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Issues: (i) Whether reassessment under Section 148 was valid where the original assessment had been made under Section 143(1), and the question arose whether there was merely a change of opinion or escapement of income; (ii) Whether only simple interest, and not compound interest or interest on interest, was allowable as a deduction in computing income from house property.
Issue (i): Whether reassessment under Section 148 was valid where the original assessment had been made under Section 143(1), and the question arose whether there was merely a change of opinion or escapement of income.
Analysis: The original returns did not disclose complete particulars showing the basis of the claim of interest, and the later scrutiny revealed that the assessee had claimed interest beyond what was legally admissible. In those circumstances, the reopening was founded on escaped income and not on a mere reappraisal of an earlier formed opinion. The earlier summary assessment under Section 143(1) did not bar recourse to reassessment when material facts had not been fully disclosed.
Conclusion: Reassessment under Section 148 was valid and the plea of change of opinion was rejected.
Issue (ii): Whether only simple interest, and not compound interest or interest on interest, was allowable as a deduction in computing income from house property.
Analysis: The provisions governing house-property income under Section 24(1)(vi) of the Income-tax Act, 1961 were treated as pari materia with Section 9(1)(iv) of the Indian Income Tax Act, 1922. On that construction, the allowable deduction was confined to interest payable on borrowed capital used for acquisition or construction of the property. Interest that accrued on unpaid interest, being compound interest or interest on interest, did not constitute interest on borrowed capital and was therefore outside the deduction provision. The Court relied on the settled interpretation that the statute permits only the original interest on the capital charge.
Conclusion: Only simple interest was allowable as a deduction, and the claim for compound interest was disallowed.
Final Conclusion: The substantial questions of law were answered against the assessee, and the references were decided in favour of the Revenue.
Ratio Decidendi: Reassessment is permissible where income has escaped assessment and the reopening is not based on a mere change of opinion, and for house-property income the deduction for interest on borrowed capital does not extend to compound interest or interest on interest.
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