Voluntary charge rule denies deduction where overdraft interest secures a self-created charge on property.

Interest on an overdraft raised to discharge estate duty was not deductible as an annual charge under section 24(1)(iv) because the charge was created voluntarily by the assessee to secure the borrowing and interest. The provision applies only to an annual charge that is not a capital charge and is not created by the assessee's own volition, such as a charge arising by operation of law, under a court decree, or as an existing encumbrance attached to the property when acquired. The Court rejected the wider argument that commercial necessity or consideration makes a charge involuntary. The reference was answered against the assessee and in favour of the Revenue.

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Issues: Whether interest paid on an overdraft raised to discharge estate duty, secured by a charge on the property, was deductible as an annual charge under section 24(1)(iv) of the Income-tax Act, 1961, or was excluded because the charge was created voluntarily by the assessee.

Analysis: The deduction under section 24(1)(iv) is available only where the property is subject to an annual charge that is not a capital charge and is not created voluntarily by the assessee. A charge may be involuntary where it arises by operation of law, under a decree of court, or is already attached to the property when it comes into the assessee's hands. The Court rejected the broader view that pressure of circumstances or commercial necessity makes a charge involuntary, and also rejected the contention that a charge becomes non-voluntary merely because it is supported by consideration. On the facts, the assessee itself created the charge to secure repayment of the borrowing and the interest thereon, so the charge was voluntary within the meaning of the provision.

Conclusion: The interest was not an allowable deduction under section 24(1)(iv) and the answer to the reference was against the assessee and in favour of the Revenue.

Ratio Decidendi: For section 24(1)(iv), only an annual charge that is not created by the assessee's own volition, but is thrust upon the property by law, decree, or an existing overriding encumbrance, is deductible.

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