2002 (2) TMI 91

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....dividual. He filed the return for the year 1992-93 on August 31, 1992, declaring an income of Rs.96,187. One of the sources of income was rent from various immovable properties assessable under the head "House property". The assessee had constructed SCO No. 865, Mani Majra, on a commercial site purchased by him in an auction from the Notified Area Committee, Mani Majra, for which payment is being made as per schedule of instalments given by the Notified Area Committee. The assessee claimed deduction of Rs.80,000 under section 24(1)(vi) of the Income-tax Act, 1961 (for short "the Act"), for the interest portion of the instalments paid by him to the Notified Area Committee. This claim was disallowed on the ground that this amount could not be....

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....99] 235 ITR 528, respectively. The provisions of section 24(1)(vi) of the Act are as follows: "Where the property-has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital." The short question for consideration is as to whether the unpaid purchase price can be treated as capital borrowed for acquiring the property? It is evident that if a property is acquired by raising a loan, interest paid on such borrowing is an admissible deduction. If that is so, it is not understood as to what difference it can make if a buyer instead of raising a loan from a third person., enters into an arrangement with a seller to pay the sale price in instalments along with....

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.... was allowed under clause (xv) of section 10(2) of that Act as an allowable business expenditure. Thus the Supreme Court was interpreting the term "capital borrowed' in the context of business income only. Similar was the position in Metro Theatre Bombay Ltd.'s case [1946] 14 ITR 638 (Bom). In fact the Bombay High Court rejected the claim for deduction of interest under section 9(1)(iv) of the Indian Income-tax Act, 1922 (which corresponds to section 24(1)(vi) of the Act) on the ground that in terms of the agreement, the ownership in the property had not yet passed to the assessee. It was, therefore, held that when the assessee had not even acquired the property, there was no question of allowing deduction of interest under section 9(1)(iv)....