1993 (2) TMI 28 - HC - Income Tax

Summary

Issues:
- Deduction of interest liability under section 24(1)(iv) of the Income-tax Act, 1961.
- Interpretation of "voluntarily created charge" under section 24(1)(iv).
- Applicability of the judgment in CIT v. Central Bank Executor and Trustee Co. Ltd. [1993] 203 ITR 666.
- Treatment of charges created before and after the amendment of section 24.

Analysis:
The case involved the deduction of interest liability under section 24(1)(iv) of the Income-tax Act, 1961. The assessee, a building contractor, had raised loans to pay excess profits tax liabilities by mortgaging properties. The Income-tax Officer denied the deduction, citing the deletion of section 24(1)(iii) by the Finance Act, 1968. The Appellate Assistant Commissioner upheld this decision, but the Tribunal allowed the deduction under section 24(1)(iv), requiring the charge to be involuntary and not a capital charge.

The question referred to the court was whether the interest liability was a permissible deduction under section 24(1)(iv). A previous judgment in CIT v. Central Bank Executor and Trustee Co. Ltd. was cited, where the court interpreted "not being a charge created by the assessee voluntarily" to exclude charges created due to financial necessity. The court held that the assessee's charges, though created to meet tax liabilities, were not involuntary, thus disallowing the deduction under section 24(1)(iv).

The court rejected the argument that charges created before the amendment should be considered involuntary. It emphasized that the voluntary or involuntary nature of a charge should be determined by the circumstances of its creation, regardless of the timing concerning the amendment. The court concluded that the deduction could not be allowed post-amendment, ruling in favor of the Revenue. The judgment highlighted that the amendment's effect did not entail retrospective application, and the assessee's contentions were deemed unsubstantiated.

In conclusion, the court answered the referred question negatively, supporting the Revenue's position and providing no order as to costs. The case underscored the importance of assessing the voluntary nature of charges for deduction eligibility under section 24(1)(iv) and clarified the treatment of charges created before and after statutory amendments.