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Issues:
- Deductibility of interest paid on a mortgage for unpaid consideration in computing income from property under sections 24(1)(iv) and 24(1)(vi) of the Income-tax Act, 1961. Analysis: The judgment by the High Court of Madras pertained to the deductibility of interest paid on a mortgage for unpaid consideration in computing income from property under sections 24(1)(iv) and 24(1)(vi) of the Income-tax Act, 1961. The case involved an individual assessee who purchased a property and mortgaged it to the seller for the unpaid purchase money. The dispute arose when the assessee claimed a deduction for the interest on the mortgage loan paid to the seller. The Income-tax Officer disallowed the claim, which was upheld by the Appellate Assistant Commissioner and the Tribunal. The key contention was whether the interest paid on the mortgage loan could be considered as interest on capital borrowed for acquiring the property and thus allowable as a deduction under section 24(1)(vi) of the Act. The assessee argued that since the sale deed and the mortgage deed were executed simultaneously, the mortgage was for the purpose of acquiring the property. On the other hand, the Department contended that the property was mortgaged after the sale deed, and therefore, it was not for the purpose of acquiring the property with borrowed funds. The Tribunal found that the liability to pay interest was not involuntarily created and that the mortgage deed could not have been executed before the sale, leading to the denial of the deduction under both sections 24(1)(iv) and 24(1)(vi). The Court examined relevant precedents, including the Bombay Steam Navigation Co. case and the Metro Theatre Bombay Ltd. case, to determine the nature of capital borrowing and the definition of a charge. It was highlighted that a mere purchase on long-term credit with interest did not necessarily amount to borrowing capital. The Court also considered the definition of "charge" under the Transfer of Property Act and the requirement for a charge to be involuntary for deduction under section 24(1)(iv). Ultimately, the Court held that the charge created by the assessee was voluntary, as evidenced by the terms of the mortgage deed, and was not created involuntarily. Therefore, the interest payable on the mortgage amount was not deductible under section 24(1)(iv) of the Act. The judgment was delivered against the assessee, with no costs awarded.
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