- (1.) Under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act"), at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question relating to the assessment years 1973-74 and 1974-75 to this court for its opinion : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in allowing the interest paid on the loan of Rs. 1,50,000 as a deduction under Section 24(1)(iv) of the Income-tax Act, 1961 ?"
(2.) The facts, briefly, are that the assessee, a Hindu undivided family, owned a building, namely, Kanodia Commercial Building, Kanpur, which was mortgaged on December 11, 1951, in favour of Hindustan Commercial Bank Limited, Kanpur, against a loan of Rs. 1,50,000 taken for being invested in "disposal business". A charge in regard to interest on such loan liability was created on the aforesaid property which was mortgaged and the assessee claimed deduction of such interest liability under Section 24(1)(iv) of the Act being an annual charge. The contention of the assessee was rejected by the Income-tax Officer and by the Appellate Assistant Commissioner. The Income-tax Officer held that, by the loan taken in the year 1951 and invested in disposal business by the assessee, no involuntary charge could have been created within the meaning of Section 24(1)(iv) of the Act. Since the charge was voluntarily created in the opinion of the Income-tax Officer, he rejected the claim of the assessee for deduction of interest. The Appellate Assistant Commissioner affirmed the view taken by the Income-tax Officer.
(3.) On further appeal by the assessee, the Appellate Tribunal held that the loan transaction was not entered into voluntarily by the assessee and it was entitled to deduction of interest being an annual charge under Section 24(1)(iv). The precise finding of the Tribunal in this regard is as follows : ". . . . In the accounting year under consideration, the payment of interest is not at all a voluntary thing for its payment can be enforced against the assessee and the property can be sold if the payment is not made. We, therefore, feel that the reasons for disallowing the payment as given by the learned Appellate Assistant Commissioner are legally not correct. . . .";