Law:

Section:

Section 24 of the Income-tax Act, 1961 - [Corresponding to section 9 of the Indian Income-tax Act, 1922] - Income from house property - Deductions - Assessment years 1960-61 to 1963-64 - A trade association had taken money from its members by way of security deposit for due performance of obligation of member under rules of association - Association resolved that out of aggregate amount of deposit, certain amount be utilised for construction of building and that interest would be paid by it to deposit account in respect of said moneys - Subsequently association incorporated as company - All existing assets and liabilities in books of unregistered association and deposits of members of association as well as building reserve account transferred to books of assessee company - Assessee paid interest in respect of those deposits and claimed deduction in respect of same under section 24(1)(vi) of 1961 Act on ground that those amounts of interest were paid as interest on capital borrowed for acquiring house property in question - Whether association being an unregistered association, it could not be said that association was lending money to itself by utilizing part of deposit money for construction of building and, thus, there was no real transaction of borrowing or lending between members and association - Held, yes - Whether even assuming that there was borrowing , it could not be said that by taking over liability in respect of these deposit amounts assessee-company borrowed any money from members or that there was any real transaction of lending and borrowing between assessee-company and members - Held, yes - Whether, therefore, assessee company would not be entitled to deduction of interest under section 24(1)(vi) of 1961 Act - Held, yes FACTS In 1936, a trade association was formed. For acquiring membership rights in said trade association, a person had to deposit certain amount by way of security deposit for the due performance of the obligations of a member under the rules of the association for discharge of his obligation to the association and to other members of the association. On 7-11-1945 the association agreed to purchase a plot of land for…

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