Master Naman Kumar vs. CIT, Patiala [2014] 41 taxmann.com 10 (Punjab & Haryana)
During proceedings of assessment for the periods ranging from 1987-88 to
1991-92, it was noticed that the assessee was having 25% share of rental income of SCO Nos. 57, 58 and 59, Sector 17, Chandigarh. It was also noticed that the assessee had been claiming compound interest on loan raised for construction of the property, whereas during the assessment proceedings, it was found that only simple interest was admissible to the assessee.
The AO falling in line with the assessment order for the year 1984-85 held that the assessee was to be entitled only simple interest on the principal amount outstanding during the year out of the loan raised by the assessee. In short, interest @ 15% per annum on outstanding principal amount of Rs. 5,05,000/- was allowed. Both CIT(A) & Tribunal disallowed interest on interest which had been deducted by the assessee as an allowable deduction and allowed only simple interest as deduction. On a reference in High Court where the question of law was whether simple interest or compound interest charged by the bank on the amount borrowed by the assessee from it for raising construction was to be allowed or not?The hon’ble High Court affirmed the findings of lower authorities and held in favour of revenue by taking a view that income of the assessee under the head "income from house property" is to be computed for the purpose of income tax after making certain deductions as are envisaged in Section 24 of the Act. Section 24(1)(vi) of the Act stipulates that amount of interest payable on capital borrowed, inter alia, for construction of the property yielding income, was an admissible deduction. It was thus evident that only interest payable on such borrowed capital was to be deducted while computing income chargeable to income tax under the head 'Income from house property". In short, interest paid on interest levied by the bank, because of non-payment of instalments of borrowed capital to the bank, did not qualify for an admissible deduction.
1991-92, it was noticed that the assessee was having 25% share of rental income of SCO Nos. 57, 58 and 59, Sector 17, Chandigarh. It was also noticed that the assessee had been claiming compound interest on loan raised for construction of the property, whereas during the assessment proceedings, it was found that only simple interest was admissible to the assessee.
The AO falling in line with the assessment order for the year 1984-85 held that the assessee was to be entitled only simple interest on the principal amount outstanding during the year out of the loan raised by the assessee. In short, interest @ 15% per annum on outstanding principal amount of Rs. 5,05,000/- was allowed. Both CIT(A) & Tribunal disallowed interest on interest which had been deducted by the assessee as an allowable deduction and allowed only simple interest as deduction. On a reference in High Court where the question of law was whether simple interest or compound interest charged by the bank on the amount borrowed by the assessee from it for raising construction was to be allowed or not?The hon’ble High Court affirmed the findings of lower authorities and held in favour of revenue by taking a view that income of the assessee under the head "income from house property" is to be computed for the purpose of income tax after making certain deductions as are envisaged in Section 24 of the Act. Section 24(1)(vi) of the Act stipulates that amount of interest payable on capital borrowed, inter alia, for construction of the property yielding income, was an admissible deduction. It was thus evident that only interest payable on such borrowed capital was to be deducted while computing income chargeable to income tax under the head 'Income from house property". In short, interest paid on interest levied by the bank, because of non-payment of instalments of borrowed capital to the bank, did not qualify for an admissible deduction.
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