1985 (11) TMI 95 - AT - Income Tax

Summary

Issues:
1. Disallowance of interest payment by the ITO.
2. Allowance of interest payment by the AAC based on cash system of accounting.
3. Interpretation of Section 24(1)(vi) of the Income-tax Act, 1961 regarding deduction of interest payable on borrowed capital for house property.
4. Applicability of previous court decisions on the deduction of interest in the current case.

Analysis:
1. The assessee claimed a loss under 'Income from house property' due to an interest payment of Rs. 11,413 for a house purchased under the MIGH Scheme. The ITO disallowed the claim as the interest was not relevant for that assessment year.
2. The AAC directed the ITO to allow the interest payment, citing the assessee's cash system of accounting. The revenue appealed, arguing that only interest relating to the current year is deductible, relying on previous court decisions.
3. The Tribunal analyzed Section 24(1)(vi) of the Income-tax Act, which allows deduction of interest payable on borrowed capital for house property. It clarified that the interest payable in the previous year alone is deductible, regardless of payment, as per the clear language of the provision.
4. Referring to precedents like Abdul Hussein Essaji Arsiwalla's case and others, the Tribunal emphasized that only interest pertaining to the current year is allowable as a deduction. It reversed the AAC's order and directed the ITO to allow interest related to the previous year relevant to the assessment year, while upholding the disallowance of interest from earlier years.

In conclusion, the Tribunal partly allowed the appeal, emphasizing that only interest related to the current year is deductible for house property income, based on the specific language of the Income-tax Act and established legal precedents.