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TMI Blog1984 (2) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and Shri Sumermal Dugar the two partners of the firm as before mentioned expressed their willingness to retire from the partnership business with effect from the commencement of the Ramnavami year 2031, i.e., 1-4-1974 and the parties hereto having agreed to their retirement from the business, the said two partners have so retired from the partnership business, with effect from the said date. And whereas upon such retirement of the said two outgoing partners accounts of the partnership business have been made, closed and adjusted on 1-4-1974 and the said outgoing partners having themselves examined the said accounts of the partnership business have verified the correctness thereof as showing the true state of affairs of the business as on the date of their retirement. And whereas in consideration of the amounts remaining due payable to the two retiring partners and all their interests and claims in the partnership business and its goodwill they have been allotted the properties of the partnership business as described in Schedule 'A' hereto and as delineated in the map or plan annexed hereto and therein respectively coloured red and green from the 1st day of April 1974, becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rs. 60,000 on account of the value of house property transferred to him. The debit balance in his account carried over to the next year was thus Rs. 60,000. The aforesaid debit balance of Rs. 60,000 was paid by him in Ramnavami year 2032 in cash as follows: Rs. 10-2-1976 40,000 17-2-1976 20,000 A sum of Rs. 5,850 was debited to his account by way of interest which remained unpaid at the end of Samvat year 2032. 5. It is the aforementioned interests of Rs. 3,359 and Rs. 5,850 which are the subject matter of dispute in the present appeals. The assessees in question claimed the aforesaid interests as admissible expenditure to them in terms of clause (vi) of section 24 of the Income-tax Act, 1961 ('the Act') being interest paid on the sums borrowed for acquiring the properties in question. The ITO disallowed the above claim, as according to him, there was no borrowings for the purpose of acquiring the said properties and that the properties in question were given to them on account of settlement of their accounts at the time of retirement from the firm. In his opinion the payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 24, in terms of which the assessee has claimed the deduction for interest, reads as follows: "(1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely:--- (vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital." 10. From the reading of the aforesaid clause, it is clear that an assessee in order to put in a successful claim under the aforesaid clause should be able to show: (a) that he has acquired the property within the previous year or prior to the previous year, and (b) that such acquisition was with the help of borrowed capital. That the properties in question have been acquired by the assessee in the present case during the previous year corresponding to Samvat year 2031 is not in doubt. But as far as I can see it is not possible to say that they acquired the said properties 'with borrowed capital'. 11. The properties were admittedly acquired by them in the process of settling their accounts while retiring from the firm of Rekhabchand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 24. It is well known that what is being assessed under the head 'Income from house property' is a notional income. It is not the actual income that is brought to tax. In order to see whether an amount is allowable, while computing the property income, one has merely to look at the relevant section and determine as to whether the conditions laid down therein have been fulfilled. In the present case, as we have seen above, the relevant conditions of section 24(1)(vi), viz., (i) the borrowing of the capital, and (ii) acquiring the property with the help of it have not been fulfilled. There could, therefore, be no question of allowing interest to the assessees in terms of clause (vi) of sub-section (1) of section 24. Their claims were, therefore, rightly rejected by the ITO. His orders are, therefore, hereby restored and those of the AAC are set aside. 13. In the case of Shri Sumermal Dugar, there is one additional ground, which reads as follows: "For that the learned AAC ought to have held that annual value of dwelling house was properly determined after giving admissible deduction under section 23(2) and thereafter restricting the value so arrived at in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (2) of section 23. This computation has then to be compared with 10 per cent of other income of the assessee. The lower of the two will be the annual value. Therefore, the direction of the AAC that from the figure of 10 per cent arrived at by the ITO he should further give deduction of Rs. 1,800 is not correct. At the same time, the computation of the ITO cannot be sustained as he has not worked out the annual letting value in the manner indicated in clause (i) of sub-section (2) of section 23 [clause (ii) of sub-section (2) of section 23 does not apply to the facts of this case.] While doing so, he will have to deduct Rs. 1,800 from the annual letting value. If this value exceeds 10 per cent, the excess has to be disregarded by him. The ITO has, therefore, to undertake the normal computation first and if such computation is in excess of 10 per cent, he will restrict the annual letting value to 10 per cent. Insofar as the ITO has not done the normal computation, it is not possible to note if the normal computation was less than 10 per cent. If it be so, there is no question of adopting 10 per cent of other income as done by him. Therefore, it is not possible to rest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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