1973 (3) TMI 2

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..... d H. R. KHANNA. JUDGMENT The judgment of the court was delivered by HEGDE J.--- These are appeals by certificate. A common question of law is involved in these appeals. These appeals relate to a common assessee but arise from three different assessments in respect of three different assessment years (1956-57 to 1958-59), the accounting years being the respective calendar years. The question of law arising for decision is whether the assessee was entitled to claim deduction of compound interest under section 9(1)(iv) of the Indian Income-tax Act, 1922. The High Court answered that question in the negative and in favour of the department. Aggrieved by that decision, the assessee has come up in appeal to this court. To decide .....

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..... 8,000 only, on the basis of simple interest at the rate of 6 3/4% per annum. The assessee's appeal against this order was dismissed by the Appellate Assistant Commissioner and later on by the Tribunal. Thereafter, at the instance of the assessee, the following question of law was referred to the High Court in respect of the assessment year 1956-57 : " Whether, on the facts and in the circumstances of the case, and on a true construction of the words 'interest payable on such capital' in section 9(1)(iv) of the Indian Income-tax Act, 1922, the amount of interest allowable was Rs. 18,000 or Rs. 38,221 ? " The questions referred for the remaining assessment years are more or less similar. The High Court answered those questions, as menti .....

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..... interest on such mortgage or charge ". The interest payable by the assessee on the capital charge was at the rate of 6 3/4% per annum. But if he fails to pay that in accordance with the terms of the contract, he was liable to pay compound interest. In other words, if he fails to pay interest in accordance with the contract, he was liable to pay interest on interest. Or, to put it differently, when the interest payable is not paid, the same became a part of the principal and, thereafter, interest has to be paid not only on the original principal but also on that part of the interest which had become a part of the principal. It cannot be said that the interest which became a part of the principal can be considered as the capital charge. What .....

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