1988 (6) TMI 18 - HC - Income Tax

Court denies deduction for interest on debenture loans but allows deduction for municipal tax post-appeal.

Clive Buildings (Calcutta) Limited Versus Commissioner Of Income-Tax

Clive Buildings (Calcutta) Limited Versus Commissioner Of Income-Tax - [1989] 175 ITR 515, 44 TAXMANN 160 Issues Involved:1. Deduction of interest on debenture loans under section 24(1) of the Income-tax Act, 1961.2. Deduction on account of municipal tax under section 23(1) of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Deduction of Interest on Debenture Loans under Section 24(1)The first issue pertains to whether the assessee was entitled to deduct Rs. 46,867 as interest on debenture loans under section 24(1) of the Income-tax Act, 1961, in the computation of income from house property. The relevant facts are that the assessee owns house property and derives income from rent and service charges. For the assessment year 1971-72, the assessee claimed this deduction under section 24(1)(iv), which allows deductions for annual charges not created voluntarily or as a capital charge.The Income-tax Officer disallowed the claim, stating that the charge created under a trust deed dated June 24, 1936, was a capital charge and was created voluntarily. The Appellate Assistant Commissioner upheld this disallowance, noting that the charge was indeed voluntarily created and capital in nature. The Tribunal also confirmed this view, emphasizing that the charge was created voluntarily by the assessee and thus did not qualify for the deduction under section 24(1)(iv).Section 24(1)(iv) stipulates that only annual charges not created voluntarily or as capital charges are deductible. An annual charge must be a recurring liability secured by a charge on the property, enforceable in a court of law, and not created by the owner's volition. Since the charge in question was created voluntarily and the trust deed was not produced, the assessee failed to prove otherwise. Consequently, the first question was answered in the affirmative and in favor of the Revenue.Issue 2: Deduction on Account of Municipal Tax under Section 23(1)The second issue involves the extent of deduction allowable for municipal tax under section 23(1). The assessee claimed a deduction of Rs. 1,20,909, representing half of the enhanced municipal tax of Rs. 2,41,818. The Income-tax Officer only allowed Rs. 77,969, half of the original tax amount before enhancement. The Appellate Assistant Commissioner upheld this disallowance.The Tribunal held that the tax due as per the revised annual value shown in the notice dated May 28, 1969, was not the tax levied, as it was provisional and subject to objections. The final tax liability, determined by the Special Officer-1, Corporation of Calcutta, was Rs. 1,93,643, and the assessee was liable for half, i.e., Rs. 96,824. The Tribunal directed the Income-tax Officer to modify the assessment accordingly.The Supreme Court's decision in CIT v. Dalhousie Properties Ltd. [1984] 149 ITR 708 was cited, which held that the tax liability borne by the owner should be deducted under section 23(1), even if the tax amount was disputed and not fully paid. However, since the final determination by the Special Officer was Rs. 1,93,643, the Tribunal allowed a deduction of Rs. 96,824, not the initially claimed Rs. 1,20,909.The court agreed with the Tribunal's decision, stating that the final tax liability determined after the appeal should be considered for deduction purposes. Thus, the second question was answered affirmatively, confirming the deduction of Rs. 96,824.Conclusion:The judgment concluded that:1. The assessee was not entitled to the deduction of Rs. 46,867 as interest on debenture loans under section 24(1) due to the voluntary nature of the charge.2. The allowable deduction on account of municipal tax was Rs. 96,824, as determined by the final tax liability post-appeal, not the initially claimed Rs. 1,20,909.There was no order as to costs.