TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the amount of Rs. 2,29,015 constituted borrowed capital in the hands of the assessee-company; (ii) whether the house property was acquired with borrowed capital; (iii) whether the assessee-company was entitled to deduction of interest under section 9(1)(iv) of the Indian Income-tax Act, 1922 and section 24(1)(vi) of the Income-tax Act, 1961.
Issue (i): Whether the amount of Rs. 2,29,015 constituted borrowed capital in the hands of the assessee-company.
Analysis: The relevant deduction provisions apply only where property is acquired, constructed, repaired, renewed or reconstructed with borrowed capital. On the facts, the members' deposits were security deposits retained for performance of obligations and not amounts advanced in a real loan transaction. The resolution to use part of the deposit funds for construction did not create a genuine lender-borrower relationship, and the later takeover of assets and liabilities by the company did not convert the deposits into borrowed money.
Conclusion: The amount of Rs. 2,29,015 did not constitute borrowed capital.
Issue (ii): Whether the house property was acquired with borrowed capital.
Analysis: Even assuming some borrowing at the earlier association stage, the company took over all assets and liabilities as a package and there was no identifiable borrowing by the company specifically for acquiring the house property. The deposit liability was part of a general takeover of liabilities and did not establish that this particular asset was acquired with borrowed funds.
Conclusion: The house property was not acquired with borrowed capital.
Issue (iii): Whether the assessee-company was entitled to deduction of interest under section 9(1)(iv) of the Indian Income-tax Act, 1922 and section 24(1)(vi) of the Income-tax Act, 1961.
Analysis: The allowance of interest is contingent upon the borrowing being linked to acquisition or construction of the property. Since the deposits were not borrowed capital and the required nexus was absent, the statutory conditions for deduction were not satisfied.
Conclusion: The assessee-company was not entitled to the deduction claimed.
Final Conclusion: The reference was answered against the assessee-company on all substantive questions, and the revenue succeeded on the core tax issue.
Ratio Decidendi: For an interest deduction on house property to be allowable under the relevant provisions, there must be a real borrowing from a lender and a clear nexus between that borrowed capital and the acquisition or construction of the property.
TaxTMI 
