee is individual. He is member of co-operative housing society. society itself had arranged for loan for construction of apartment. construction of apartment was completed and some time in September, 1982, society wrote to assessee that interest payable on advances covering erode from 30th April, 1980 to 26th July, 1982 amounted to Rs. 6,489 and this amount should be paid before possession was given. assessee paid off this amount. Possession was given in January 1983. In computation of income, he claimed this amount as deduction. ITO held that amount representing arrears of interest of prior years would not be allowable. On appeal, AAC, following decision of Madras High Court in case of CIT vs. East India Industries (M) (P) Ltd. (1983) 33 CTR (Mad) 103: (1983) 139 ITR 1059 (Mad), held that assessee s claim is allowable. Department is on appeal. It is common ground that claim should be considered under s. 24(1)(vi). This section reads as follows: "24(1). Income chargeable under head "Income from house property", shall subject to provision of sub-s. (2), be computed after making following deductions, namely: (i) xx xx xx (vi) where property has been acquired, constructed, repaired, renewed o r reconstructed with borrowed capital, amount of any interest payable on such capital." It will be seen that where property is being acquired with borrowed capital amount of interest payable on such capital should as allowed as deduction. Shri Nambiar appearing in person emphasized expression used "interest payable" and stated that interest was payable during accounting year under consideration and so it should be allowed as deduction. Shri Joy for Department referred to Explanation inserted by Finance Act, 1983 which is to be given effect from 1st April, 1984. This Explanation states that where property has been acquired with borrowed capital, interest for period prior to previous year in which property had been acquired or constructed as reduced by any part thereof allowed as deduction under any other provision shall be deducted in equal instalments of said previous year and for each of four immediately succeeding previous year. in other words, according to Mr. Joy, upto asst. yr. 1983-84 there is no provision for deduction of interest of earlier years. It is only from this year that claim would be allowable. I am unable to accept submission of Department. plain reading of section shows that interest payable during accounting year would be allowed as deduction. In other words, amount which is not payable in earlier year would be allowed as deduction if liability to pay arose during accounting year. Now, it is common ground that housing society had asked assessee to pay this amount only during accounting year under consideration. There was no earlier demand for this amount. Since loan was arranged by society themselves, society could, in turn, ask members to pay interest only when member s liability to pay arises. On facts, it must be accepted that such liability arose only during accounting year. fact that it represented interest from 30th April, 1980 is not relevant. As per contract between members and society, interest would be liable to be paid by member only on possession. Therefore, claim made by assessee has to be accepted. Explanation which comes into force from 1st April, 1984 would be applicable to different set of facts. Where assessee takes loan for construction of property and as per contract of property and as per contract with financing agents interest accrues annually even before construction is completed, then assessee cannot claim any deduction because property has not been constructed yet. Therefore, there is no income arising therefrom. At same time, assessee s liability to pay interest has arisen. This liability cannot be claimed because there is no income from house property. I t is under these circumstances that Parliament thought it fit to provide benefit to assessee by allowing deduction in five years following completion of construction and possession of property. In result, Departmental appeal stands dismissed. *** ADDITIONAL INCOME TAX OFFICER v. M.N. NAMBIAR
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