SHEW KISSEN BHATTAR versus THE COMMISSIONER OF INCOME TAX, CALCUTTA

Citation: [1973] 3 S.C.R. 567 · Decided: 05-03-1973 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

A 
B 
c 
D 
E 
F 
G 
H 
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 interest-
I.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 
deduc-
tion 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, rely-
ing 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, respec-
tively. 
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

Excerpt shown. Read the full judgment & AI analysis in Lexace.