# SHEW KISSEN BHATTAR v. THE COMMISSIONER OF INCOME TAX, CALCUTTA MQJ!ch 5, 19.73

- **Citation:** [1973] 3 S.C.R. 567
- **Court:** Supreme Court of India
- **Decided:** 1973
- **Case number:** Civil Appeals Nos. 1500 to 1502 of 1970
- **Bench:** K. S. Hegde, P. JAGANll!OHAN f<.EDDY, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shew-kissen-bhattar-v-the-commissioner-of-income-tax-calcutta-mqj-ch-5-19-73-5903
- **Pages:** 4

## Headnote

Jndic.·n Jnco1ne Tax Act, 1922, s. 9( 1) (iv)-Scope of-Consent de~
cree
in
respect of property involved Stipulating pay111ent of co1npounJ
interest by assessee-Assessee claiming deduction of compound interestI.Interpretation
of
expressions
"amount
of
any
interest
on
a.uch
1nortgage
or
charge"
and
"interest
payable
on
such.
capital'
in s. 9(1) (iv)-Held assesse~ entitled to deduct only
si111ple
interest
payable.
The assessee, a
trustee
of . the house
property,
claimed
deduction of compound interest in
terms
of a consent decree passed
in April 19, 1928, in a title suit in respect of the
property. .Under
the terms of that decree, the property was held to belong to the first
defendant who. however, was to make a payment of
Rs.
8,61,000/-
to the plaintiff therein. 'f!iere was stipulafion for
the
payment of
compound interest on the unpaid amount @ 6}
with
yearly
rest..
It was further provided therein that Rs. 4,25,000/. was to be paid on
!he execution of the tenns of the settlement and
therefore
monthly
instalment of Rs. 35,000/ ~ for seventeen months and the
balariee
in
the 18th month. The terms of the compromise were not adhered to
inasmuch as there were defaults ,in payment of interest.
After making
the payment on February 19, 1945, there· slill
remained
out.landing
Rs. 2,70,535/-. The interest on this amount @ 61 fo< a year worked
out to Rs. 18,000/-.
The assessee,
however,
calculated
t® total
interest payable Qt Rs. 38,221/- for the as..,.sme(nl' year 1956-57, relying on the clause in the agreement providing for payment of compound
interest. The Income Tax Officer gave a deduction of Rs.
18,000/~
only, on the basis of simple 'interest at the rate of Rs. 6!% per annum.
The asSj!ssee's appeal agaiJ-,st this order was dismissed by the Appellate
Assistant Commissioner and later on by the Tribunal. On reference of
the question and other similar questions 'in respect of the assessment
years 1956-57 to 1958-59, the High Coun held that only simple interest
was allowable to the oassessee.
On appeals by certificate· to this Court. dismissin2 the appeals;
HEL:O : (I) What the law permits is the deductio.n of the "amount
of any interest on such mortgage or charge."
Under the terms of the
contract, when the interest payable is not paid, the same became a part
of the. _principal . and thereafter, interest ·has to be paid not only on
the ongmal principal but also on that pan of the Interest which
had
becam~ a. part of the princi]lal. The interest which became part
of
the prmc1pal cannot be conS1dered as the capital charge. What
the
assi:ssee i• entitled to deduct is . t)le
int~resl payable by him
on
the
capital charge -and . not the additional interest which because of
his
failure to pay the interest o.n the due date had been consider~d as a
part of the loan.
Th_e
re~! capital char'e is that which w-as otiginally
due. Tiu: other p~rt1on is merely an
~n.rerest on which the as!ICSSee
has: agreed to. pay tnter"'t. . Hence the mti:rest paid on interest is not
an mterest paid on the capital charge.
[570 B-D]
568
SUPREME COURT REPORTS
[1973] 3 S.C.R.
(2) 'Aro interest' paid on capital bottowed- or charged does
not
include compound interest. The compound interest is payable not on
the capital charge but on that part of the inter~st on which he
has
agreed to pay interest. That is not the capital tak;!n not of bys. 9(1)(iv).
If the contention that "any interest" included compound
interest · is
accepted as correct, then the door will be open for evasin of tax. Such
an -interpretation is impermissible.

## Text

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567
SHEW KISSEN BHATTAR
v.
THE COMMISSIONER OF INCOME TAX, CALCUTTA
MQJ!ch 5, 19.73
[K. S. HEGDE, P. JAGANll!OHAN f<.EDDY AND H. R. KHANNA, JJ.]
Jndic.·n Jnco1ne Tax Act, 1922, s. 9( 1) (iv)-Scope of-Consent de~
cree
in
respect of property involved Stipulating pay111ent of co1npounJ
interest by assessee-Assessee claiming deduction of compound interestI.Interpretation
of
expressions
"amount
of
any
interest
on
a.uch
1nortgage
or
charge"
and
"interest
payable
on
such.
capital'
in s. 9(1) (iv)-Held assesse~ entitled to deduct only
si111ple
interest
payable.
The assessee, a
trustee
of . the house
property,
claimed
deduction of compound interest in
terms
of a consent decree passed
in April 19, 1928, in a title suit in respect of the
property. .Under
the terms of that decree, the property was held to belong to the first
defendant who. however, was to make a payment of
Rs.
8,61,000/-
to the plaintiff therein. 'f!iere was stipulafion for
the
payment of
compound interest on the unpaid amount @ 6}
with
yearly
rest..
It was further provided therein that Rs. 4,25,000/. was to be paid on
!he execution of the tenns of the settlement and
therefore
monthly
instalment of Rs. 35,000/ ~ for seventeen months and the
balariee
in
the 18th month. The terms of the compromise were not adhered to
inasmuch as there were defaults ,in payment of interest.
After making
the payment on February 19, 1945, there· slill
remained
out.landing
Rs. 2,70,535/-. The interest on this amount @ 61 fo< a year worked
out to Rs. 18,000/-.
The assessee,
however,
calculated
t® total
interest payable Qt Rs. 38,221/- for the as..,.sme(nl' year 1956-57, relying on the clause in the agreement providing for payment of compound
interest. The Income Tax Officer gave a deduction of Rs.
18,000/~
only, on the basis of simple 'interest at the rate of Rs. 6!% per annum.
The asSj!ssee's appeal agaiJ-,st this order was dismissed by the Appellate
Assistant Commissioner and later on by the Tribunal. On reference of
the question and other similar questions 'in respect of the assessment
years 1956-57 to 1958-59, the High Coun held that only simple interest
was allowable to the oassessee.
On appeals by certificate· to this Court. dismissin2 the appeals;
HEL:O : (I) What the law permits is the deductio.n of the "amount
of any interest on such mortgage or charge."
Under the terms of the
contract, when the interest payable is not paid, the same became a part
of the. _principal . and thereafter, interest ·has to be paid not only on
the ongmal principal but also on that pan of the Interest which
had
becam~ a. part of the princi]lal. The interest which became part
of
the prmc1pal cannot be conS1dered as the capital charge. What
the
assi:ssee i• entitled to deduct is . t)le
int~resl payable by him
on
the
capital charge -and . not the additional interest which because of
his
failure to pay the interest o.n the due date had been consider~d as a
part of the loan.
Th_e
re~! capital char'e is that which w-as otiginally
due. Tiu: other p~rt1on is merely an
~n.rerest on which the as!ICSSee
has: agreed to. pay tnter"'t. . Hence the mti:rest paid on interest is not
an mterest paid on the capital charge.
[570 B-D]
568
SUPREME COURT REPORTS
[1973] 3 S.C.R.
(2) 'Aro interest' paid on capital bottowed- or charged does
not
include compound interest. The compound interest is payable not on
the capital charge but on that part of the inter~st on which he
has
agreed to pay interest. That is not the capital tak;!n not of bys. 9(1)(iv).
If the contention that "any interest" included compound
interest · is
accepted as correct, then the door will be open for evasin of tax. Such
an -interpretation is impermissible.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1500
to 1502 of 1970.
Appeals by certificates from the judgment and order dated
January 28, 1969 and June 13, 1969 of the Calcutta High Court
in Income-tax Ref. Nos. 202 of 1963· and 76 of 1968, respectively.
M. C. Chagla and D. N. Mukherjee, for the appellant.
J. Ramamurthi, R. N. Sachthey and B. D. Sharma, for the
respondent.
The Judgment of the Court was delivered by
HEGDE, J.-These are
appeals by certificate.
A common
question of law is involved in these appeals. These appeals relate
to a common assessee biut arise from three different assessments
in respect of three different assessment years (1956-57 to 1958-59),
the accounting years being the respective calendar years.
The question of law arising for decision is whether the assessee
was entitled to claim deduction of compound interest under section
9(l)(iv) of the Indian Income-tax Act, 1922. The High Court
answered that question in the negative and ii) favour of the Department. Aggrieved by that decision the assessee has come up
in appeal to this Court.
To decide the question set out above, it will be sufficient if
we refer to the facts relating to one of the assessment years i.e.
1956-57. The material facts are as follows :-
The assessee is a trustee of a hduse property at Chaudmari
Road, Howrah.
In respect of that house 1there was a title mit
filed by one Durga Prasad Chamria against Smt. Anardeyi and
others claiming title over that property and for other reliefs. A
consent decree was passed in that suit on April 19, 1928. Under
the tenns of that decree t\le aforementioned house property was
held to belong to Smt. Anardeyi Sethani but she was to make a
payment Of Rs, 8,61,000/- to the plaintiff therein. There was
stipulation for the payment of compound interest on the unpaid
amount @ 6!% with yearly rests. It was further provided therein
that Rs. 4,25,000/ - was to .be paid on the execution of the terms
of settlement and thereafter monthly instalments of lb. 35,000/ •
for seventeen months and the balance in, the 18th month. The
terms of the comprom\~e were not adhered lo inasmuch as there
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s. K. BHATTAR V. C.I.T. (Hegde, 1.)
569
A were de.faults in payment of interest. After making the payment
on February 19,
1945, there still remained outstanding
Rs. 2,70,535/-.
The interest on this amount @ 6!% for a year
worked out to Rs. 18,000/-. The assessee, however, calculated
the total interest payable at Rs. 38,221/- for the assessment year
1956-57, relying on the clause in the arrangement providing for
JI payment of compound interest.
The Income-!μ Officer gave a
deduction of Rs. 18,000/- anly, on the basis of simple interest
at the rate of 6t% per annum. The assessee's appeal against this
order was dismissed by the Appellate Assistant Co.mmissioner and
later on bly the Tribunal.
Thereafter, at the instance of the
assessee the following question of law was referred to the High
c Court, in respect of the assessment year 1956-57 :-
"Whether, on the facts and in the circumstances of
the case, and on a true construction of the words 'interest ·
payable on such capital' in section 9 ( 1) (iv) of the Indian
Income-tax Act, 1922, the amount of interest allowable
was Rs. 18,000/- or Rs. 38,221/- ?"
» The questions referred to for the remaining assessment yous are
more or less similar. The High Court answered those questions,
as mentioned earlier, in favour ol the Department.
Herein we are called upon· to consider the true scope of section
9( 1) (iv) of the Indian Income-tax Act, 1922. The relevant por-
:E lion of thl!t section reads thus :-
" ( 1 ). The tax shall be payable by an assessee under
the head 'Income from Property' in respect of the bonafide annual value of property consisting of any buildings
or lands appurtenant thereto of which he is 1he owner,
other than such portions of such property as he may
occupy for the purpoteS of any business, profession or
vocatioo carried on by him the profits of which are
assessable to tax, subject to the following allowances,
namely:-
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(i) ............... .
(ii) ............... .
(111) ..•..•••.•••••••
(iv) where the property is subject to a mortgage or
other capital charge, the amount of any interest
on such mortgage or charge; where the properly
is su~ect to an annual charge not being a capital
charge, the amount of such charge; where the
property is subject to a ground rtmt the amount
of such gro_und rent; and, where the property has
been acquired, constructed, repaired, renewed or
570
SUPREME COURT REPORTS
[1973] 3 S.C.R.
reconstructed with 1:1orrowed ·capital, 'the amount
of any interest payable on such capital :
"
The question is whether the assessee is entitled to deduct the
compound interest payable by him in accordance with the terms
of the contract referred 'to earlier or whether he is only entitled to
deduct simple interest at th~ rate of 6t% per annum. It must be
borne in mind that what the law permits is the deduction oi the
'amount of any interest on such mortgage or charge'. The interest
payable by the assessee on the capital charge was at the rate of
6t % per annum.
But if he fails to pay that in accordance with
the terms of the coll'tract, be was liable to pay compou,nd interest.
In other words, if he fails to pay interest in accordance with the
contract, he was liable to pay interest on interest. Or to put it
differently, when the interest payable is not paid, the same became
a part of the principal and therea~ter, interest has to be paid not
only on the original principal but also on that part of the interest
which had become a part of the principal. It cannot be said that
the interest which became a part of the principal can be considered
as the capital charge. What the assessee is entitled to deduct is the
interest payable by him on the capital charge and not the additional
interest which because cf bis failure to pay the interest on the due
date had been considered as a part of the loan. In fact, the real
capital charge is that which was originally due. The other portion
is merely an interest on which the
assessee has
agreed to pay
interest
Hence we are unable to accept the connection of the
assessee that the interest is an interest paid on the capital charge.
Mr. Chagla. the learned
counsel for the assessee,
contended
that the law permits his
client to
deduct any interest
paid bly him on the capital borrowed or charged and 'any interest'
included compound interest also.
This, to our minds, appears to
be a fallacious argument. The compound intere~t is payable not
on the capital charge but on that part of the interest on which he
has agreed to pay interest. That is not• the capital taken note of
by section 9(l)(iv). If we accept Mr. Chagla's contention as
correct, then the door will be open for evasion of tax.
All ·that
the debtor need do is not to pay interest regularly but utilise that
. amount for other purpose and make the Revenue pay compound
interest payable by him and thus derive advantage out of his own
omission. Such an interpretation is impermissible.
We are clearly of !he opinion that the interpretation placed
by the High Court is the correct interpretation . In the result,
these appeals fail ·and they are dismissed with costs; one hearing fee.
S.B.W.
1ppeals di>"missed.
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