1984 (7) TMI 38 - HC - Income Tax

Summary

Issues:
- Deductibility of interest under section 24(1)(iv) of the Income-tax Act.

Analysis:
The case involved a question referred under section 256(1) of the Income-tax Act, 1961, regarding the deductibility of interest claimed by the assessee under section 24(1)(iv) of the Act. The assessee owned two houses, one in Bombay and another in Pune, against which he had raised loans. The Bombay property was mortgaged to the Government of India to settle a debt, while an equitable mortgage was created on the Pune property due to creditor demands. The issue was whether the interest paid on these mortgages was deductible under the amended clause (iv) of section 24(1) post the Finance Act, 1968.

The Tribunal had allowed the deduction, holding that the interest payments satisfied the requirements of clause (iv) of section 24(1). The court analyzed the provisions of section 24(1)(iv) and emphasized that for a deduction to be claimed, the charge should be an annual charge not voluntarily created by the assessee and not a capital charge. The court clarified that the charge need not be related to the acquisition or construction of the property yielding income.

The court delved into the meaning of "voluntarily" in the context of the clause, differentiating it from "involuntarily" as not being under an enforceable obligation. The amendment introducing "voluntarily" aimed to address previous court decisions allowing deductions irrespective of voluntariness. In this case, the mortgages were created under creditor pressure, not voluntarily by the assessee, making them eligible for deduction.

The court noted the absence of specific cases interpreting "voluntarily" post-amendment but referenced earlier judgments under the unamended clause. These cases affirmed deductions for charges not created voluntarily. The court concluded that the interest payments on the mortgages, being involuntary charges, qualified for deduction under section 24(1)(iv). Therefore, the court ruled in favor of the assessee, allowing the deduction of interest payments.