The deduction of interest on borrowed capital under section 24 of the Income-tax Act, 1961, is not restricted to the annual letting value of the property as determined under section 23 of the Act.

V. RAMASWAMI, J.

1. These two references (Income-tax Reference No. 51 of 1978 and Income-tax Reference No. 168 of 1980) under section 256(1) of the Income-tax Act, 1961, relate to the assessment years 1974-75 and 1975-76, respectively. In the first reference, the following two questions of law have been referred by the Tribunal :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the word income used in the penultimate line of the second proviso to section 23(1) of the Income-tax Act, 1961, means annual letting value ?"

"2. If the answer to the above question is in the affirmative, whether the Tribunal was right in law in allowing loss which exceeded the annual letting value from the house property by Rs. 2,089 after allowing deduction of Rs. 1,200 under section 23(1) of the Act ?"

2. In the reference relating to the assessment year 1975-76, one compendious question has been referred through the point involved in the same and that question reads as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in allowing a loss of Rs. 1,000 representing loss from a newly constructed property in the computation of the total income by holding that the word income used in the closing line of the second proviso to section 23(1) of the Income-tax Act, 1961, should be taken to mean annual letting value ?"

For the assessment year 1974-75, the assessee, who is an individual, had disclosed a loss of Rs. 2,000 in respect of his house property bearing No. 707, Sector 8-B, Chandigarh, which was let out by him on a monthly rent of Rs. 7000 on the basis of the following calculations : Rs.Rs. "Annual letting value 8,400 Less : Deduction under section 23(1) 1,200 7,200 Less : 1/6th for repairs 1,200 6,000 Less : Collection charges 400 5,600 Less : Interest on borrowings : (i) Smt. Vidya Jain3,136 (ii) On Government loan2,700 (iii) Sh. Lal Chand Jain1,8537,689 2,089."

3. The Income tax Officer, by his order dated January 7, 1976, disallowed the claim of loss of Rs. 2,089 entirely on the ground that after claiming the deduction of Rs. 1,200 under section 23(1) of the Act, no loss from the said property could be allowed in view of the provisions of the second proviso to sub-section (1) of section 23. On appeal, the Appellate Assistant Commissioner, however, held that neither did the provisions of sub-section (1) of section 23 warrant such disallowance nor was there any logic or reason for disallowing the loss especially in view of the provisions of section 24. The Tribunal agreed with the view of the Appellate Assistant Commissioner and accepted the claim made by the assessee. At the instance of the Revenue, the two questions relating to the assessment year 1974-75 were referred by the Tribunal. In respect of the assessment year 1975-76 also, the Income tax Officer disallowed the claim of loss of Rs. 1,057 in respect of the very same house property. The appeal of the assessee against that assessment order was heard by a different Appellate Assistant Commissioner who, without reference to the earlier order relating to the assessment year 1974-75, dismissed the appeal. The assessee went up in appeal before the Tribunal by the time the appeal came on for order, the appeal filed by the Revenue in respect of the assessment year 1974-75 had already been disposed of and, following the earlier decision, the Tribunal accepted the claim of the assessee and allowed the loss of Rs. 1,057. At the instance of the Revenue, the question as set out above for the assessment year 1975-76 has been referred to this court under section 256(1). There is no dispute that the house property in respect of which the claim of loss has been made is a residential unit the erection of which began after the first day of April, 1961, and was completed after the 31st day of March, 1970, and that thereafter this is a case of which clause (b) of the second proviso to sub-section (1