9911796707
TMI Blog1997 (3) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... n in computing the income from property ?" The assessee is an individual. In the previous year ended March 31, 1976 corresponding to the assessment year 1976-77, the assessee purchased a property at No. 460, P. H. Road, Madras, from one S. Jayalakshmi Ammal on May 25, 1972, for Rs. 1,15,000. The assessee paid Rs. 30,000 in cash and mortgaged the property, which was purchased, to the seller for the balance of purchase money. The assessee claimed deduction for the interest on mortgage loans paid to Smt. Jayalakshmi Ammal. The Income-tax Officer disallowed the said claim and on appeal, the Appellate Assistant Commissioner accepted the view of the Income-tax Officer. On further appeal to the Tribunal, the contention of the assessee was that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that the property was mortgaged for the purpose of acquiring the said property with borrowed amount. Section 24(1)(iv) states thus: "24. (1)(iv) where the property is subject to an annual charge (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge." The assessee claimed interest on the mortgage loan under the impression that the property has been acquired with borrowed capital. It is only for the unpaid purchase money that the property had been mortgaged with the said Jayalakshmi Ammal. On May 25, 1972, the assessee purchased the property in question and the assessee could not pay off the entire sale consideration. For that purpose, he did not borrow any money from any one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset on long-term credit with a stipulation for payment of interest on the reduced balance did not amount to borrowing capital within the meaning of section 10(2)(iii). In the present case, the assessee cannot execute the mortgage deed prior to the sale. It is only after the execution of the sale deed, the assessee would become the owner of the property and only thereafter, he can mortgage the property. Therefore, the mortgage deed in the present case cannot be considered as for the purpose of borrowing capital to purchase the property. Therefore, the assessee is not entitled to ask for relief under section 24(1)(iv) of the Act. Alternatively, the assessee claimed that the interest payment made on the mortgage amount is allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with the principal amount and, therefore, it is not an annual charge. Therefore, according to him, the interest payment is neither an annual charge nor the charge is created voluntarily. Consequently, the assessee cannot claim deduction of interest payment under section 24(1)(iv) of the Act. We have already extracted the relevant portion of section 24(1)(iv) of the Act as well as section 55(4)(b) of the Transfer of Property Act. According to section 100 of the Transfer of Propriety Act, where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property and all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of fact. The mortgage in respect of the Bombay house property was created under the pressure of a court sale and in respect of Pune property, since the creditor demanded additional security, the assessee was obliged to create an equitable mortgage. Therefore, it could not be said that the charge was created by the assessee voluntarily. Therefore, the amount paid towards interest on the mortgages were deductible under section 24(1)(iv) of the Act. Such is not the case here. The mortgage, in the case on hand, was created neither under a threat of court sale nor to meet the demand for additional security. In CIT v. Central Bank Executor and Trustee Co. Ltd. [1993] 203 ITR 666, the Bombay High Court, held that where an overdraft was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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