C.I.T. PTA. vs. SURESH CHAND.
What were the facts?
The Commissioner of Income-tax, Chandigarh (Revenue) has referred a question of law to the High Court of Punjab and Haryana at Chandigarh arising from an order of the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench, dated October 3, 1997. The assessment year in question is 1992-93. The dispute concerns the deductibility of interest paid by the assessee, Sh. Suresh Chand, on property allotted on an instalment basis. The ITAT had held that this transaction created a borrower-lender relationship, and the interest paid constituted interest on borrowed capital deductible from income from house property.
What did the High Court hold?
The High Court of Punjab and Haryana at Chandigarh decided the referred question of law against the revenue and in favour of the assessee. The Court noted that this specific question had already been decided by the same High Court in two previous cases: Commissioner of Income-tax v. Sunil Kumar Sharma (2002) 254 ITR 103 and Commissioner of Income Tax v. Master Sukhwant Singh (2006) 155 Taxman 153. In both these precedents, the High Court had ruled in favour of the assessee on similar grounds concerning the deductibility of interest on property allotted on instalment basis. Therefore, following its own established precedents, the High Court held that the ITAT was correct in its decision. The reference was disposed of in light of these prior rulings.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the transaction of allotment of property to the assessee on instalment basis gives rise to the relationship of borrower and lender between the assessee and the Estate Officer and that interest paid by the assessee on instalments constitutes interest on borrowed capital deductible from income from house property u/s 24(I)(vi) of the Income-tax Act, 1961? Assessee's Contention: The assessee argued, and the ITAT held, that the payment of instalments for property allotted on an instalment basis creates a borrower-lender relationship, making the interest paid deductible under Section 24(1)(vi) of the Income-tax Act, 1961. Revenue's Contention: The revenue contested the ITAT's finding, leading to the reference of this question of law to the High Court.
Which sections of the Income-tax Act were involved?
24(1)(vi)
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Cause title — parties, addresses and appearances
ORDER: Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dated 03.10.1997 in I.T.A. No.1531/Chandi/1993 in respect of assessment year 1992-93:- “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the transaction of allotment of property to the assessee on instalment basis does give rise to the relationship of borrower and lender between the assessee and the Estate Officer and that interest paid by the assessee on instalments constitutes interest on borrowed capital deductible from income from house property u/s 24(I) (vi) of the Income-tax Act, 1961?”
It is not disputed that the question of law, referred, has been decided by
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