JUDGMENT R.K. Gulati, J.
1. Through this application under Section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), the Commissioner of Income-tax has desired that the Income-tax Appellate Tribunal, Bench 'B', New Delhi, be directed to refer the following question for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in holding that the liability of interest payable to the Allahabad Bank, amounting to Rs. 73,414, was allowable?"
2. We have heard learned standing counsel for the Revenue. None has appeared for the assessee despite service of notice.
3. The dispute pertains to the assessment year 1983-84. During that year, the assessee enjoyed income from letting of godowns as one of the sources of its income. In computation of its taxable income, the assessee sought a deduction of Rs. 73,414 being the amount of interest payable to the Allahabad Bank on the borrowing invested in the construction of the godowns. The Income-tax Officer assessed the rental income from the godowns under the head "Profits and gains of business or profession". He considered the admissibility of the claim for deduction under Section 36(1)(iii) of the Act and disallowed the same on the grounds, inter alia, that, as the assessee had not maintained books of account, it was not entitled to take the benefit of the mercantile system of accounting and the claim for deduction could not be allowed on accrual basis. Another ground given was that the assessee had advanced certain interest-free loans to its sister concerns and thereby used the borrowing indirectly for extra-commercial considerations. On these reasonings, it was held that the claim made by the assessee was inadmissible.
4. The assessee appealed to the Appellate Assistant Commissioner of Income-tax, Moradabad, who upset the order of the Income-tax Officer. He held that the rental income was assessable under the head "Income from house property" and the deduction on account of interest payable to the Allahabad Bank was a permissible deduction in view of the provisions contained in Section 24(1)(vi) of the Act. The appellate authority also noticed that the principal amount on which liability to pay interest was sought to be deducted was undisputably invested in the construction of the godowns. On these findings, the appeal was allowed. The view taken by the Appellate Assistant Commissioner was upheld by the Income-tax Appellate Tribunal, while dismissing the second appeal filed at the instance of the Revenue. The reference application under Section 256(1) of the Act having been declined by the Income-tax Appellate Tribunal, this application has been filed seeking a direction as stated earlier.
5. Now, Sub-section (1) of Section 24 of the Act, vide its Clauses (i) to (x), provides for various deductions which are permissible in computing the income under the head "Income from house property". Clause (vi) of Sub-section (1) of Section 24 permits the deduction of any interest on borrowed capital for the acquisition, construction, repair or reconstruction of the property in question. It, inter alia, says that income chargeable under the head "Income from house property" shall be computed after making the deduction, amongst others, where the property has been acquired, constructed, etc., with borrowed capital, the amount of any interest payable on such capital. The findings of fact which are not disputed in this application, are that the money borrowed was invested in the construction of godowns. In this view of the matter, the amount of interest payable, namely, Rs. 73,424, was clearly an admissible deduction in computing the taxable income of the assessee. Once the nexus between the borrowed capital and the acquisition, construction, etc., of property is established and proved, the claim for deduction of interest on borrowing cannot be resisted. It may be noticed that Section 24(1)(vi) permits deduction of the interest "payable" on borrowed capital utilised for the construction, etc., of property. The deduction has not been made dependent on the actual payment of the amount claimed as deduction. If the amount of interest sought to be deducted had fallen due or a liability in that regard had been incurred in the previous years relevant to the assessment year in question, whether factually the amount of interest is paid or not, it is a permissible deduction under Section 24(1)(vi) of the Act in computing the income chargeable to tax under the head "Income from house property". In other words, deduction in respect of interest on the borrowed capital is permissible on accrual basis unlike where the admissibility for deduction of certain other claims like those falling under Clauses (ii) and (vii) of Section 24(1) have been made dependent on actual payment of the amount sought to be deducted. In our opinion, the Tribunal did not commit any error of law when it allowed the deduction claimed by the assessee.
6. As the answer to the question proposed is self-evident on a plain reading of the relevant provision itself, in our opinion, the order of the Income-tax Appellate Tribunal does not give rise to any statable question of law.
7. Accordingly, we reject this application. There shall be no order as to costs.